The Exploitation of Labor and Other Union Myths.

• Author: Pulliam, Mark S.

Many Americans embrace fundamental misconceptions about the "exploitation of labor" that is supposedly inherent in the employment relationship and more generally about the role and background of labor unions in America. Economists, historians, and legal scholars have in the past undertaken thorough critiques of the American model of collective bargaining, and I do not purport to supplement--or even to summarize--that literature. (1) I do, however, hope to revive interest in a body of work that has tended to fade in the public consciousness. To that end, I discuss seven discrete aspects of the prevailing narrative that animates labor law. My thesis is that much of American labor policy is based on myths, which I endeavor to debunk.

The portion of the private-sector workforce in the United States represented by labor unions has steadily declined in recent decades. What, then, is the point of talking about unions?

For one thing, the subject is both vitally important and poorly understood. Labor relations necessarily requires exploration of first principles: What is the origin of "rights," and how should individuals interact in a free society? On a more concrete level, "class" differences are embedded in modern political thought and animate much of the current progressive agenda. Many people reflexively believe that individual employees are "powerless" and "oppressed" and therefore need either collective action or external assistance (i.e., government intervention)--or both--to ensure fairness in the labor market. This type of thinking is behind many of the "living wage," "guaranteed income," and $15 per hour minimum wage proposals or behind even more radical proposals--the redistributionist agenda of "democratic socialism."

Moreover, despite their declining membership in the private sector, unions have been--and remain--important forces in American life, both economically and politically. Labor unions--in both the private and public sectors--remain potent players in the political process, making endorsements, using members' dues to support political candidates, providing manpower and infrastructure support (such as phone banks and membership communications) for "get out the vote" drives, and the like. They are among the largest contributors to political campaigns, with expenditures amounting to hundreds of millions of dollars each election cycle. Union members tend to vote at a higher rate among registered voters overall. For these reasons, organized labor wields considerable political clout. Unions are a powerful special-interest group and a major component of the Democratic Party's electoral coalition.

Yet due to the decline in private-sector union membership, labor unions receive less attention from academics and public-policy think tanks than they did in the past. As a result, the subject of labor relations has largely receded from the spotlight. Despite its importance, the topic is increasingly overlooked in the nation's colleges and even law schools. The power and influence of organized labor persist, even as public awareness of the subject continues to fade. Unlike other major interest groups in America, labor unions receive scant scholarly and media scrutiny. Many of the leading works in the field were written decades ago. The role and background of labor unions are rarely questioned. The conventional narrative, hearkening back to the New Deal, is simply assumed to be correct.

This is unfortunate. Understanding the background of the union movement in America requires some knowledge of neglected aspects of politics, economics, government, history, and law. One of the challenges in the area of labor law is to overcome the pro-union (or anticapitalist) bias that is prevalent among many labor-law scholars and labor historians (see Hayek [1954] 1963; Moreno 2008). (2) As written by progressive academics, the history of labor unions in America is as full of fiction as Aesop's fables or the Grimm brothers fairy tales. (3) This article attempts to dispel some of those myths.

Terminology and Concepts

I proceed from the classical liberal premise that in the "state of nature" all people are born free and are endowed by their creator with self-ownership--that is, their labor and the direct fruits of their labor belong to them. The opposite of self-ownership is slavery, servitude, or serfdom. Self-ownership leads to recognition of the institution of private property. In a free society, one owns what one produces or acquires through consensual exchange. When entering into civil society, pursuant to a fictitious (but essential) social contract, people surrender some of their natural rights in exchange for the protection of laws. Our state and federal constitutions represent the terms of this "bargain." These concepts are reflected in our Declaration of Independence and are consistent with the Lockean concepts that influenced the Founding Fathers.

In a society based on individual liberty, limited government, and the protection of private property, the ideal form of interaction among people is consensual economic exchanges, which protect personal freedom and maximize economic efficiency. Force and coercion are the opposite of voluntary actions. In a free society--as opposed to a centrally controlled (and therefore authoritarian) state--the only "entitlement" one has is the right to engage in consensual exchanges with willing participants on mutually acceptable terms. "Private ordering" in this fashion must be free of coercion, fraud, and predation. No one has a "right" to take another's property, to compel transactions, or to force another to accept terms involuntarily. Any of these actions is simply unfair. Conversely, no one has the "right" to interfere with or prevent consensual exchanges by others on terms that are agreeable to them. This type of action, too, is simply unfair.

From an economic perspective, labor is like any other commodity bought and sold in the market (see Pulliam 1981). Wages are the price of labor, and in a free market they would be determined by a consensual exchange between buyer (employer) and seller (employee) as the result of competition. In a free society, an employment relationship must be between willing parties on terms acceptable to both, without fraud or coercion. The fairness of a particular transaction between an employer and an employee can be judged only by whether it was entered into voluntarily and without fraud or coercion. (4) Terms that are objectionable to one person may be acceptable to another. Such differences are inherent in competition.

What is a labor union? A union is not a social group or a fraternal organization, like the Rotary Club or Kiwanis Club. It is the collectivized agent of workers, organized to obtain higher wages and more favorable working conditions than workers could obtain on their own through competition and consensual exchange. How, exactly, does this happen? A union essentially operates as a cartel, fixing the price of its members' labor by internal collusion rather than by market competition--just like members of die Organization of the Petroleum Exporting Countries (OPEC) work to increase the price of oil rather than letting the competitive market set the price. The internal price fixing for labor is called "collective bargaining."

Like OPEC, a labor union threatens to withhold supply if the buyer does not agree to pay the "fixed" price. This withholding is called a "strike." Unlike OPEC, however, a union attempts to prevent other sellers (who are not members of the cartel) from selling at a lower price, sometimes with the threat of violence. This is called a "picket line." Strikers not only collectively withhold their own services (which is consensual) but also seek to prevent other workers from crossing the picket line (through force or coercion). Unions call these other workers "strike breakers" or "scabs," but they are merely sellers willing to accept a lower wage--a function of competition and consensual exchange--which is entirely legitimate in a free society.

If OPEC countries tried to blockade shipping to the United States to prevent the delivery of oil from non-OPEC suppliers, we would quite properly regard this blockade as an act of aggression--even war. Among unionized workers, however, the same behavior is celebrated as "solidarity."

Also, unions, unlike OPEC, depend on government coercion. Federal law requires employers to "recognize" unions once they are "elected" by a majority of the employees; requires employers to negotiate exclusively with the union before taking action regarding the employees; prohibits employers from firing employees because of their union involvement; and prohibits employers from replacing striking workers under certain circumstances. All of these requirements and prohibitions are significant restrictions on the common-law rights--and economic freedoms--enjoyed by employers prior to the enactment of federal labor laws beginning in 1935.

The reason we have labor unions--to establish what unionists euphemistically call "industrial democracy"--is purportedly to overcome the inherent "inequality of bargaining power" that is thought to exist between capital and labor. The legislative "findings" in support of the National Labor Relations Act (NLRA, also known as the Wagner Act) of 1935 so state. As will be seen, this controversial notion has dubious origins and has had far-reaching implications for labor law.

Myth Number 1: Inequality of Bargaining Power

In a competitive market, workers sell their services to employers at a wage rate that is determined by competition among both buyers and sellers. The specific wage bargain struck will depend on the worker's perceived value to the employer and the existence of competing offers by other employers. In the world of free markets, the government's main role is to punish fraud, enforce contracts, and prevent collusion. Labor unions, which exist to facilitate...