 Trevor Burrus And I'm Aaron Powell. Trevor Burrus Joining us today is Richard Epstein, the Lawrence A. Tisch professor of law at NYU School of Law and the director of the Classical Liberal Institute. Welcome back to Free Thoughts, Richard. Richard Epstein It's always fun to be here, guys. Trevor Burrus So today, I'd like to talk about labor unions, which I think is one of your favorite topics. We have many favorite topics, but labor unions, I've heard you speak about quite a bit. that we have about labor unions that goes something like this. This we is the collective. It is the collective culture that is in 1890s, beginning of industrialization, there were a bunch of evil capitalists who preyed upon workers and put them into horrible working situations. Too many hours a week, no vacations, dangerous working situations and then with a struggle against them to unionize, they were able to secure for themselves safe working conditions is in lower working hours and a better pay and that's the reason why we have things like the 40 hour work week and the weekend to this day and labor unions are an essential part of the American society and they keep everything sort of stable. Is that true? What's wrong with that story? Everything. Every single part of it? I mean it is so far removed. I mean first of all you just have to get the sort of temporal arrangements right. The labor laws that we have essentially date from the first of the major ones is 1926 which is the Railway Labor Act which was a catastrophe for the way in which the rails were operated because it legitimated feather bedding and then we had more feather bedding because what happened in the terms of the rails is that they wanted to keep transportation going. The correct way to do that is to allow employers to fire people at will if they want to disrupt it and to punish anybody who tries to cut or block the tracks. What they did in effect is to say that workers have a vested right, they're not allowed to go out on strike but if you wish to make any changes in work rules you have to get the consent of the workers. Well at this particular point you've given guys a monopoly power over the thing and that explains why it took 30 years to get the firemen off of diesel engines because you don't have coal anymore but you still have firemen because you have to renegotiate the work rules and that's a classic illustration of a situation where the abusive consequences of unionization dominate everything else. So that's the first point. Take another point on this issue is you want to trace the condition of the working person in the United States. There are many ways to do it. The simplest way to do it is through life expectancy as a kind of all purpose variable that kind of measures overall level of social production and success. Basically life expectancy 1550 to 1850 is kind of about under 40 years in England in the United States. By 1900 it turns out it's gone up to 46 or 47 years. This is of course during the period of the demonic mills and everything else going on. How do you explain the seven year increase during this period? Well at the time there were many people who said you know this is just a blip it's going to go back down again. We're basically Methusians at heart and Malthus told us what to think in 1798 when he wrote his book on population. But of course things kept on going in the opposite direction. Now what explains this kind of improvement is a complicated story but let me mention some of the factors. The first thing is people finally figured out what pollution was and why it could kill. And that immediately meant that you now actually did go to public works but had nothing whatsoever to do with unions. It had to do with the separation of drinking water from sewage water starting in London and then going to other cities. And this is a very sensible public health manage. And what is it? It's funded by the rich who pay the property taxes and the benefits are shared by the poor. And so what you always see in these cases is the rich gets some direct benefits but the poor are always benevolent free riders under this situation because there's no way to exclude them from a drinking water system. Maybe small variations around the house or the local street but the huge systematic improvement turns out to be greater. Secondly, when you talk about these demonic factories and so forth, remember where are these people coming from? They're coming from farms. Well why are they leaving the farms and droves to come from the city? Well there are no employers, demonic export people or terrible people on the farms but farming is one of the most dangerous occupations on the face of the globe. And it could be sunstroke, it could be bacteria that's in the soil, it could be long hours, back bending labor, it could be kicked by a horse or whatever it is. And what happens is you give up all of that, you work for a dangerous plant which is safer than the farm from which you came. And so this is a net improvement in safety and if you simply assume that everybody's entitled to a risk-free environment, well then the old and manufacturing factories look very bad, but if you compare them to the older situation they start looking better. Then of course there's competition in these firms and that means you know somebody actually can sell safety to workers by giving them better working conditions in exchange for lower wages and you see other kinds of improvements. So you get the Westinghouse air break in the 1890s, now all of a sudden trains can stop more rapidly and the kinds of accidents you have for trainmen are going to be reduced because the technological compliments are much better. All of this stuff now in the first part of the 20th century goes at an accelerating rate in part because the American patent system in the late 19th century was a veritable cornerpaker of invention and all this other stuff. So you get the technology out, relatively free labor markets and all of a sudden what do you see? By 1920 life expectancy has gone from 47 to 54 even taking into account the influenza plague of 1918. Well how does this happen? The progressives always give this story and they can't explain the bottom line and what it is is that technology gains in the competitive industries are shared across the landscape and workers will benefit along with everybody else. Maybe the proportions are less, maybe they're greater, less than dollars but probably more in terms of utility on the grounds that the first dollars buy you a lot more than the last dollars that you get so these people are leaving much better lives and the labor unions at this point were very weak and they had absolutely nothing whatsoever to do with the gains. But does that exclude the unions entirely from the story or completely eviscerate the progressive case? Because if we've got a trend going on, things are getting better and we can list these factors, technological growth and knowledge are contributing to that but that doesn't necessarily mean that unions either weren't also a cause of it or weren't an accelerant of it. They could say, look things would have been worse if we didn't have unions or just because things are getting better doesn't mean they're as good as they could be so we still need to fight to make them better. Standard argument, no, essentially the unions, there's one set of situations in which unions are important and those are cases in which contractual actions are not supplied by the state and this applied under segregation in the South and essentially black organizations demanding wages under a circumstance where people are so precarious anyhow probably were a good thing but the moment you have enforceable contracts from the beginning unions were a disaster in terms of overall innovation. For one thing, by the way, they were very indulgent in the use of force against ordinary businesses. There's one story that I remember from the New York Times somewhere in 1912 in which the defendant in a criminal case says, yes, I did blow up the building of the factory which wasn't unionized but I made sure that there were no workers in it. This is not the kind of conduct which is conducive. If you go back and you look at the struggles in the mines in 1920 and 1930 and so forth, they always reveal the same story. Non-union mines work at lower rates than union mines so what the unions do is they try to block their shipment of goods into the marketplace which means that consumer place, higher prices given the violence and the uncertainty. So if you look at the Coronado coal cases from the mid-1920s, what does Justice Taft do? Cheats a little bit on the commerce clause and says if a union blocks the shipment of coal from a non-union mine into interstate commerce, the blockade is in interstate commerce. Why does he do that? Because state enforcement against unions was very spotty at that particular point in time. So all of these things are essentially taking place. And then how do unions start to improve something is a theoretical question assuming they're in place. First thing you know is we know one thing that they do which is they engage in cartel-like behavior. What does that do? It raises prices and reduces output. That's going to hurt overall growth. In fact, serious studies of the Depression, Leonion wrote one of these, for example, in 2004, what you found out was that the best estimates are that the Depression went on another five or six years than it should have, more than it should have, because everything that was done by way of legislation under Roosevelt was cartel formation, whether it was in agriculture or whether it was in labor unions and so forth. And these things are incredibly important microeconomic inhibitors. And these are cartels backed by the state so they can't cheat on them and the erosion is much weaker. So unions come out with a terrible role with respect to that situation. And also just take a simple measure. The rate of productivity increases in the period which was highly hostile to unions when yellow-dog contracts were enforced were very, very hard. Yellow-dog contracts are. A yellow-dog contract is a contract often required or requested by workers, interestingly enough, in which a worker says, so long as I work for you, I agree that I will not be a member of the union and I agree that I will not promise to join a union. These contracts were enforced in a case called Hitchman called against Mitchell, decided by Justice Pitney in 1916 or 17. And it's an absolutely sound rule because what the management is trying to do is demand exclusive loyalty which will improve production. Now what about workers and the efficiency gains? One of the things that many companies do is they actually encourage the formation of worker committees of one kind or another because they have no market power to shut you down but they can give you a flow of information which you could then use to improve your processes and the sensible firm says, if we put up a suggestion box and we use your suggestion, you get a little bump in the paycheck if it's a small thing and a big bump in the paycheck if it's a big thing in terms of what you're doing. One of the things they did under the labor statute in section 82 at the time was they made company unions illegal. Now why did they do that? Because they knew that the efficiency gains that a company union could supply to a firm would make it more difficult for them from the outside to unionism as part of an international brotherhood. And indeed one of the sensible compromises that you could have in legislation is you get rid of all of the inter firm unions which have cartel powers and you allow unions to form on a plant by plant basis because they have very little market power that they could exert. But the progressive story as told by Brandeis and Frankfurt and so forth is done with such an abysmal ignorance of economic circumstances and empirical circumstances that it shows this particular deep contradiction. Progressives always talked about the need for empirical evidence and detailed study. They didn't do a liquor work in that direction at any time. You read the famous Brandeis brief in Muller against Oregon. It is a series of string quotations to mindless sociological reports from the United States and Europe about the importance of government protection and labor. There's not a single normative argument there, a single descriptive argument there which asks the question, hey, are you guys telling the truth? Well, how do you explain the progress if in fact what you have is a series of retrograde institutions which by your own prediction should have indicated that everything was going in reverse? So the point of unions, I mean, we look at the sort of development of the law and we have this because cartels, the problem with the cartels or the problems that they face are people who want to not be a part of the cartel or undercut the cartel in some way. This is, OPEC has always had this problem. It's cheaters. Yeah, with cheaters. Well, I mean, it seems like working for less is not really cheating. Well, that's the term. Yeah, so then we have this. Basically, unions, they arise out of this sort of, you could have a voluntary union and say none of us are going to work, but then people started working. So they started using different kind of state-based aids and violence to try and stop people from undercutting them. In the 1890s and early 20th century, there were some decisions about unions that were some Supreme Court decisions that were very important that later were, but how was the legal status of unions initially? Well, it turns out the original document on the legal status of unions, both in England and the United States, was all done as a matter of common law principle and it was done as a combination of torts and contract law. If you start with the English kinds of cases, the first of the really important case that you have is a case called Allen and Flood from 1898 and there were two unions, I forget the name, one was the woodworkers and one was the ironworkers and the ironworkers, which was the bigger union, said either you fire all the woodworkers or we're gonna walk off the job. They fire him and now in fact what happens is the woodworkers sued the other union saying you induce this guy to fire us and a judge named Herschel wrote the main opinion and he said there's no inducement to breach of contract in this case because you are employees that will, so forcing them out doesn't make a difference and this was a common law rule. Come to the United States, the same problem starts to arise and only now we have a Sherman Act in place passed in 1890 and so the great case on this, unanimous in the Supreme Court was a case called Low Against Law, which held that if a union goes and threatens a supplier of a given firm that it will shut its operations down by pulling off the workers so that it will no longer do business with a company which is a target of unionization, that's a collective refusal to deal which is a per se violation of the antitrust laws. So you can see the really different kinds of situations, the sort of narrow contract approach on the one hand giving way to an antitrust approach and which was much more developed in the United States at the time than it was in England. So this was just to say that the Sherman Antitrust Act prohibited businesses from colluding to do this and it also said labor could do it. So at this point the issue is so important that it's the centerpiece or one of the two or three centerpieces of the 1912 presidential campaign in which Wilson was a strong believer in unionization, he was a progressive coming out of New Jersey and Princeton, credentials like that never lead you in the right direction even in 1908 and he strongly supported and the Clayton Act was passed in 1914 and what it does is it introduces a separation between these two areas that the 1908 decision had denied and so they strike, they tighten the protections against businesses merging and so forth under section seven saying in effect we can enjoin various kinds of mergers that substantially lessen competition. It's a tricky provision because it could easily be abused and unbalanced probably was a net negative but not a huge one but section six said labor is not an article of commerce, agriculture is not an article of commerce and therefore these guys are all exempted from collective, from the antitrust laws when they engage in their activity and so you can see what they're doing and they basically overturn that come 1920 or 21 there's a case called duplex against steering and this is another one of these pit in the opinions and you can see what's going on. They're a bunch of companies that are unionized and what they tell their, what the employers tell them is we're not gonna sign another union contract with you in an area where there was no sort of National Labor Relations Act unless you take this fourth plant and you unionize it and so they start running all sorts of boycotts of the on the secondary nature against these guys and the question is since they were aided by management do they out from underneath the exemption and as a very tough statutory construction question and Brandeis says no they are protected and Pitney who wrote the yellow door contract position said no that they are not probably the correct result both under the statute and certainly as a matter of principle but the key thing to learn about this if unions are efficient right then they should say oh my God this other plant is not unionized we have such a competitive advantage over that please don't unionize but they said exactly the opposite. Okay so someone who is a union worker listening to this could say like look so there might be some efficiency losses here but I know from experience that the union has helped out it's helped me and it's helped the people I know and my dad and my grandfather were union laborers and at the high point of unionization in the mid century was a time when those of us who weren't attorneys and doctors and knowledge workers we call them now could earn a good wage and could be comfortably middle class and as we've seen union membership decline and unions decline it's become harder and harder for those of us and so you can talk all you want about long-term progress and about efficiency but the union helped us. Well the answer is if you're a member of a cartel and your wages are increased by virtue of union intervention of course you've been helped that's why majority people support the unions we're putting aside here the dissenters like in the Friedrich's case recently of which there were always some but the thing to understand is the only way unions could raise prices is essentially to reduce the number of workers available. So you want to do this thing systematically you have to figure out what happens to the welfare prospects of those individuals who don't make it into union memberships and they don't make it into union memberships because these monopoly powers become partly inheritable by saying I'm an electrician in the union my son will now join the union in preference to anybody else and take my slot when I start to require. So you have to do that if you're doing a social welfare thing then you got to figure out what about the cost of union goods to other individuals when they want to pay for it and those costs go down so their fortunes are going to be somewhat reduced and you know the fact that you are better is true of every monopolist who makes his consumers worse off by raising prices and then of course unions are much more dangerous than monopolies in terms of what they do because monopolists have no reason to interrupt production because it's only going to hurt them. Unions are bargaining with a manufacturer or an employer and they will often pursue high risk, high return strategies. We'll go out on strike, we'll disrupt production, we'll get a higher wages. In the meantime people have to do without necessities children can't go on school buses they have to stay at home. It's just all sorts of absolutely chaotic third party effects and when I took labor law I was told that these things ought to be ignored and I said why would you ever ignore them and you guys start writing about monopolies and there's no disruption of supply. You talk about high prices as though they're wrong and you're right about that so why somehow or other does that thing not apply here? So the answer to this is that solipsism is not the same thing as an argument which explains not why unions benefit the people who join them and profit from them but why they are socially desirable and nobody in the labor union tries to do this. See I need to understand this. I'm talking about social welfare functions and how competition leads to optimality across all persons and all resources and these guys are talking about provincialism and then what they do is they turn around and say the problem about you Professor Epstein is you're a rugged individualist. They get it exactly backwards. They are the ones who are essentially working against the public welfare under these circumstances and the bromide that you hear from high political figures essentially simply obscure that particular fact by using these sort of nebulous terms fair shot, fair share and all the rest of that stuff. You could drown on fairness if in fact it's just a substitute for what cartelization is. What about is another one of these terms that you could draw, you could drown in if it's used to so much as unequal bargaining power. I mean the basic idea is that no one thinks, I mean a very, I think the common opinion is that workers just do not have any right to, they are so hard up for a job compared to the business that they have no ability to actually negotiate anything except for if they want them to work for $2 an hour they'll work for $2 an hour. Yeah, if they want to work for $2 an hour. Yeah, okay, well now what you do is start looking at wage levels and non-unionized competitive markets and you see them systematically declining and systematically going up. And the answer is you see them going up all the time uniformly, roughly with productivity gains across the line. Why is that? Because it's an illusion to think that unions are a source of protection when they're a source of disruption which will in the long run lower productivity and the short-term subject you to dos and the risk of strikes. But if in fact there's free entry into a market if people are essentially getting too low wages and somebody else could make money and they'll start coming in. And now it could be either a new firm or it could be an old firm supplying a supply or somebody putting a branch office out here. And that is the most solid protection that you get because there's no negative side with respect to that. And what it does is it means that nobody can basically keep some kind of monopoly rents if the competitive firms come in at an appropriate level. Now is there a place for talking about bargaining power and inequality? The answer is no and yes. And the answer for no is essentially in the standard models of a competitive economy the equilibrium wage is uniquely set at the point where marginal revenues equals marginal cost. And so by and large it's a take it or leave it kind of operation which has a huge advantage because it means that the transactions cost relative to the transaction gains are extraordinarily low. One of the things that people like John Dewey misguided so that he was that gee you get people bargaining for the good sale of goods over a back fence that shows you got a real market. No it shows you got a highly inefficient market out there because it's not thick. And what you just have to do is you now go into any one of these shops you know the old A&P or whatever it is. And what you do is you get online behind the guy who says let's bargain over every price of every good in my market basket and then see how people want to murder him. You get unique prices on a take it or leave it situation then everybody flies through the line because what people want is not high transactions cause they want a high volume of transactions which is what the major change in the supermarkets can give you. I've worked for some of these companies and what they will tell you is you see four customers on a line you know the fourth one's gonna disappear so the manager drops everything and opens up another cashier because you don't wanna lose the sale and cleaning up something in the back room can wait 15 seconds and so forth before you take this into account. So these are in fact situations where there's enormous upward pressure on wages from these things and so long as they're backed by productivity gains you're not gonna get around them. Whereas on the other hand if you have to pay high wages because of a union now what you're gonna do is you're gonna start to cheat the scheme and an effort to cut back on the wages so you get back to a competitive level. You don't want to induce monopolization because what that does is it creates destructive bargaining hold out situations it makes everything look like the inefficient transaction at the back's fence. And so in this regard unions are an unmitigated disaster relative to a straight smooth competitive economy which is why it is that the 95% of the labor force now which is non-union doesn't have any of the burp and hiccups that the union sector does unless these poor people are working in a union firm where a strike will disrupt their particular employment prospects. Now the force that unions have the cartelization force that they have had historically and something that you wrote about recently in regard to the Friedrich's case which you alluded to and but the race element of unions has always actually kind of set in the background and sometimes the forward round that unions have been not very nice to racial minorities and immigrants too as a historical thing. So some of the cases and some of the issues that you talk a little about unions and race and how- Oh sure. I mean look the key case and this is a case called the Steel Against the Louisville and Nashville Railroad and it arises under the Railway Labor Act which I mentioned earlier in this podcast where I said in effect in 1926 what they did is they made a single union have sole monopoly power over everybody. Prior to the existence of this statute essentially they were competitive unions. One was black and one was right and the reason they segregated on voluntary lines is that the element of trust within the races particularly in those days was vastly greater than the element of trust across the races and so what the employers would do is play off one union against the other and essentially the black firemen and the black helpers worked about the same amount of money as the white firemen and the white helpers in their particular union. Once you in a case called J.I. case introduce a situation in which the union can abrogate all previous contracts of all bargaining members once they're a majority chosen you don't have two separate unions they have one union 65% white, 35% black say and what they do is they now run a democracy and so they vote and this is what happened to say that every job in the particular union which was high paying belonged to right workers and every job that was low paying belonged to black workers and they said to the firms you accept this or we'll go out on strike and so they got 21 railroads or something like that to go along with it. Now you know this is absolutely outrageous and it kind of shows you how it is a majority can vote to confiscate the wealth and prosperity of a minor which shows you why it is unvarnished popular democracy in the union context works no better than it does in the political context and Justice Holland fist owners are kind of a coolage appointee they actually met each other at Amherst College when they were both kids and so forth. He finally draws the line on this and he says it's a duty of fair representation the white guys have to represent the black guys as well as they represent their own membership and we're gonna enforce it. This is an impossible duty to enforce even when the violations are clear and they're still fighting over this thing one way or another a dozen years later. What it does in effect is it indicates that the power to separate is more powerful than the voice of participation. The exit right means more than that and what the unionization statute did is to kill the exit right. In the Friedrich's case now the question is what about exit rights and voice rights with respect to dissenters on union policy and the problem is not as acute as it was with race but you have exactly the same kind of interest. Some guy says I'm better off without a union I'm better off without a union even though I don't have to pay use to the union even though I don't get benefits from you I just don't want any part of them and the union says you're gonna be a free rider and so therefore we can charge you in order to run our business and he says you're not providing me with benefits you're providing me with burdens and so the court constantly is trying to figure out what to do with these guys and instead of treating it as the economic matter that it was in the earlier days with low levels of constitutional scrutiny they're now treating it as intermediate scrutiny first amendment kind of stuff and it seems clear that given the drift of the argument that the five conservative justices including for these purposes Roberts and Kennedy believe that the free rider arguments of the old union guys are outweighed by the dangers of coercion in these kinds of setting particularly since public unions are intrinsically political and include in their bargaining activity lobbying activities in order to change the bargaining rules so that the line becomes evanescent so virtually everybody on both sides with mixed emotions obviously think that the current system called the agency shop in which non-union members can be charged a fee equal to the dues for their economic but not for their political activities will go the way of all flesh and so the libertarian elements of the first amendment are counteracting the highly progressive and collectivist elements which dominated in the 1930s and 40s. How do these the problems with unions that we discussed play out differently between private sector unions which is what we've talked about mostly and then public sector unions which we just touched on? Well the public sector unions are in many ways much more vulnerable than the private sector unions and which is one of the reasons why the 35 National Labor Relations Act did not include them they only came back in the 1960s. What's the explanation for that? Well if you push very hard on a firm in a private union setting the unless the firm has a monopoly market in its product market somebody else is gonna come in and eat it for lunch and so this essentially is an open invitation to tell people you get too successful you're gonna lose your job as well back off a little bit because otherwise I won't be able to survive. And the second thing is that when you're dealing with a union it's shareholders of private individuals which are reasonably well aligned in their interest with the company management. You start going into the public sector and generally speaking you don't have free entry into this market you don't have two police forces in the town of Glendale, California you don't even have two public school systems you don't have two of anybody. So the unions could push much harder on that because they know the substitutes are gone. In addition, they are shareholders as well as things so they could get together a political fund they could talk to their local legislator and say sure you wanna support any anti-union legislation we're gonna make sure that you see the exit when it comes to the next election and the unions the teachers unions the SEIU these guys are absolutely past masters at using these kinds of techniques so that it's pretty clear that the large number of legislators are hostage to union guys and will therefore do their bidding. This becomes most clear on when you start talking about work rules and pensions it's hard to fire anybody inside a union context and the pensions come from people who retire early and what you have to do is set aside huge sums of money because even though they get small amounts of money per year they get it for a very long number of years it turns out once the pension is vested you can't put your money in equity you have to put it in fixed instruments so that your rate of return is gonna be lower and that's why you have these huge crises and the unions are smart about this they say well we're willing to give these pension benefits for all nine union employees as well well the 90% giving a free ride to the 10% well there's a savage thing there now what they're doing is they're getting in a lot right very cheaply from what their activities are and so if you look in a place like Illinois the state may be ruined the city may be ruined by the course of the public pensions that they have to bear taxes are going up civil services are going down and the courts which have always taken a very dim view of vested rights and economic areas have systematically in Illinois and in California taken the position that every union contract gives you vested rights from the time that you take the job so what you do is you have this one set of contracts which should always be suspect are the ones that are fully enforced and so that any sensible reform legislation like Measure B and San Jose is going to be struck down by the courts this is an absolutely tragic situation and it all comes out of the progressive era carried over from the industrial unions where it was a bad mistake to the public unions where it's a catastrophic well are you saying that the obligations to the unions that could sink the budgets of cities and states can't be renegotiated that's correct they can be renegotiated but they can't be unilaterally changed so what happens is under California in a case called Kern the rule says as follows you're allowed to change unilaterally the amount of money that you give to workers so long as the president discounted value the package is not reduced which means that you could get a one percent improvement but if you come up and you say look I have to lay off lots of current preachers, policemen, clothes parks not buy books for libraries do all the things that cities do their answer is we always come first and that element is absolutely indefensible whenever you're trying to figure out how it is you do budget tidying you may give certain areas priority over others they'll never be absolute and pensions which are overvalued in the first place would never be the area in question so what we have here is a national disgrace with respect to this kind of issue I mean look there are a lot of questions which are subtle and close with respect to labor relations but all of these ones as far as I'm concerned are just clearly in one direction and it's the opposite direction for which our political wisdom runs and that's why you have the huge catastrophe we have today we start with the assumption that the progressive story of 1910 is true and then we live its dire consequences today when it turns out to be manifestly and abjectly false well it seems that labor union policies we have because I think private sector is down to seven percent or so workers six percent and so private sector unionization is going down but we created this policy in 1935 which as you mentioned and I'd like if you can balance on this it is based in a type of New Deal thinking that is frankly bizarre and quite insane and something that no one would propose today that's wrong I mean I don't think Paul Krugman would propose the kind of cartelization measures of the New Deal I'm sorry to say that may be true of the ineffable Mr Krugman but it is not true of the Democratic Party the Employee Free Choice Act is a provision that was done in order to have mandatory union membership on card checks and then to have compulsory bargaining so that if they bargain to impasse an arbitrator opposes a contract on the manufacturer that is the law in California with respect to the agricultural sector and you see massive coercion and that's what they're trying to do in this public sector because they realize and they're right about this under current law notwithstanding all of the unconscionable advantages that unions have in terms of exclusive representation immunity from the antitrust law and the like a well-run management will always beat a well-run union when it comes to major reorganizations you'll never find a reorganization like the General Motors of the Ford plants of the 1930s you look at the typical situation unions win about half the elections but these are typically elections in units which have 100 or 200 workers, nothing more and one of the things that happen if you try and unionize and get tough on a small firm in a big terrain it turns out that that firm which is unionized does not last very long so those workers are back out on the street so the success in unionization rate gives you a two-year advantage it doesn't give you a 20-year advantage and so forth they're trying to reverse this and they're trying to reverse it with an eye on those things which don't get exported there's no way that you could have the dishes bust from India when you're running a fast food restaurant the hotel clerks that do this stuff salesmen and salespeople all of these people are essentially on-ground people there'll be some erosion at the edges you could buy things online and all the rest of it but the hope is that they'll be able to get large unionization there the response will be what's what it is to high minimum wages firms will try to reorganize their capital structure in order to reduce these things from happening so they'll have fewer positions, greater automation they'll change the mix of goods that they sell mainly to the upper end so that what they could then do is find gainful ways to employ workers of higher income who are less likely to want to join unions anyhow so this is a short-term palliative which will be another long-term disaster it almost passed when Obama came into office in 2009 at this particular point so long as the Republicans hold either house in Congress it's DOA but make no mistake about it the progressive's attitude is that the failures that we see today are not because their monopoly power was too great and their disruptions were too large it's because their power is too weak judged by declining unionization the clear point is that what has happened in recent years is when workers understand that if they succeed in unionization their short-term gains are offset by their long-term instability they don't want to join that's why the UAW can't sell anything in the South because it managed by strikes and various kinds of protective provisions to take general motors from a workforce of about 500,000 in 1979 and reduce it to less than 10% of that amount when they went bankrupt in the mid-2000s so this is essentially what they're about they don't learn from their mistakes because if they learn from their mistakes they'll all be out of jobs but it seems like this is really dangerous with public sector I mean you've mentioned some of these but if you look across Europe and you kind of get an idea and I often say that sometimes you can tell if a country is kind of sliding into an economic collapse by the number of people who work for the government basically which are probably unionized and also the youth unemployment rate but these public sector unions with the cartelization and the monoplane on two sides it can just run off the rails at some point but look even in Spain and so forth it's worse than that because one of the advantages you have in a non-unionized sector in America is you still have contracts that will you're willing to hire if you know you can fire in the European system essentially to pry somebody out of a job is a major national hearing and that means the reluctance to hire high risk unskilled young workers is very, very great but the minimum wage is doing this in the United States I mean youth unemployment amongst black kids now is about 40% or more in 1948 at the height of segregation it was the same as the rate of unemployment for white kids and they were both vastly lower than they are today so it's not that the unions do everything wrong it's that when unionization is combined with other kinds of requirements minimum wage laws, mandatory pay rules, leave rules whatever it is and they essentially they price out the lower middle class somebody who's earning $150,000 a year will be hurt by these statutes they may lose $2,000 or $3,000 and that benefits from these restrictions but if you're earning $18,000 a year and somebody wants to impose a $6,000 charge on you you're out of business and everybody knows that Apple is never gonna worry about this stuff Tim Cook could bloviate all he wants about the importance of free and open access they make $400,000 or $500,000 per employee Walmart makes $16,000 or $14,000 and most of that surplus is coming from the high end employees minimum wage wipes out the surplus from low wage workers they know this, the unions don't know it Bernie Sanders doesn't know it because they don't bother to study anything about industrial organization they just assume that whatever we decree firms will follow because everybody knows that employers are stupid even though they're evil and they were simply unresponsive to changes in cost and benefits because they have infinite wealth I mean that's the kind of way they talk and it's shameful This isn't strictly on unions but talk of minimum wage make me think of it I'm often wonder why it is that progressives who are the ones who are pushing the strongest for a minimum wage and are typically big fans of government subsidies of things lean on the minimum wage as a solution to low pay for low skilled workers as opposed to say outside wage subsidies Well they're wrong and what you said is more sensible there's a danger with subsidies of course and it's a political risk because they have to be put on budget and people will know it whenever you put something in the terms of a minimum wage law there's no budget appropriation and the fact that it turns out that there are fewer profits fewer wages and therefore less revenues to the government means that in the end it is a budgetary issue but it's not going to be processed through the committee structure in Congress in exactly that particular fashion and so what they're doing in effect is they're picking an inefficient political an efficient political means which has an inefficient economic consequence which probably explains it the tragedy is that if you've tried to ask the Republicans to talk about this most of them are completely inarticulate on the problem it's not that they think wrong it's that they don't know enough to actually put the arguments out the typical Republican response to any change in labor regulation is not this is a terrible thing because it reduces the scope of voluntary exchanges well we think we should go from one to four rather than from one to eight and you know you start doing those half measures all they do is they double their demands and they're exactly where they want to be any So what does Richard Epstein's ideal unionization law look like? Well there is contracts of law contracts that will with any and all employees shall be legal is all that you need to do and it would be nice to back it by constitutional protection so if you go back to the period I'm talking about the same year that they decided Lowe v. Lola which said in effect this unions are subject to the antitrust laws they also struck down a collective bargaining statute in a case called the dare against the United States and then seven years later in a case called Carpage v. Kansas my friend Pitney again right I mean the guy's very consistent struck down the similar statute passed by Kansas which was actually a hotbed for some reason of labor law reform or of a bad variety during this particular period and if you could go back to that particular frame of mind and stop thinking about exploitation and start thinking about mutual gain you will no longer believe that contracts of employment to the equivalent of theft which was the way you began the discussion right you said well these progressives know that you'll have to take anything when they give you a job do they really think that workers who are hard strapped for money are going to be take a contract which will leave them in expectation worse off afterwards than they were before that's the fantasy and all of the history of this particular period shows increased vitality of labor markets higher rates of participation greater number of women coming into the workforce actually even some modest improvements on the part of black workers which required a lot more to do given segregation and so forth and they just don't understand the history Do you allow voluntary unions? It's just like... Well I mean people want to join together and form a union sure I'll allow them to form this thing so long as they don't have market power i.e. like the collective refusal to deal but I won't force any management company to deal with them if they can present an attractive piece that will be fine and in fact as I said there is an incentive to have company unions in these cases because a lot of times workers may have an instinctive distrust that an organization will help them overcome and that means in effect that they can basically do better in coordinated activities than they could have done without a union most firms understand that I mean I've been an employer every time I have a particular problem I'm quite happy to put together a workers committee if I think they're going to be able to solve this thing and to give them a charge and the important thing that you do as a boss is you actually endorse and support their efforts and you can't do that if it's a union because they're always stealing information from you in order to figure out how to run the next collective bargaining negotiation so what happens is unions kill cooperation down at the molecular level they create the lousy form of labor regulations that a good employer will try to avoid Thank you for listening Free Thoughts is produced by Evan Banks and Mark McDaniel To learn more find us on the web at www.libertarianism.org