WASHINGTON, Feb. 24 (UPI) -- The worst performances in the recent Washington snowstorm were by the local school systems and the Metro subway -- both heavily unionized. Both institutions delayed resumption of full service far beyond what was reasonable, and both failed to perform simple civic duties such as sweeping sidewalks, even in cases where pedestrians were not merely inconvenienced but seriously endangered.
Partly in revenge, I thought I'd look at the effect of labor unions on economic growth, income distribution and unemployment.
The World Bank, as befits its social democrat outlook on life, favors unionization. In a paper issued earlier this month, it declared that "economies perform better in coordinated labor markets." Its evidence is that union members, and those covered by collective bargaining agreements, get slightly higher average wages -- about 10 percent to 15 percent higher -- than non-unionized workers. The markup is toward the upper end of that range in the United States, somewhat lower in South Korea and the EU, and higher in Ghana, Malaysia, Mexico and South Africa.
Well -- duh. We knew that. The questions are: 1) In raising unionized workers' wages, what are unions doing to unemployment? 2) Does the existence of a relatively well-paid unionized workforce reduce or increase inequality? and 3) What does heavy unionization do to economic growth?
According to the World Bank, all is hunky dory. "Countries with highly coordinated collective bargaining tend to be associated with lower and less persistent unemployment, lower earnings inequality, and fewer and shorter strikes than uncoordinated ones." At first sight, this seems to vindicate unionization, though one scratches one's head at the high unemployment rate in Germany, one of the most coordinated labor markets in the world. However, the World Bank then continues, "In particular, coordination among employers tends to produce low unemployment." Well, maybe so, but that is hardly an argument for heavy unionization, rather the reverse.
When you look at the reality, it becomes clear that the World Bank is seeking to justify strong unions and heavy unionization, but has failed to do so.
The most recent statistics of the level of unionization, on a worldwide basis, are the International Labor Organization's 1997-98 "World Labor Report." The report bemoans the decline in world unionization, to the extent that "countries where the majority of workers are unionized constitute a small minority." Quite true, of the 36 countries (rather randomly chosen) whose statistics the ILO cites, only 7 have trade union "density" of the non-agricultural workforce above 50 percent; they are Denmark, Finland, Hungary, Iceland, Malta, Sweden -- and Cuba. Outside Scandinavia, where peculiar social conditions operate, not a successful economy among them, except partially for Hungary, where union participation had dropped by 25 percent in the preceding 5 years. Out of 92 countries for which data was available, according to the ILO, only 14 had a "density" above 50 percent, while 48 -- more than half -- had a "density" below 20 percent.
Ah, but the picture is not all black for the ILO. There are a few countries, 5 individually mentioned by the ILO, where unionization had increased over the decade to 1997; these were Finland (up 16 percent) Malta (up 36 percent) Spain (up 62 percent) the Philippines (up 85 percent) and South Africa (up 131 percent.) South Africa, indeed, with a unionization density of 41 percent, is clearly to the ILO a beacon to the developing world.
A few more hints. Latin American countries have a high union density; Argentina's in 1997 was 39 percent, Brazil's 44 percent and Mexico's 43 percent. Asian countries on the other hand have a low density (except for the Philippines) -- Indonesia's was 4 percent, Japan's 24 percent, South Korea's 13 percent, Malaysia's 13 percent and Thailand's 4 percent.
At least the second of my questions above, therefore, can definitively be answered in the negative, by looking at the Gini (inequality) coefficients in the countries concerned. Stuff Scandinavia! South Africa has one of the highest Gini coefficients in the world, at 0.61, Argentina's is 0.49, Brazil's is 0.59 and Mexico's 0.52. The Philippines is also high at 0.47. All these countries are well above the U.S. level of 0.40; as I have shown previously, about the level above which economic growth comes to be severely adversely affected.
On the other hand, the Asian countries with low unionization tend to have relatively low Gini coefficients, mostly within the 0.32-0.40 range at which economic growth is optimized. Indonesia's is 0.32, Japan's is 0.25 (too low for comfort) and South Korea's is 0.32. Malaysia's is high at 0.49, and Thailand's a little high at 0.41, but all the same, there is a clear correlation in emerging market countries between heavy unionization and excessive inequality.
Contrary to the union myth, with which we have been living for a century or more, non-unionized labor does not produce sweatshops and destitution. Instead, heavy unionization produces a selfish and unproductive blue-collar elite, very high unemployment and, absent an onerous social safety net such as in Scandinavia, a hugely unequal society that becomes more unequal as time passes.
The high and low unionization examples above also answer question 3) about economic growth. It is Asia, not Latin America, which has seen a rapid improvement in wages and living standards. Strong trade unions ossify economic structures, prevent modernization, and discourage capital formation and foreign investment. Just as the U.S. robber baron capitalists of the 19th century said they would.
In the area of unemployment, in which economic theory suggests that unions may play a negative role, the picture is somewhat less clear. France, which has a high unemployment level and a huge public sector, for example, has a unionization density of only 9 percent. Spain, on the other hand, one of the ILO's triumphant gainers in union density, has for many years had the highest unemployment in Western Europe at close to 20 percent, which reached its peak in the early 1990s when the union drive was at its height. Nevertheless, the examples of Asia and Latin America certainly suggest that, in general, strong unions tend to increase rather than reduce unemployment, although as in all economic matters, there are cross-currents that need to be considered.
The heat of my own feelings about trade unions, of course, derives from my childhood and early adulthood in the Britain of 1945-79, in which unions were not only strong and irresponsible, but entirely immune to legal suits for damages. The trade union reforms (a word I distrust when used by others) of Margaret Thatcher and Norman Tebbitt in the early 1980s changed that, one hopes forever, although Britain in 1997 still had a relatively high union density at 32 percent.
Nevertheless, as in many other matters, I can't help feeling that the ideal union legislation was written by the great British Tory governments of 1783-1830. There are two choices as to formulation: the Combination Act of 1800, under which trade unions were deemed to be illegal combinations, and the Employers and Workmen Act of 1824, under which they were legalized, but made subject to suit for damages, while abuses such as the closed shop and secondary picketing were strictly prohibited. It is surely not a coincidence that Britain's greatest economic growth came during the years in which those acts were in force, and that the passage by the shifty Benjamin Disraeli of the feeble Trades Disputes Act of 1875 (which gave the unions immunity from lawsuits) coincided with the start of Britain's economic decline.
One can argue about the precise legislation to be adopted, of course. Nevertheless, it is quite clear that trade unions increase inequality in poor countries, greatly retard economic growth, and possibly increase overall unemployment. Contrary to the sentimental World Bank view, they should thus be strongly discouraged.
"Look for... the union label" caroled a 1980s commercial from the Garment Workers Union. Yes ... look for it -- and then tear it up!
(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)
