Business & Economics

A Pro-Union Vision for the 21st Century and Beyond

Workers should be able to organize for their mutual benefit, but regulations from the assembly-line era are holding back labor market innovation

Published by
Michael D. Farren

The United States should become the most union-friendly nation in the world.

You may be surprised by that statement, especially coming from a researcher who tends to be a champion of free markets. If so, take a moment to pick yourself up off the metaphorical floor and get your bearings. Contrary to popular belief, unions and free markets are not necessarily opposed. Free markets, properly understood, are a subset of the larger social goal that motivates classical liberals: free societies. Moreover, due to current government regulations, there’s nothing free about workers’ ability to organize for mutual benefit. The results of these regulations are lower-quality jobs, reduced income, decreased productivity, employment instability and a lack of upward mobility.

The U.S. should allow workers greater freedom to cooperatively organize, but this will necessitate unions giving up some government-granted privileges that provide their monopolistic power. This argument probably won’t please those on either political extreme, but there is a worker-, business- and market-friendly middle way forward for those brave enough to navigate it.

Unfree Labor Markets

The idealized goal of free societies—which includes minimal political, economic and social constraints on individual autonomy—must include the freedom of association. The ability of individuals to cooperate to pursue a given enterprise is an extension of their right to pursue that same enterprise individually. An organization that coordinates workers’ provision of labor to their employers is simply the collective exercise of individual rights—it’s conceptually equivalent to allowing individuals to incorporate together to create a business. Therefore, any regulatory limit on workers’ collective action must provide the same kind of extraordinary justification as do limits on their individual liberty.

Unfortunately, the current structure of legislative, regulatory and legal rules crams worker organizations into a tightly controlled box. To some extent, this is a pigeonhole of union leaders’ own creation. As my previous research on taxi regulations shows, once a special interest group successfully lobbies for government-granted privileges, it often faces additional regulations as other officials attempt to restrain the economic monster that government has created. In the case of the taxi industry, the barriers to entry against new competitors that favored incumbents were accompanied by exceptionally restrictive regulations that included price controls, service mandates and even dress codes. The result was insufficient service for passengers and increased bargaining power for taxi cartels, leading to 80 years of would-be riders suffering unsafe walks home late at night and drivers enduring poor working conditions that their own entrepreneurship might have solved, if given the chance.

Unions’ Original Sin: Exclusive Representation

The original sin that hobbles American unions is the government-granted privilege of exclusive representation, conferred by the National Labor Relations Act of 1935. Exclusive representation requires that once a union has been certified in a workplace (generally by a majority vote of the workers), that union alone has the authority to negotiate with the employer over working conditions and compensation for all workers. The employer is forbidden from negotiating with individual workers, even those who didn’t approve the union, until another majority vote decertifies the union. In effect, this gives the union a perpetual monopoly over the supply of labor to the employer, lasting long after the original workers who voted for the union have left the job. Furthermore, in a large majority of cases the union demands a “union security” labor contract, wherein the employer must require all its workers to pay union dues—even nonunion members—further cementing the union’s power.

After the largest strike wave in American history, Congress passed the Taft-Hartley Act of 1947 over President Truman’s veto to rein in some of unions’ monopolistic power. Among other changes, it granted states the ability to mandate “open shop” policies, protecting nonunion members from the requirement to pay union dues. Twelve states immediately passed these “right to work” laws, and today 27 states have implemented them. The Taft-Hartley Act also paved the way for decades of legal rulings that would continue to erode unions’ labor market power, but the requirement of exclusive representation from the National Labor Relations Act still exists today.

Free Riding vs. Forced Riding

Advocates of exclusive representation commonly argue that agency shops—created by labor contracts that require nonunion members to pay union dues—are necessary to prevent nonunion workers from “free riding” on union representatives’ efforts to secure favorable employment contracts. This perspective is understandable but incorrect. The perceived free riding is not the same as the market failure by the same name—it’s simply an unintended consequence of compulsory association. In this case, it’s the National Labor Relations Act’s imposition of exclusive representation that causes the “free riding”—not the reaction from workers who don’t want to be part of the union.

Free rider problems occur only when a service provider is unable to exclude those who don’t pay from partaking of the service—like a fireworks display (since it’s hard to prevent people from looking at the sky!). But in this situation, union leaders often both demand the responsibility to represent nonunion members in their collective negotiations and simultaneously complain about carrying these “free riders.” Since they have no say in the union’s decisions and don’t even want to participate in the organization, these workers are better described as “forced riders” or “involuntary members.” The commonsense solution is to end the compelled collective action, rather than double down on the policy causing the problem.

Letting Unions Off the Leash

In lieu of exclusive representation, unions should compete to represent workers. This competition would be better for workers and for businesses. It would effectively transform unions into labor-focused platform firms, serving a two-sided market of workers on one hand and employers on the other. The competition among unions to represent workers would motivate them to develop strategies to gain desirable contract terms from employers—because the unions that can do so will be more desirable to workers.

This competitive pressure would also push unions toward recruiting the best workers and providing professional development for their members to improve the labor product that they can offer to employers. The result should be substantially less corporate resistance to unions—in fact, some industries might prefer unionized workers, because unionization could serve as a reliable signal of a higher-quality worker.

Union advocates may counter that their workers are already the best available, but the economic forces they face suggest otherwise. Their current monopolistic power actually inhibits their motivation to provide higher-quality labor for employers—to the detriment of their members and of their own longevity.

These reformed labor organizations will likely need a new set of regulations to ensure they don’t run amok. To start, these rules could be modeled after existing antitrust regulations that ensure that businesses can’t collude to the detriment of customers. For example, the fear of collusion among independent contractors—and the potential for a labor market cartel to emerge—motivated the drafters of the Taft-Hartley Act to exclude contractors from the ability to organize.

The independent contractor carve-out has frustrated modern union leaders, because they see independent workers in the gig economy as a highly desirable target for unionization. The ideal of free association argues that independent contractors should be able to unionize for mutual benefit, but doing so will likely require some checks and balances to ensure labor market dynamism. Determining the correct rules to guide this new labor market will be difficult, but the effort will be worthwhile for the enormous economic, social and cultural payoffs of revitalizing unions.

Unions Could Be So Much More

Today’s workers are bound by laws and regulations created for a bygone era. In the early 20th century, union proponents designed union regulations to maximize the bargaining power of assembly line, mining and railroad workers. Working in those industries wasn’t easy and demanded skill, but the production processes at the time tended to treat workers like a cog in a machine—easily replaceable, with many others possessing similar skills. In that environment, where major employers had most of the bargaining power because it was relatively easy to replace one worker with another, early labor advocates could perhaps be forgiven for overreaching and giving unions monopolistic power.

But the modern, service-based U.S. economy is quite different from one built around manufacturing goods. The leading profit-generating enterprises employ knowledge workers whose productivity is substantially affected by the workers’ individualized skills. The days of the human cog in the machine are rapidly receding—and that’s good for workers! But workers’ ability to collectively organize hasn’t evolved past the cog-based era.

With the right reforms, unions could become something like a blend of individualized career counselors and insurance companies—imagine a combination of LinkedIn and Aflac. This kind of union could facilitate workers’ employment search to quickly find a new job and serve as their representative, bargaining for their compensation to make sure they got the best deal possible—one that reflected their true contribution to the organization’s success. This service would be particularly beneficial for those workers who have traditionally experienced a pay gap, whether attributable to outright discrimination, lack of assertiveness in demanding what they’re worth or simply insufficient bargaining power. And the union would be motivated to speak up for workers and ensure that they received pay raises commensurate with their rising productivity, since attracting new members would depend on ensuring the best outcomes for their existing members.

This new type of union could ensure that workers had access to the right training to continue advancing in their chosen profession, or to prepare them to switch professions. When workers were jobless, it could provide unemployment insurance benefits to get them through the tough times, and the union’s provision of portable fringe benefits could solve the problem of gaps in health insurance coverage or complications in transferring retirement savings accounts.

In this paradigm, the union might only represent a single worker at a particular business, but it could still provide that worker with access to cooperatively funded resources the worker would never be able to replicate alone. It would be like having an individualized HR department, similar to the agents that serve professional athletes and movie stars. And it would mean that workers would be less dependent on their current employers. In short, it constitutes a sea change in how unions are currently tied to businesses and in how the labor market generally operates.

This approach might also allow unions to recapture their broader potential as social organizations in addition to economic entities. The U.S. has a rich history of fraternal organizations and mutual aid associations that provided important social safety nets and cultural connectivity. These civil societies were often organized around mutual support of their members—providing health insurance, sick pay and life insurance, as well as practical, individualized support of a sort that seems foreign in an era of excessively bureaucratized health and family care. The gradual envelopment of this role by public service providers pushed these societies to the sidelines, and the few that have survived are shadows of their former selves. Reforms could allow unions to reinvigorate these forgotten but critical elements of community infrastructure.

The Politics of Union Reform

With the right policies—starting with a competitive environment—unions could offer so much more to workers and in the process reestablish themselves as vital elements of the economy, society and culture. However, the necessary reforms will be the political equivalent of moving a mountain, if not an entire mountain range. They will require fundamental changes to a vast array of labor laws and will probably require something of a grand bargain (or several) between competing interests. The end result will be less government intervention and a more dynamic labor market—hopefully one that eliminates the knee-jerk assumption that pro-worker and pro-business interests are intrinsically opposed.

The good news is that there’s an enormous constituency of potential supporters. It includes all the workers who are frustrated that their employer has greater bargaining power than they have, who want to escape a toxic work environment but need to stay to maintain health insurance for their family, or who feel stuck in a dead-end job with no idea of how to find new opportunities. Many businesses will also see the value in higher productivity from better-trained and more motivated workers. Furthermore, both workers and businesses will benefit from the increased simplicity of cash-focused compensation packages, with workers receiving their own personalized fringe benefits from their union, eliminating the company’s unending bureaucratic headache of how to develop a one-size-fits-no-one benefits program that often ends up frustrating rather pleasing most employees.

To get around the many decades of acrimonious baggage accumulated by the status quo, sincere reformers should resolve to approach regulatory transformation from a pro-market perspective. This approach accepts that we can’t design a particular socioeconomic outcome, but we can develop a system of exchange for mutual advantage that naturally produces better and better outcomes over time.

My vision is that unions would offer such a strong value that every worker would want to join one, and that going solo would be nearly unthinkable. Iceland currently leads the world in terms of union membership, with around 84% of workers being members, but with the right reforms, I think the U.S. can do even better.

Michael D. Farren

Michael D. Farren is a Research Fellow at the Mercatus Center at George Mason University. His research focuses on the effects of government favoritism toward particular businesses, industries, and occupations, specializing in labor, economic development, and transportation issues.

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