Labor Markets and the Jolly Monopoly

27 09 2012

I can’t believe I’m having to write this, but after a number of emails, twitter back-and-forths, and this fabulously stupid article by John Stossel at Reason, apparently it is in fact a thing that needs writing.

Critics of unions get easily worked up over the so-called “monopoly” that unions “enforce” in workplaces–their characterization of the requirement that upon a vote of employees, an employer must deal with an exclusive bargaining representative (i.e., a union) and may not cut individual deals. Basically, they say, if you work somewhere that is unionized, you are forced to join the union (this is technically untrue; at most, you are forced to pay an agency fee since the union is required by law to represent you); it is, they call it, “forced” rather than “free” association. Therefore it is the inverse of free association–and therefore it violates one of the most hallowed American rights, found right there in the First Amendment. Unions, unlike firms, get this “monopoly” power that they abuse to force people to pay dues. Outrageous.

Like so many reactionary arguments, it is elegantly simple and obvious until you spend an extra moment to think past the sloganeering.

Yes, in a superficial way unions act like monopolies–the sole “seller” of labor–in a single workplace or for a single employer. But that is only because the employer is a monopsonist–the sole “buyer” of labor. If you’re looking just at a single company, of course there is a sole “buyer” of labor–the single workplace. And if you’re in a situation where there is a single buyer, it only makes sense to allow the sellers to act like a single “seller”–that’s the only way they have equal bargaining power.

That isn’t rhetorical sleight of hand or me being cute with big words. Unions–with the exception of relatively small craft unions, like carpenters, who organize by region–organize by single employer; a contract covers a single employer. That single employer is the sole buyer. The employees, unorganized, are many sellers (of their own work). If the employees can’t form a monopoly, they’ll always have the weaker bargaining position. For every single employee who defects from the “monopoly,” the bargaining power is weaker.

And again, this isn’t just retrofitting an argument to address the monopoly epithet. This is the very point of labor law. The National Labor Relations Act specifically says that this is why employers must, at the request of employees, recognize an “exclusive bargaining representative.”

Why? Because after more than two generations of labor unrest, the country had to recognize an incontrovertible fact: so long as capital could organize itself into corporations, but labor couldn’t organize itself into single bargaining entities, employees would always be at a disadvantage. Because indeed, the employer is almost never a single person. More than 40,000,000 Americans work for fewer than 3,000 firms–massive corporations. Corporations are “unions” of thousands, or millions, of individual capitalists in the literal sense–shareholders. They band together to commit their capital to produce greater wealth. So organized, they elect a Board that, acting as an executive, makes operational decisions on behalf of those many shareholders–they exclusively represent the shareholders to the marketplace. So individual employees deal with that sole executive acting on behalf of the interest of thousands of shareholders. If I’m being hired by UPS, I can’t go try to negotiate a better deal with an individual shareholder. They act as a single entity–a single entity purchasing labor. A monopsony.

Again, this is what the NLRA actually says about the need for “exclusive bargaining representatives”; from Section 1’s findings and statement of policy:

The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract and employers who are organized in the corporate or other forms of ownership association substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries.

Experience has proved that protection by law of the right of employees to organize and bargain collectively safeguards commerce from injury, impairment, or interruption, and promotes the flow of commerce by removing certain recognized sources of industrial strife and unrest, by encouraging practices fundamental to the friendly adjustment of industrial disputes arising out of differences as to wages, hours, or other working conditions, and by restoring equality of bargaining power between employers and employees.

Libertarians in particular pull an equivocation trick at this point in the debate. They’ll contend that a single employer can’t be a “monopsonist” because the employee always has the choice to work elsewhere. But applying that reasoning, the union is not a monopolist because…the employee has the choice to work elsewhere. If you do not want to be “forced” into association, do not apply for a job where the employees have already elected to bargain collectively. If you work somewhere that undergoes unionization while you’re there, despite your opposition, you can stop working there. The “monopolist” epithet only makes sense if the framework you’re talking about is at the level of a single employer. In that context, capital organized into the corporate form is a monopsonist–a “buyer’s monopoly”, and so, yes, employees form a monopoly in order to bargain on a level playing field.

Which is the point really. The libertarian/neoliberal outlook is disrupted by unions, seeing them as onerous millstones that restrain entrepreneurial flexibility and thus market efficiency. The appeal to “free association” and use of terms like “monopoly” are just forceful moral sloganeering meant to undermine collective bargaining. Libertarians claim that they support free association, but that unionism, with its requirement that employers recognize exclusive representatives, represents the opposite because the association is not free.

But again, think for a moment past the slogan. Imagine a workplace like UPS, which has tens of thousands of union members who have elected to form a union. (Remember–they could always remove the union through decertification.) Without the right to appoint an exclusive representative, that association is meaningless. Just like the corporate form would be meaningless if small groups of shareholders could form rival Boards to represent them to the marketplace. If I buy shares of UPS, I’m forced to be “represented” in the corporation’s dealings by a single representative–the Board. The Board (through a management apparatus it controls) sets prices and policy, negotiates deals, hires employees. But imagine applying the libertarian argument about “forced” association to the corporate form: there are 1,500 owners of UPS. Their Board is 13 people. In theory, you could have 100 or so Boards vying to strike deals and hire employees and so forth–to be the “representative” of all the individual shareholders.

Yes, nobody is forcing you to be a shareholder in UPS–to “put your money to work” at UPS. But similarly, nobody is forcing you to be an employee of UPS–to put yourself at work at UPS. When you freely choose to “join” UPS as a shareholder, you consent to the will of the majority in terms of who will exclusively represent you to the marketplace. The symmetry is impossible to deny, and in fact was recognized almost a hundred years ago when the NLRA was passed.

I don’t see how this is ideological at all. This is beyond just a sound argument based on undeniable premises. It is just common sense. Employees elect an exclusive representative to represent them to the buyer’s market, just as shareholders elect an exclusive representative to represent them to the seller’s market. Nobody is forced to be a shareholder of a particular corporation, and nobody is forced to be a member of a particular collective bargaining unit. But once you freely choose to do so, you must, in both cases, consent to the will of the majority in your choice of an exclusive representative in the marketplace.

Libertarians crow about free association, but then try to undermine the only mechanism that makes workers’ associations effective. The “coercive” power of the shareholder majority escapes unscathed by libertarian rhetoric.

And what’s crazy is that the American model of collective bargaining is essentially a market-oriented system. In other western countries, particularly continental Europe and Australia, the state has a much more active role in setting wages and conditions. The state! The golem of libertarian theology, the mother of all monopolies, with its flagitious coercive power. The American model was designed to allow employers and employees to freely enter into contracts–literally by definition, voluntary bi-lateral agreements–that set wages and conditions. Yet even this isn’t enough to appease libertarian (and many neoliberal) ideologues. Because unions impair the freedom of entrepreneurs to act arbitrarily by binding them to terms in contracts–albeit contracts they freely entered–they are anathema.


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3 responses

28 09 2012
Richard Lorenc

Great overview, Ramsin. As you’d expect, I have many questions, but I’m going to stick with one question and a follow-up comment.

My question: Is every individual buyer in a market–i.e. every individual seeking to buy food, a car, clothes, iPhones, anything–a monopsonist? And would that require each seller–i.e. mom and pop or WalMart–to have a union to bargain with that single buyer?

Ok, that was two questions. I know you’ll forgive me.

My comment: This is why the price system is so incredibly useful. It relieves us of having to bargain collectively in a formal way. It lets us bargain collectively informally. Each of us, in our own small (or sometimes big) way influences the bargaining position of the sellers in the market. Letting this happen organically has proven superior to trying to the more acrimonious a much less efficient strategy of each side digging its heels in to get the price (or salary or wage or benefits or quality of iPhone maps) it wants.

The monopsonist argument is interesting, but it doesn’t really matter. Of course a firm (or a government) will be the single buyer of labor. The matter is quite different when it comes to a single seller (a private monopoly such as the CTU) whose members are paid by non-customers.

The real matter here is not some obscure academic justification for forced agency fees, but our present scenario in which a private organization (CTU) blocks every attempt to diversify the schooling opportunities available to Chicago kids. We each know intuitively why it does this: it wants to grow its resources and power to show it is a successful political organization. But the simple growth of a system that fails to educate kids well is no success, at least not to the kids.

The union uses its power to protect its members. That’s to be expected and fine, but it should not be the exclusive provider of teaching services in Chicago.

28 09 2012
Richard Lorenc

* Of course a firm (or a government) will be *a* single buyer of labor.

16 12 2012
Right to Work: A Setback, Not a Roadblock

[…] history is any guide, the institutionalization of RTW in Michigan will weaken existing unions and workers’ bargaining power and, resultantly, tamp down wages and benefits for union and non-union workers […]

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