Wages: What happened to the labor unions?

By Steve Butler                                                                                               August 28, 2017

The Federal Reserve and most economists are struggling to understand why we don’t have increased inflation as the unemployment rate drops to a record low percentage. Anything less than 5 percent is generally considered to be “full employment.” The theory is that when employers can’t find enough people to meet their needs, they simply raise wages until job seekers are beating down the doors. Rising wages prompt the need to increase prices, and an upward inflationary spiral is set in motion. So why is it not happening today?

It could have something to do with the fact that workers no longer have the voice that union membership once provided. Today, their remaining voice is through the ballot box and this is evidenced by local and national efforts to raise legal minimum wages. But depending on elected representatives is far less effective than the threat of a strike.

So what happened to unions? Up until the ’50s and ’60s, 35 percent of American workers were represented by unions. By 1983, the percentage had dropped to 20 percent, and it has now settled at 11 percent.

Growing up in a New England factory town provided me with some insight of what unions accomplish for everyone — including non-members. Of three major factories in town, only one was unionized. When business was good but wages remained flat, the union employees would negotiate or go on strike in some cases. Their pay raise would immediately be matched by the other two companies whose employees had the luxury of avoiding the loss of wages and the hardships necessitated by a strike. In other words, the efforts of union members created the rising tide that raised all the ships.

There are many reasons for declining union membership, starting with changes in laws that make it more difficult to recruit members. That continues today and has worsened under the current administration in spite of its populist claims.

Contributing to the problem, however, is the possibility that unions are losing a public relations battle. For example, the New York Times reported that 800 teachers in New York City have been put out to pasture at full pay averaging $94,000 per year — teachers who typically have legal or disciplinary charges or the lowest possible ratings for effectiveness.

This condition goes back a ways to the days when the facility where they sit all day doing nothing was referred to as the “rubber room.” It reflects a more recent variation worked out between then-Mayor Michael Bloomberg and the United Federation of Teachers, giving school principals the right to make hiring decisions — and principals would rather use substitutes than choose from furloughed losers.

The issue is in the news again because the city is being forced to reinstate 400 of the teachers whom the principals don’t want. The problem for workers is the horrible public relations leading to weakness at the ballot box. The public becomes incensed with unions when reading about these examples of incompetence coupled with self-serving intransigence.

In the public sector, union membership has leveled out at 40 percent. That presents other problems like outsized retirement benefits — promises that elected officials make today whose fiscal consequences won’t be evident until far into the future.

But the future is now, as it just so happens, so we have to come to terms with those underfunded promises perpetrated by legislators who subscribed to the IBG ideology, as in “I’ll be gone.” Again, it’s more bad news for American workers needing higher minimum wages and more support in future election cycles.

Workers deserve to have a voice on the job. Their own interests are served when they identify with the core values of their employers. Most successful and enlightened companies share financial results and offer bonus pools that create that sense of a common effort. Rather than perpetuate an ”us versus them” ideology, unions would be wise to play a more active role identifying with company ownership objectives, embracing what is a common interest to both workers and managers, and weeding out members who clearly stand in the way of what the bulk of the membership understands is in their collective interest.

All business owners will agree that their biggest single mistake was keeping an employee for too long who just wasn’t “getting with the program.” It’s time for unions to get that message and start making better business decisions.