Opposition to trade unions

The economist Milton Friedman, advocate of laissez-faire capitalism, believed that unionization frequently produces higher wages at the expense of fewer jobs, and that, if some industries are unionized while others are not, wages will decline in non-unionized industries.[1]

By raising the price of labor, the wage rate, above the equilibrium price, unemployment rises. This is because it is no longer worthwhile for businesses to employ those laborers whose work is worth less than the minimum wage rate set by the unions.[2]

Trade unions often benefit insider workers, those having a secure job and high productivity, at the cost of outsider workers, consumers of the goods or services produced, and the shareholders of the unionized business. The ones who are likely to lose the most from a trade union are those who are unemployed or at the risk of unemployment or who are not able to get the job that they want in a particular field.[3] It is argued that over the long term, unions reduce investment in a business, which in turn makes that business less competitive and over the long run will therefore reduce employment in unionized industries. In addition, unions can also cause slower job growth (3 to 4%) for unionized workplaces as opposed to non-unionized workplaces.[4]

Unions can also increase jobs losses, with James Sherk arguing that at newly organized workplaces, employment can fall from between 5 and 10%. Sherk notes that some studies find no effect on employment but argues that these tend to focus on workplaces where unionization had little effect of any kind at all, meaning that jobs did not disappear but wages did not rise either, which for Sherk means that these studies cannot be used to argue against unions causing job losses.[4] However, Sherk also argues that there is no evidence that unions increase the risk of bankruptcy for unionized firms, noting that unions try to avoid ruining the companies they organize at and will make concessions to keep distressed firms afloat, generally by agreeing to layoffs for newer workers in order to maintain wages for more senior ones.[4]

Advocates of unions claim that the higher wages that unions demand can be paid for through company profits. However, as Milton Friedman pointed out, profits are only very rarely high enough. 80% of national income is wages, and only about 6% is profits after tax, providing very little room for higher wages, even if profits could be totally used up. Moreover, profits are invested leading to an increase in capital: which raises the value of labor, increasing wages. If profits were totally removed, this source of wage increase would be removed.[5]

According to The New York Times, wages in 2012 fell to a record low of 43.5 percent of GDP.[6]

Friedrich Hayek argued that the effect of union activities to influence pricing is potentially very harmful, making the market system ineffective.[7]

James Sherk argues that unions generally reduce a business's profits by about 10 to 15%, though Sherk notes this is more common in firms that have a competitive advantage (it is hard for unions to reduce profits in a competitive market), as this means these firms have higher than normal profitability, so this redistribution does not risk scaring away investors. However, reducing business profits does reduce the money available for a business to launch new investments.[4]

Unions may also hamper recovery from economic recessions and depressions, as they reduce profitability and thus deter the investment required for recovery. James Sherk argues that American states with greater rates of unionization took longer to recover from the 1982 and 1991 recessions, as well as arguing that the unionization that was encouraged under the policies of Franklin D. Roosevelt during the Great Depression actually contributed to reducing the speed of recovery during the period.[4]

By causing wage increases above the market rate, unions increase the cost to businesses, causing them to raise their prices, leading to a general increase in the price level.[7] Austrian economists such as Robert P. Murphy, however, dispute this, arguing that the increase in the cost of labor simply means that less of other goods can be bought. He writes:

If unions succeed in wage hikes, and employers raise the prices they charge consumers to maintain their own profit margins, and the supply of money remains the same, then something else has to "give." Either the prices of goods and services in nonunion sectors have to fall and offset the union sector hikes, or people's cash balances need to fall, in terms of their purchasing power.[8]

Some trade unions, such as the Teamsters, have been criticized for involvement with organized crime.[9]

The argument that unionized workers raise their own wages above their natural rate at the expense of their businesses or other workers assumes that unions never raise productivity to compensate for higher wages. Unions are capable of raising productivity by reducing turnover, by increasing coordination between workers and management, and by increasing workers' motivation.[10][11][12] Many unions raise the productivity of their workers, and some even raise it enough to make up for wage increases.[10]

Another argument raised by union supporters is that unionized workers will spend their higher wages, driving economic growth and creating new jobs.[13] Union opponents respond that this is an example of the broken window fallacy; union supporters assume that money is more valuable in the hands of unionized workers than in the hands of whoever else would obtain it in the union's absence. There is some evidence that this is not a fallacy, as greater wealth equality seems to be correlated with greater economic growth.[14] Union supporters counter that unions, if organized without violence or government help, are part of the free market; if unions can win higher wages for their workers without coercion, those wages are legitimate.[15]

Research indicates that unions may reduce the risk of a stock price crash for a business by deterring risk-taking and over-investment, as well as increasing information transparency.[16][17]

Trade unions take strike actions that result in the disruption of public services[18][19] – as demonstrated in the 1978–79 British Winter of Discontent.[20] However, where applicable, this may be logically inferred to be the very purpose of strike action per se.[21][22]

In some cases, unions' strike have led to violent clashes with police and with strikebreakers. See the article on the UK miners' strike of the 1980s.

A consequence of unions' zeal to guard their special interests is that some unions have actively lobbied for racist and anti-immigration policies. An example is the creation of the notorious Asiatic Exclusion League, which was composed mainly of the various labor unions. The Pictorial History of American Labor observes,

The early A.F. of L. did not draw the color line, but expressed an "ideal of solidarity irrespective of race." Before long, however, the feeling changed. Whether a tendency to exclude black workers from craft unions was based more on fear of competition or racial prejudice carried over from slave days, it is difficult to decide. But the developing exclusion of the Negro worker from many neighbor unions brought with it serious problems—not just for the black worker seeking job security, but for the white worker seeking the same end...
The record shows that black workers...have been used to break strikes. This availability has usually ended when the black worker has been shown that the union is open to black as well as white.[23]

However, in a study called The Black Worker, Spero and Harris observe that more strikes [in American labor history] have been broken by white workers than by black workers.[23] Most blacks were barred from membership in the AFL not because of their skin color, but because they never had a chance to learn a skill, and "most A.F. of L. unions did not admit unskilled mass-production workers."[24] While the AFL-CIO is the modern version of the AFL, it is much more open to membership by women, immigrants, and different nationalities. Other unions, such as the Industrial Workers of the World and the International Longshore and Warehouse Union, were created without regard to race from the very start.[25]