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Job Security 

Employees who demand job security are probably overpaid. What they are saying is there is no way in hell I could get anyone else to pay me this much, so I’ve gotta hold on to this job as if my life depends on it. 

Real job security is the knowledge that if you lose your current job, you can easily get another just as good. That is always the case when you are being paid at the market rate. There is a market for your skills at that rate. There is demand for your services. 

In a free enterprise system, it makes no sense for an employer to guarantee jobs. In a truly competitive market, employers can’t even guarantee their own continued existence. The weaker competitors fail and are replaced by new entries into the market. Political and technological changes wipe out entire industries, like typewriter manufacturers and telemarketers. 

Businesses cannot be expected to last forever and should not be making long-term promises to employees. In fact, holding on to employees when the company is operating at a loss only hastens the failure of the business. By trying to avoid laying off 50 workers, management could destroy the company and cause hundreds to lose their jobs. Businesses are not welfare agencies. They should not employ people unless it is helping the bottom line.  

I heard a story on NPR about a little company – a machine shop, I think – that moved operations to Mexico, putting a bunch of formerly well-paid employees out of work. One was saying that he was getting $30 an hour, but now could find nothing that paid more than minimum wage. It occurs to me that the company did a disservice to its employees by overpaying them. If it had paid the market rate, profits would have been higher and there would have been no reason to shut down and move to Mexico. The employees would have been paid less, but they at least would have a job and an income to get them by until they found something better. 

I always wonder when I hear stories about companies trying to cut costs by laying off, say, 100 middle-level managers. Why were they on the payroll in the first place if they were not adding value, that is, increasing profits by more than their salaries?  

Risk-taking 

In addition to the savings from paying employees at the market rate, companies will benefit from a staff that is more willing to take risks. When employees know they can get a job elsewhere without taking a big loss, they are more willing to speak up about what needs to be changed at the company. Crooked and/or incompetent executives and managers like to buy the loyalty of the people below them. If they can get away with it, they surround themselves with overpaid, spineless middle-level managers who are afraid to cross the boss because they know they can’t get a job elsewhere that pays nearly as well. The more they are paid, the less effective they are. 

Freedom, Rights, Liberty 

No right to a fair wage is in the U.S. Constitution. It makes no more sense for the government to be involved in setting wage rates than to be setting prices. Hiring and agreeing on the wage rate should be a private transaction between a business and the worker. Liberty is curtailed when a government arbitrator tells an employer how much he must pay his employees, or when the government allows strikers to interfere with a business or to attack or threaten violence against citizens who are applying for the jobs the strikers refuse to do. The employer-employee relationship should be a voluntary arrangement in which the government has no role other than to prevent the parties from doing violence to one another. 

Employers must be free to fire and hire and decide how they will compensate their employees, providing they do not discriminate on the basis of age, sex, race, sexual preference, etc., or endanger the workers' health. And workers must be allowed to offer their services to any employer at any price without being attacked as "scabs". 

Violence 

Liberals and unions make strange bedfellows. Liberals are ordinarily peace lovers, favoring non-violent methods to bring about social change. Unions, on the other hand, have a tradition of violence. Collective bargaining would be unproductive without the threat of a strike. Do UAW negotiators tell GM that if they don’t get what they want, they will encourage their members to seek jobs elsewhere? No - they threaten a strike, which would shut down production and cost market share and billions of dollars.

The employer is not the only one hurt by a strike. Customers and other innocent bystanders are often inconvenienced. Travelers are stranded when public transportation workers strike. Children’s education is set back when teachers strike. Shoppers are inconvenienced when grocery store workers strike. Public health is endangered when garbage collectors strike. 

A strike is a kind of vigilantism. Union members are administering punishment outside the law. The victims have not been found guilty by a trial of their peers, and the punishment follows no legal guidelines. 

The Bargaining Farce  

It is hard for me to imagine a collective bargaining session. First of all, the union negotiators have to figure out what they are going to ask for, and that can’t be easy because the members themselves aren’t likely to agree. One union rep speaking for the whole membership is about as practical as representative democracy. The members all likely want more, but can they agree on how much more? We can assume they all want a lot more. The negotiator for the employer, on the other hand, is thinking “I can get all the workers I need for $5 an hour less than I’m paying these guys now, and they want more?” 

The problem is, there is no such thing as a fair wage, just as there is no such thing as a fair price for a gallon of gas. A fair wage cannot be determined by human beings. Some economists think it should be based on the value the worker adds to the product, which means that when productivity increases, wages should also increase. But increases in productivity are likely due to improvements in technology rather than any extra contribution from the employee. Even if the employees do deserve the credit, there remains the problems of distributing the reward. Did they all contribute equally to the increase in productivity? And shouldn't some of the gain be passed on to the customer?

Both Henry Ford and Walter Reuther thought that wages should be enough to enable workers to buy the product. Using this logic, Boeing workers should be able to buy 747s while McDonalds workers would have to settle for Big Macs.

Samuel Gompers of the AFL clarified the issue as follows:

We do want more, and when it becomes more, we shall still want more. And we shall never cease to demand more until we have received the results of our labor.

I guess you could call the market wage a fair wage, but that is just confusing. Let's just call it the market wage. For the employee, it is the best wage offered by any of the employers he's willing to consider. For the employer, it is lowest wage he can pay to attract and keep the kind of employees he needs.

Fringe Benefits 

The tradition of fringe benefits also contributes to unemployment.

• They complicate the hiring transaction because they obscure the total wage received by the worker.
• They impose administrative costs on the employer. In the case of pensions, additional costs are incurred just to estimate the long-term costs of the pensions. Since the cost of fringe benefits doesn’t increase with the amount of hours an employee works, employers often choose to pay current workers overtime rather than to hire additional workers.
• Workers are reluctant to switch to more suitable jobs for fear of losing benefits tied to longevity.

 The solution is to eliminate fringe benefits:

• Employer-provided health insurance won’t be necessary with a national health system.
• With a reformed, fully-funded social security system providing a financial safety net, the responsibility for any additional retirement savings can be the worker’s alone – true “privatization”. The employer won’t be involved, making the plan entirely portable.

With the new federal income tax I envision (see Reform the Tax System), employers won’t be able to deduct the cost of employee health plans and contributions to retirement plans, so they will have no incentive to provide them. 

A Mobile, Flexible Workforce 

Eliminating fringe benefits and allowing wages to be determined in a free, open labor market allows industries to quickly absorb masses of workers displaced by natural disasters, technological advances, government policy changes and business failures. Workers are able to get back to work sooner and businesses are rewarded for providing those much-needed jobs by enjoying – for a while, anyway - cheaper labor expenses.

Can't Buy Happiness

In What Do Unions Do?, a book by Richard B Freeman and James L. Medoff, the authors examine the pros and cons of unions and conclude that on balance, unions are beneficial - mainly because they improve communication with management ("voice"). (I agree that good communication increases productivity, but I don't believe unions are necessary for communication. All you need is intelligent managers.) But there was this unexpected finding that came out of the study (Chapter 1, page 12):

Paradoxically, while unionized workers are less willing to leave their employers than nonunion workers, unionized workers often report themselves less satisfied with their jobs than nonunion workers. Unionists are especially dissatisfied with their work conditions and their relations with supervisors. One explanation is that unions galvanize worker discontent in order to make a strong case in negotiations with management. To be effective, voice must be heard.

Another explanation might be those "golden handcuffs". Their wages and benefits are so good that they've never dared to quit and find a job that better fits their interests and capabilities. If they'd thought they could earn more, they might have gone back to school, or started their own business. Instead, they chose to stay for the income and security, and they spend their lives doing dull, repetitive work that any sap can do, along side their sappy co-workers. No wonder they are cranky.

Drive the Unions out of Michigan
Unions in state government
Unions in public schools
Union facts
What economists think
What union sympathizers say