Labor unions: a corporatist institution in a competitive world.

AuthorWachter, Michael L.

Union membership, as a percentage of the private sector workforce, has been in decline for fifty years. I argue that the cause of this unrelenting decline is a single, fundamental factor--the change in the United States economy from a corporatist-regulated economy to one based on free competition. Most labor commentators have explained the decline by a confluence of unrelated economic and legal forces. Labor economists typically stress economic explanations, which vary from compositional shifts in the job structure to increased competition both domestically and internationally. On the other hand, labor law commentators naturally focus on labor law explanations, such as the difficulty of controlling management opposition to unions.

This Article shows that both economic and legal forces must be viewed through the same lens. What matters is the choice of the political economy. Once that system is chosen, the role and centrality of unions are determined. Unions are central to a corporatist regime and are peripheral in a liberal pluralist regime. Consequently, in my approach, to understand the causes of the decline in union membership it is critical to return to the period of the original growth in union power; that is, to the New Deal.

In examining the differences in the political economy between today and the New Deal, one must look not only to labor law, but also to corporate law and antitrust. Unions were successful in the 1930s when the goals of labor law were consistent with the goals of corporate law and antitrust. These goals are in conflict today.

INTRODUCTION I. ECONOMIC FACTORS IN THE DECLINE IN UNION MEMBERSHIP II. CORPORATISM: STRUCTURE AND THE GREAT DEBATES A. Economic Structure of Corporatism B. Great Debates Favoring Corporatism 1. Labor Market--Labor Law 2. Antitrust--Business Regulation 3. Corporation Law III. THE NATIONAL INDUSTRIAL RECOVERY ACT A. The NIRA Experiment B. The Labor Movement During the NIRA Experiment IV. THE NATIONAL LABOR RELATIONS ACT, INDUSTRY REGULATION, AND WORLD WAR II A. National Labor Relations Act B. Industry-Specie Regulation C. Union Gains: Corporatism Daring World War II V. THE LONG DECLINE IN UNION MEMBERSHIP A. Labor Law B. Industry-Specie Regulation C. Corporation Law VI. MODERN-DAY RESOLUTIONS OF THE GREAT DEBATES A. Labor Market--Labor Law B. Antitrust--Business Regulation C. Corporation Law CONCLUSION INTRODUCTION

Union membership, as a percentage of the private sector workforce, has been in decline for fifty-three years. That is a long time. Today, private sector union membership is less than ten percent of private sector employment, far below its peak of thirty-four percent in the early 1950s, and roughly where it was in 1930. (1)

This unrelenting decline in union membership represents one of the most important institutional changes affecting the United States economy. I argue that the cause of this unrelenting decline is a single, fundamental factor--the change in the United States economy from a corporatist-regulated economy to one based on free competition. Most labor commentators have explained the decline by a confluence of unrelated economic and legal forces. Labor economists typically stress economic explanations, which vary from compositional shifts in the job structure to increased competition both domestically and internationally. On the other hand, labor law commentators naturally focus on labor law explanations, such as the difficulty of controlling management opposition to unions.

This Article shows that both sets of factors must be viewed through the same lens. What matters is the choice of the political economy. Once that system is chosen, the role and centrality of unions is determined. Unions are central to a corporatist regime and are peripheral in a liberal pluralist regime. Consequently, to understand the causes of the decline in union membership it is critical to return to the period of the original growth in union power; that is, to the New Deal. With private sector union density today back to its starting point in the early days of the New Deal, the union movement has made a complete 360-degree journey.

In examining the differences in the political economy between today and the New Deal, one must look not only to labor law, but also to corporate law and antitrust. The success of unions depends heavily on their place in the overall legal and economic structure of the country. Unions were most successful in the 1930s when the goals of labor law were consistent with the goals of corporate law and antitrust. These goals are in conflict today.

The historical story of the growth and decline of unions plays out in two Acts. The First Act is of nearly exponential growth, with the Second Act being an extended period of decline. The theme of the First Act is the Franklin D. Roosevelt administration's adoption of a corporatist economic policy, which was the key innovation of the National Industrial Recovery Act (NIRA). Corporatism views free competition as a destructive force that has to be both controlled and channeled through institutions that practice fair--but not free--competition under the watchful, mediating power of the government.

In corporatism, fair competition means the "stabilization of business" with prices at levels that support fair union wages, and economic policy that responds to institutional actors such as unions and corporations rather than to individuals.

As a coherent public position, the high-water marks for corporatist policies were the adoption of the NIRA in June 1933 and the measures taken to guide the economy during World War II and the Korean War. Consequently, while the NIRA was declared unconstitutional in A.L.A. Schechter Poultry Corp. v. United States, (2) important elements of corporatist policies continued to operate well beyond the New Deal.

During Act I of the story, the union movement quickly came to a position of substantial strength and prominence. A primary goal of unions--to take wages out of competition--was a near-perfect policy fit with corporatist ideology. Labor unions thus played a central and positive role, in part as a counterweight to the power of corporations, and in part as a separate institutional force in the adoption of economic policy. In the structure of this period, unions were not a niche movement, representing those unique sectors most easily unionized, but a mass movement.

The National Labor Relations Act (NLRA), often viewed as the causal factor in the expansion of unions, actually represents a step backward in my approach. Yes, the NLRA expanded unions' organizing abilities and strengthened their ability to achieve collective bargaining contracts. And, yes, union membership continued to increase sharply when the NLRA replaced the labor policy of the NIRA. But, the NIRA was an integrated plan that had compatible policies governing labor law, antitrust policy, and corporate law. When the NIRA was replaced by the NLRA, all that survived was the pro-union labor law. The critical support of the corporate and antitrust policies was lost. However, in certain sectors, industry-specific regulatory mechanisms were adopted that in effect continued the policies of the NIRA.

The Second Act began with the end of the Korean War. Although union membership, as a percentage of employment, peaked after World War II, it remained at or near the peak through the end of the Korean War. In that sense, the First and Second Acts were separated by an eight-year intermission, where the groundwork was laid for the decline in unions that was about to begin.

The Second Act, unlike the First, was not marked by singular events such as the passage of the NIRA or the outbreaks of World War II and the Korean War. Rather, the Second Act developed slowly as the legacies of the corporatist past were gradually replaced with an economic policy that had but one primary theme--that the country is best served by a competitive economy. In a competitive economy, nothing of importance is taken out of competition, certainly not labor costs. Consequently, as the nation's policies became pro-competitive, taking wages out of competition became difficult to accomplish.

  1. ECONOMIC FACTORS IN THE DECLINE IN UNION MEMBERSHIP

    Union strategy creates an overarching goal of negotiating for higher wages and benefits than those that would prevail in a competitive economy. (3) At this goal, unions have been and continue to be successful. The same is not true for the union goal of growing, or at least maintaining, union employment. Union density is now less than ten percent of the private sector workforce. (4) Obviously, the two goals are likely to be in conflict: it is not surprising that employment suffers when pay premiums exist.

    In explaining the extended decline in union employment, the union pay premium is a logical culprit. However, there is also a substantial literature citing other factors, including compositional shifts in employment, management opposition to unions, the growth of a body of federal rules that may serve as a substitute for unions, and the increased openness of the American economy to international trade.

    In the conventional story, it is the coming together of these disparate, largely independent factors that contributes to the decline in union membership. In my story, these factors are endogenous, themselves caused by the one, overarching factor: the change from a corporatist to a competitive economy.

    The compositional shift in employment away from traditionally unionized industries is most frequently cited as a cause of union decline. (5) This explanation itself includes a variety of shifts; for example, a decline in the product market of more traditionally unionized industries, a decline in the percentage of the labor force composed of males with a stable labor market attachment, and a decline in the percentage of full-time workers.

    In the broader multidecade picture, compositional elements are...

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