by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Since humans could walk upright we have entered into cooperative relationships. This natural organization is the foundation of a market economy—and a font of human prosperity. But it has not always existed unchallenged. Always and everywhere confrontation lurks.
For centuries, it worked through ancient craft guilds that kept out new competitors, often under threat of force. Guilds gave way to unions, which morphed into the behemoth we now know as Big Labor. Far from voluntary, Big Labor relies on a complex web of laws, mandates, and government-granted privileges.
How much do those laws, mandates, and privileges cost us? That question is at the heart of a recent series of studies, The High Cost of Big Labor, published by the Competitive Enterprise Institute. If you think guilds are a thing of the past, think again.
By raising the cost of labor, unions decrease the number of job opportunities in unionized industries. This then increases the supply of labor in nonunion industries, which in turn drives down wages in those fields. As a result, wages for those occupations decrease, as more people compete for the same number of jobs.
The overall effect is to increase the natural rate of unemployment. This is not to say that in order to ensure future growth, employers should pay workers less; but rather, that increases in productivity, not wages, ultimately drive the economy. Artificially raising wages beyond their market-clearing price would force employers to reduce the number of available job openings. The sum total of all these consequences is a dead-weight loss on the economy, essentially meaning that the economy is running below peak efficiency.
Of course, the extent of this dead-weight loss varies across states, largely depending on each state’s union presence. As economist Lowell Gallaway and labor expert Jonathan Robe found in their analysis, Michigan had the greatest loss among the states, at 23.1 percent of GDP over a 37-year period, while South Carolina had the least, at 3.5 percent. The difference? Heavily unionized Michigan enacted a right to work law only in 2012, after the period Gallaway and Robe studied (1964-2011), while South Carolina has had a right to work law for many years.
A right to work (RTW) law gives workers the right not to join unions as a condition of employment, and stops unions from coercively collecting dues from non-members. Currently 24 states have right to work laws. As Robe and economist Richard Vedder show in another study, most RTW states have experienced a growing and functional economy, while those that lack right to work laws tend to have stagnant economies.
These laws foster positive relationships between workers and employers, as they are based on a more cooperative vision of employment, in contrast to the confrontational union approach.