Corporate Unions

In an ordinary employer-employee relationship with a large company, the employer has most of the power. When any individual employee seeks a higher wage, he or she has no leverage; for a large company to lose a single employee makes little difference. In the U.S., unions have been a way for employees to get more leverage. The large company can not ignore the effect of many employees working together.

However, many people dislike unions, because unions are only effective when the union members work together. Many people feel that this takes away individual rights, as indeed it does.

It recently occurred to me that there is a different way to look at the issue. Think of the union as a company itself, a special sort of company which operates as a monopsony. When you join the employer, you are actually joining two companies: the employer and the company which provides employees to the employer. The union company and the regular company have a tight relationship, but this is no different from an ordinary monopsony supplier situation, such as is widely found in, e.g., the automotive business. Union companies tend to be more democratic than most companies, but this is not a fundamental difference.

One can of course have multiple union companies providing labor to the parent company. However, it is perfectly reasonable for the parent company to negotiate only with union companies for labor, rather than with individuals. After all, only in exceptional situations would a company purchase non-labor supplies from an individual. Why should labor be any different? Thus the “closed shop” has a clear support: it’s a matter of efficiency for the parent company.

This perspective may remove some of the traditional complaints against unions. They are replaced by a different issue, which is that every employee has two loyalties. However, in reality we all have multiple loyalties in our lives—to our families, our sports teams, etc.

Try thinking of the matter this way the next time you feel angry about unions. They are just doing what regular companies do.

9 Comments »

  1. fche said,

    October 18, 2011 @ 11:05 am

    It is an interesting way to look at it.

    I wonder though whether a rhetorical “Why should labor be any different?” is all that persuasive. Labour is absolutely different from the business value of a piece of furniture. It represents long-term loyalty, business know-how. It makes sense for companies to be more picky. Furniture is a depreciating asset. Labour usually appreciates.

    “Thus the “closed shop” has a clear support: it’s a matter of efficiency for the parent company.”

    How about letting the actors involved make that decision? That is, ensure that companies and employees have the freedom to embrace this notion of efficiency if they so choose. Let the market punish inefficiencies. Is that not what “right to work” (what a misnomer, sigh) type legislation is about?

  2. Simetrical said,

    October 18, 2011 @ 4:38 pm

    The problem with closed shops isn’t that they take away freedom from workers, but that they’re inefficient. They create a monopoly of labor that ensures the monopolists can charge higher prices for inferior services, which benefits the monopolists at the expense of everyone else. The harm caused by unions is no different to that caused by any monopoly, and they should be restricted for the same reason.

    It’s also misleading to phrase employee-employer relations as a matter of power. In a market economy, employment is a voluntary arrangement by two parties to their mutual benefit. If the labor market is competitive, both sides will be forced to accept market price for the labor, just as in any other competitive market. It mostly doesn’t matter how large or powerful the employer is relative to the employee. Allowing employees to collude to raise prices of employment will raise prices above market value and decrease efficiency, to the detriment of society as a whole.

    Of course, labor markets are not at all perfectly competitive. Transaction costs are extremely high, information is often sorely lacking on both sides, and employers are few in some fields. But you’re only going to make things worse by imposing government-backed monopolies.

    (As far as I understand it, a union does qualify as a monopoly, not a monopsony. A monopsony is a single buyer, and a monopoly is a single seller. Unions sell labor, and don’t buy anything.)

  3. Brian Slesinsky said,

    October 18, 2011 @ 8:53 pm

    It’s a useful analogy, but if we look at how companies actually behave when they decide to go through a contracting firm, there are some differences. Often contracting firms want to make sure their contractors don’t have the option of striking a deal with the company directly and cutting them out, because they charge significant overhead. However, they generally can’t prevent the company from finding someone else entirely.

    Also, companies often decide that they don’t want to deal with individual contractors (for tax reasons, etc) but it’s pretty rare for a company to sign an exclusive contract with a single supplier.

  4. gps said,

    October 19, 2011 @ 3:48 am

    And just like corporations, unions are also considered to be people when it comes to campaign finance…. oops.

  5. yosefk said,

    October 28, 2011 @ 8:34 am

    I’m a programmer in the automotive business, and I can think of no monopsony in it – what are they?

  6. mdoar said,

    October 28, 2011 @ 2:50 pm

    When the union is viewed as another company, then the same employer-employee relationship begins to form with the union instead. The only way I found to reinforce my individual rights was to work for myself for the last five years.

  7. mdoar said,

    October 28, 2011 @ 2:50 pm

    Replace “rights” with “needs and desires”.

  8. Ian Lance Taylor said,

    October 29, 2011 @ 10:06 am

    yosek: I am thinking of companies like Delphi, which predominantly sells to GM.

  9. bje said,

    January 2, 2012 @ 12:09 pm

    Having worked for a multinational corporation, it became apparent to me that in recent decades, capital has gone global, but labour has not. It has made national unions toothless in these workplaces. If a single country arm of the workforce was to go on strike, for example, a very large company can work around the “inconvenience”, just as an employer can work around a single employee.

    Global unions seem a huge stretch to me. There are very different attitudes to work, different employment conditions, different laws. Getting global union members to agree to anything would be like getting the UN to agree to anything.

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