The State Of The Union: Lower Power, Higher Inequity

Over the last few decades labor union enrollment declined significantly which has deteriorated the strength of unions in a globalizing world where large multinationals gained power over the middle and working class.

Infamous for their connection to large scale mafia-schemes in the city of New York, trade unions nowadays have less and less significance. Where their power used to be so great that according to some reports New York construction costs where inflated by more than 20% due to the mob’s involvement in the unions. Overall union membership declined over 30% of wage earners in the fifties and sixties towards a low of slightly more than ten percent in recent years. As it becomes clearer that average earners saw their real wages stagnate and inequality has become greater than ever, the debate whether trade unions are essential for fair labor markets and social conditions builds up.

Employees have the right to bargain collectively through representatives of their own choosing for the purpose of collective bargaining or other mutual aid or protection. However, the right of employees to refrain from any or all such activities, is a protected right. With-staining from trade union membership is a prime example of a free-riding as non-members typically enjoy the benefits created by the collective bargaining power without incurring the costs of membership. However, as membership rates went down, membership became more and more expensive and is particularly low in the private sector. Public sector unions tend to have much higher membership rates as the types of services in the public sector cannot easily be relocated which makes the union’s power much greater.

Reasons For The Decline In Union Density

The union decline in the 1980s and 1990s can be explained by large labor market changes. In Europe, union density rates declined because unemployment went up competition within the labor market increased. Newcomers entering the labor force were rolling into sectors less covered by trade union as the rise of the technology and service sector began. Inflation decreased which reduced the urge to enroll in trade unions. Replacement rates dropped, meaning that the amount most people needed in retirement to maintain their standard of living became lower than what used to be required. This made pension talks less important during that time as the necessity of a high retirement benefits decreased. The shift of public employment towards private sector employment catalyzed these effects as strike activity declined simultaneously.

Critics On Labor Unions

The main point against labor unions is that they lead to imperfect balances, as labor unions function as a monopoly against employers. If their efforts succeed and wages or other spending go up, competition becomes fierce and will lead to high pressure from lower wage areas. This could lead to permanent layoffs or even bankruptcies which in the end hurts more. Moreover, increasing wages across the public sector will simply lead to inflation as higher earnings leads to higher consumption. Especially in Democratic States unionism is high, in these states government budgets often get out of hand. With the Biden administration and its focus on governmental spending the public sector bubble is likely to get bigger.

The End Of Labor Unions: Globalization

In the last few decades the world has changed tremendously, the technological revolution has made the world relatively smaller. In such a world labor unions will find it harder to effectively push employers to increase benefits and improve working conditions as many companies turned into multinationals. These multinationals often differentiated low-skilled labor to low-wage countries, separating manufacturing from development. This has increased the gap between high-educated workers who saw their wages increase as low-wage outsourcing boosted corporate profits and low-educated workers that saw workplaces move elsewhere while their benefits remained stagnant as low-educated competition between employees suppressed their wages. Private sector labor unions have a hard time in keeping the right balance between keeping employers happy and safeguarding the rights of employees. Elon Musk’s move from California to Texas is a prime example of how easy it has become to move location for employers in a search for the best producer conditions, which comes at a cost for those with less abilities to do so.

Should Public Sector Wages Move Along To Private Sector Wages?

It is a never ending discussion, the debate on how much public sector wages should move along to more innovating and growth enhancing private sector wages. However, it should be noted that in states where private wages rise due to an increase in overall productivity in the private sector inflation of assets will have to lead higher public wages too as a basic standard of living should be guaranteed, even for non-productivity enhancing jobs. The Golden Investor is in favor for automatic adjustments of public sector wages in accordance to local private sector wages. However, these increases should be lower than in private sectors where these increase portray either higher need or higher turnovers, which overall should not be suppressed as these sectors tend to boost economic growth and overall welfare with its innovations.

As the “ESG” trend continues, perhaps more global awareness will boost working conditions in low-wage countries. This again will cause a shift back to developed nations as it will cause rising costs for multinational producers. It might seem strange, but a global labor union with a focus on low-wage countries could perhaps lead to the best overall results, as it could ensure fair competition of low-skilled labor. However, as long as developing countries lack the capacities to educate high-skilled workers, developed nations will keep the edge over the rest of the world. This will lead to more globalization, higher benefits for high-skilled workers and diminishing benefits for low-skilled workers in developed nations. Private sector labor unions in developed nations might disappear in the next decades until globalization is either stopped or completed.

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