Labor Leaders Visit the University of Pennsylvania

I was invited by the editor of the Spectrum to write about the right-to-work laws, and I had also been invited by the Government and Politics Association president to write about the event last Thursday, March 6, which was a speaker event with 1199c AFSCME and AFL-CIO boss Henry Nicholas, his Vice President Christen Woods, and the union organizer John Hump. I will use this post to do both.

The discussion was fairly interesting and exciting, and unlike most of the GPA events I had attended, where the discussion had been very controlled and cordial, on this evening, there was a lively and engaged exchange between the students and the union leaders, with repeated interruptions and side conversations, reflecting the sensibility of the labor issue to all attendants involved. Henry Nicholas, is a 78-year old union veteran, who has tirelessly worked within the union since 1959. He passionately gave his opening statement by blasting the history books for suppressing the important contributions that unions have made to improve the well-being of workers in the country. He listed the great accomplishments of unions, such as the minimum wage, the 40-hour work week, vacation, sick days, health insurance, mandatory schooling and other important social achievements. Union members “have paid with their blood”, as Nicholas put it.

For the rest of the evening, the two other labor leaders, Woods and Hump, did not get to have their formal statement, but the floor was immediately opened up for questions. And the students were really passionate and driven behind their cause. Because there were so many questioners, I will not attribute them by name, but only by their ideas. The questions revolved around five topics: the minimum wage, the existence of labor unions, productivity, labor unions and immigration, and education. I will discuss them in such order, adding my own opinion to it. I will conclude with some thoughts on right-to-work laws.

Minimum Wage

The position on the minimum wage has been that we can not afford the minimum wage because many lower productivity workers will be priced out of a job. Hump was trying to defend the workers by saying that they actually work really hard, and that one can not make the blanket statement that they don’t provide enough productivity. Other audience members interfered and charged that the CEOs are getting paid 500 times as much as the average workers, and their pay is way out of line in terms of productivity so this argument may not be considered valid. My opinion is that even though Hump and the other audience members may be right, it does not address the fundamental challenge of the questioner.

There are four lines of reasoning in defense of the minimum wage. First, the empirical case for raising the minimum wage is ambiguous. It cuts out a few jobs at the lower end, but it adds more jobs later on through an increase in the overall purchasing power. So at face value, the questioners objection lacks much empirical observation. Second, if the minimum wage had kept pace with increases in productivity it would be closer to $22 an hour, and not the $7.25 that we currently have. Adjusting for inflation would still just lift the wage to about $11 an hour, which is even below the $10.10 that President Obama asks for. We have seen many decades of cumulative improvements in productivity, so no one can seriously claim that the American workers has been producing less so that they deserve to lose their purchasing power and descend into poverty. This logic is absurd in the richest nation on earth, and merely provides more cover for the 1% to appropriate more wealth with impunity. Now, critics will say that the $22 an hour wage may be applicable to the average job, but not to each individual job. There are some jobs, who have productivity that is much higher than $22 and some jobs that are much lower than $22, and the latter ones are the people, who will be priced out.

So here comes the third line of reasoning: it is difficult to measure the productivity of all workers accurately. The CEO example shows us that they are by far overpriced, i.e. they are paid way more than they contribute to their company. And how would we measure anyway what the CEO has produced? Chances are that he is just powerful enough to appropriate a larger share from the common pie, which the workers have produced, than what would otherwise be granted to him.

Fourth, if the society thinks that some jobs are so important to the community, but deliver less economic value, then the higher-productivity workers have to be taxed to pay for the wage increases of less-productive workers. This may violate any economic rationale, but I don’t find this socially absurd at all. Let us take a hair dresser and a car factory worker as an example. We assume that both are working the same 40 hours per week, and we assume that the value that they produce is roughly equivalent, ie. $50 dollars in value of hair cuts and $50 of value in the production of car parts. Now let us assume that the company adds a few more machines, which automate much of the tasks of the car worker, so that without any change of his working hours or efforts, the value of what he produces doubles to $100 per hour.

If we want to have an economy that is strictly based on economic contributions then we would have to assume that the wages of the car worker will need to double, while that of the hair dresser will remain the same. But I see no social use-value in this calculation. The car worker has doubled his productivity through no contribution of his own, and the hair dresser has halved his relative contribution in productivity (relative to the car worker) also without any contribution of his own. In a fair society, there should be ways to level the playing field, and that can be done with or without the government, and I am not really partial on the methods of the solution. Government intervention would mean that the progressive tax system will have to absorb the extra earnings of the workers, which will then be used to subsidize a higher standard of living for the hair dresser than what would otherwise be possible. No government intervention means that strong labor unions and employers negotiate through a centralized bargaining system to keep the wage increases of the car worker more moderate, while boosting the wages of the hair dresser. Social fairness definitely has to be factored into any economic policy.

Existence of Labor Unions

The second issue was the objection against the existence of labor unions, because they drive prices up, which apparently gives capitalists the incentive to move their plant overseas or out of the state. Historically, the pressure has been really high on labor unions, and the threats that employers have made against organized labor in terms of outsourcing, has led to many waves of concessionary bargaining since the 1980s. Concessionary bargaining means that the labor unions are giving up their gains, whether that means raising health care deductibles, cancelling the cost-of-living adjustment, or cutting back on vacation. All that the workers have fought for have been sacrificed. But one audience member said, that with unions states like South Carolina would see their jobs disappear. Hump responded that workers eventually have to take a stand, because the companies will outsource jobs to low-wage areas anyways, and rather than justifying competition with low-wage workers, the workers have to find ways how to organize together and prevent a lowering of standards. The job that used to be in South Carolina can easily be offshored to Mexico or China.

I have my own objections to the existence-of-labor-union argument. First, unions can accomplish a real wage increase commensurate with productivity increase, which allows the workers to buy back what they helped to produce. From a macro-economic viewpoint, this is very important, because aggregate supply (output) has to equal aggregate demand (purchasing power). Raising short-term capitalist profits will swell the capital share of income, some of which may be wasted in housing or stock market speculative bubbles rather than return to the productive sector, leading in more jobs and rising living standards for the masses. It will also exacerbate trends of economic inequality between the rich and the poor, as we are currently seeing. So the unions have a clear function to fulfill, and they have to take a stance on behalf of workers no matter where they live. One of the main weaknesses of unions in America has been that their focus has been largely local and firm-by-firm, rather than sectoral and national. This may create the necessary flexibility to adjust to the financial needs of the individual firm, but it makes the unions very weak, when the outsourcing threat is coming along.

Second, it would be foolish for a labor union to ask for wage raises that are far above the increase in productivity, for that would destroy the company. Some people are raising GM as an example for a company that failed due to greedy unions. But this argument is false. GM bankruptcy was a case of a strong focus on shareholder value maximization, which is the idea that executives and managers only have to maximize the short-term profits of a company in order to increase shareholder dividends (executives themselves were major shareholders, so it benefits them too). This has dramatically weakened the incentive for firms to invest in research and development to keep up with their foreign competitors. Toyota and Volkswagen were racing ahead, adjusting to new global market conditions through R&D investments. They have also benefited from strong stakeholder, i.e. worker, interests within firms, a supportive government providing skilled workers, and patient bank capital, which is not geared toward short-term profit maximization. The failed management choices of GM have failed GM, not the “greedy” unions.

And finally, as Nicholas pointed out, without the unions many of the social benefits that are taken for granted (public education, health care, 40-hour work week, child labor prohibition etc.) would not exist. So asking for a weakening of unions only invites a strengthening of the capitalist with no necessary benefits for all the non- capital owners. The massive increase in inequality is really linked to a decline in union organization, and the inability to push down some of the exorbitant excesses of capital.

Productivity

One audience question was whether unions should play any role in helping workers to increase productivity in their firm. The assumption hereby is that as workers help their firms to become more productive, it is also possible to increase the wages and benefits of the workers, which produces a virtuous economic cycle, and a positive, harmonious partnership between capital and labor. Nicholas responded that in the US this is no worker prerogative, but it is management prerogative. Unions are only supposed to negotiate in good faith about wages and working conditions, not about what investment decisions the company should be making, or how to raise productivity. As a veteran of the labor movement, Nicholas understands what may work and what does not within the US system.

But I will disagree with him on this point. The workers should play a major role in determining and influencing decisions that are made by management. Any increases in productivity can more easily come about by having the workers participate in the decision-making process. In Japan, the workers are encouraged to make suggestions to management to improve the work-flow, which is really essential to maintain their just-in-time, highly efficient production mechanism. A lack of labor and capital cooperation is not only troublesome sociologically, with respect to the tension and mistrust that build up, but it can also diminish any efforts to raise the productivity of the firm. The relatively passive US labor movement should become much more activist in asserting their position with regard to management decisions. In the ideal case, there should be few or no managerial prerogatives.

What I find very interesting about the productivity discussion is that when one of the students was asking how new technology is constraining the opportunities for organized labor, because fewer workers are required, and so the workers will have a harder time finding new members. Where you do see job growth, they tend not to be unionized, like in the service sector. The labor leaders did not really have a good response to it, and instead focused on the outsourcing and globalization argument (“All the jobs are going to Mexico and China.”) That is really too bad, because the labor leaders need to take the technology issue seriously. There is more productivity from the workforce, but the wages have stagnated for most American people, which means that the capital share has been increasing. Labor unions have to become even more aggressive in their organizing drive to ensure that there are automation agreements. In these agreements, the workers accept the new technology but demand the company to provide enormous funds generated from the expected profit increase to unemployed workers for retraining, or transfer to a different part of the economy where there is a shortage of labor. The even more difficult task for organized labor is to bring in even more members, now that technology is weakening their organizational capacity.

Immigration

One audience question was whether workers should be standing up for immigrants, because it would detract from the union efforts to protect labor interests. Here the assumption is that as workers stand up for immigrants, their own interests are threatened, because driving up a country’s labor supply will massively push down wages, and lower the scope of union activities. The ideal condition for any union to deliver more wages to their members is by having a relatively tight labor market, when there are more jobs than workers who can fill them, so that employers are forced to pay more wages to cover the jobs. We have been very far away from this for decades. It is interesting that the 40 years of union strength (1935-1975) coincided with very strict immigration laws and subsequently low immigration rates. I don’t want to push the significance of the correlation too far, but the domestic workers are really concerned about free immigration for that matter. (In fact, standard economic theory does say that if immigration were unrestricted across the world, then the inflow of migration to high-wage countries will inevitably level global wages, which also means that high-wage countries will have lower wages than initially.)

Nicholas, who must have heard this argument many times in his life before, defended his actions (he was arrested in Washington D.C. after participating in a pro-immigration rally) by making the moral appeal that since we are all immigrant to the US, we should not be so unwelcoming to new immigrants. This moral appeal is nice and valid, but does not address the premise of the question directly, which is that workers would after all be worse off if they supported immigrant rights. It distracted them from protecting their original members, and in the worst case will dramatically lower wages. Woods offered a more targeted response by saying that many immigrants are workers too, and the unions have to protect immigrant workers. That was a more accurate response, but he did not reveal why unions should support immigrant workers other than by making an indirect humanitarian appeal.

In my opinion, the reason why workers have to protect immigrants as well as domestic workers is because otherwise if the immigrants are left to their own devices, it will give the capitalists more power to hire immigrants as replacement workers (or “scabs”), which will undermine any union. Recently, the Kellogg plant in Memphis, Tennessee has locked out the union workers and replaced them with those scabs (after all there are enough desperate, unemployed people who would like to work at any low rate the employer offers them), though I don’t know whether any of them were immigrants. The appeal and the limitation of the labor unions is their principle of universalism and all-inclusiveness. The workers either stand united, or fall divided. The appeal is that such universalism advances humanity’s interests the most, and the limitation is that trying to convince everybody to believe in something is very difficult (as the Volkswagen Tennessee workers have recognized when they lost the union vote with a very small margin thanks to anti-union rhetoric from state politicians). It may be true that if there were free immigration it would immediately reduce the cost of labor and weaken unions (primarily in the short-term), but it is false to say that we should therefore not help the immigrants gain legal status, who are already here. Illegal immigrants can most easily be exploited by their capitalist bosses, and the working class can not afford to let that happen on humanitarian as well as tactical grounds.

Education

This student asked whether the unions should advocate for expanding school choices for parents in the form of a voucher program and a widening of charter schools. Charter schools have certainly grown in size thanks to enormous investments by Bill Gates and other education advocates, who think that non-district run charter schools offer better educational opportunities for students. Nicholas immediately attacked the proposal by stating that the shift from public schools with teacher’s unions to charter schools without teacher’s unions will merely weaken the labor movement. I would also agree that taking away unions from teachers will contribute nothing to improving the quality of the education. How motivated should a hungry teacher, who is struggling to pay his bills, be to become a good teacher?

The counter-argument could be that it is not the school’s goal to pay awesome salaries to teachers, but to deliver a good education to students. But, in my opinion, the one issue is connected with the other. If the teachers are paid lousy salaries, they can not be good teachers. In Finland, where they pay the teachers the highest, the educational rankings place that country on top of the list. I don’t want to over-emphasize the correlation between these two things, but I would caution anybody to under-estimate it.

Then we have to examine the whole school choice issue. Should parents have more choices for their students? The more important question is whether these alternative choices are much better for the students. Besides a union-busting flair, I don’t see many benefits to the charter schools. The argument that we can level the educational disadvantages for poor kids by giving them the vouchers so they are as competitive as the more affluent kids is disingenuous. It is not like as if the vouchers would take on the same value as the more affluent students, whose parents are able to send them to an even more exclusive school that far exceeds the value of the voucher. Also, the test results for charter schools are really mixed, with some performing well and others not performing so well. Corruption and embezzlement cases have also engulfed several of those privately-run charter schools. Let us face it, education is fundamentally a public good, and privatizing it delivers no better results for the poor. It will give rise to private entrepreneurs, whose principal interest is to turn over a profit, not necessarily to provide a good education to students. Using public subsidies to support that is not necessarily in the interest of the public. Even more absurd are initiatives around online schooling. Here the profit opportunities are enormous, because every student, whether they attend a brick-and-mortar school, or a cyber-school receives the same per-pupil funding. Cyber schools barely have any overhead costs (no janitors, school police officers, cafeteria employees, nurses, and much fewer teachers).

The main problem with the public schools, as Hump, correctly said is that the public schools are chronically underfunded. In addition, non-profit institutions like Penn do not pay any property taxes to the city, and contribute nothing directly to school funding. Without addressing the funding issue it is not possible to solve the education issue, but the many wealthy private foundations and entrepreneurs will be the last ones calling for such an initiative, because it would mean that the taxes on wealthy residents will have to increase, and they can not turn the schools into an opportunity to create profits.

Right-to-Work Laws

One of the most popular issues under discussion have been the right-to-work laws, which have passed under the 1947 Taft-Hartley Act. The states were allowed to pass laws, which would prohibit closed-union shops. In a closed-union shop, every worker that becomes a member of the union has to sign up for the labor union and pay the dues. The opponents of right-to-work argue that we can not force workers to be part of an organization of which they don’t want to be part of. After all, one can also voluntarily quit his job, and by the same token one should have the choice to be part of a union or not. This is why it has been called right-to-work. The union leaders are rightfully responding that we have a right-to-work for less law, because unions have much weaker organizational power if not all workers sign up for the labor union. Right-to-Work states have among the lowest unionization rates in the country, and also have among the highest level of poverty, as Sarah Simon pointed out in the previous post on this issue.

This whole issue of choice needs to be re-examined. The libertarian narrative of choice of the workers is elevated above everything else, and any form of coercion is conceived of as limiting liberty. But that is only a very definition of liberty. My objection is how can a worker be free if he is permanently disadvantaged on the bargaining table with their employer? It might very well be true that the individual workers are against unions, because they are afraid how they might be perceived by their employers, or they are not educated about the benefits of a union. For a libertarian all these arguments are completely irrelevant, because they only narrowly look at what choice and freedom means. If the individual worker is much weaker on the bargaining table with the employer, then the choice and freedom belongs to the employers and not to the workers. Freedom and choice presumes that there is an initial equality of conditions, otherwise there is coercion. So libertarians essentially have to wrestle with the double standard of constrained choice for the weaker workers, and the free choice they are supposed to have when deciding to join together in unions with other workers. Upon closer examination, this contradiction is so untenable, but it is widely enough disseminated to be repeated. For me this is absurd.

The proper definition of freedom also needs to be staked out here. Freedom means not only the ability to make choices about our lives independent from the society in which we live (if that is ever possible, realistically), but it is also the ability to make a living through one’s labor. From a technical viewpoint taking care of the needs of all of the people really should be no problem, because we are much richer today than we used to be. But because of the lack of labor unions, many of the workers are much worse off than they otherwise would be able to. If we follow that definition of freedom, involving economic and social rights of all working people, then we should welcome the closed-shop, and encourage all the workers to be part of a union. In any case, even if the union leadership is making faulty decisions, it is better to fight this issue out within the tenets of the union, where all members are formally equal, than it is to fight with the capitalist as an individual worker in order to gain more wages and benefits.

Right-to-Work is a failure, and I, therefore, urge its repeal.

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