D. Labor Economics Chapter 19 The Evil of Unions; In the Public As Well As the Private Sector

According to our friends on the left, the reason we need unions is because without them, employers would grind employees into the ground. Were organized labor to disappear, wages would plummet; workers would have to work on Sundays (“If you don’t come in Sunday, don’t bother coming in Monday”), tip their hat to their bosses, and suffer all sorts of other indignities, including losing virtually all improvements in working conditions made over the last century.

Of course, this is all wrong. Wages and working conditions are not set by firms. Rather, they depend upon the productivity of labor, more technically on the marginal revenue product of the worker. This can be defined as the extra amount of revenue brought in by adding one more person to the payroll. For example, if there were 1,000 workers creating an item that sold for $x, and then the 1,001st employee came on board and the firms sales rose to $x + $7, then the marginal revenue productivity of the last person hired would be $7 per hour.

Wages cannot long be higher than this amount, or the company will lose money on every worker it hires. For example, if compensation is $10, and revenue taken in due to the efforts of the worker is $7, then the firm loses $3 every hour the man is on the shop floor.

On the other hand, a situation cannot endure where wages are lower than this amount. For example, suppose pay was $2 per hour, while productivity remained at the $7 level we are considering. Then, the employer would earn a pure profit of $5 every hour. This cannot last for two reasons. First, other companies would have incentive to hire such a worker away from his employer. Assuming that the productivity of the latter would be the same $7 on the premises of any member of the industry, a competitor could offer, say, $2.25. This would be a substantial increase over and above the present salary of $2, and yet would allow the newcomer to earn a profit of $7 minus $2.25 = $4.75. But if this would work, so would a bid of $2.50, $2.75, $3.00, etc. Where would this process end? As near to $7 as allowed by the costs of finding such “underpaid” workers and convincing them to switch jobs for higher pay. Second, workers talk to each other. An employee worth $7 but paid less than that would be tempted to quit if he found out that his associates at other stores or factories were earning more. Thus, wages for workers of this skill level will tend to earn $7. This does not mean that under free enterprise there will be no deviations from this amount. There will be. The market is continually changing. But there is an inexorable tendency for wages to continually move in the direction of this equilibration.

If wages were really set by employers, why is it that employees such as Shaquille O’Neal, Brad Pitt, Brittney Spears, and Bill Gates all earn mega bucks? Generosity? No, the reason they do is because their productivity (ability to fill seats in sports arenas, movie theaters, concert halls in the case of the first three, and manage a large company for the latter) is very, very high. If their present employers did not pay them satisfactorily (that is, in accordance with productivity) others would gladly jump in and do so.

When unions artificially boost wages above this stipulated $7 productivity, they look good in the short run. But in the long run they create business failures and rust belts. Just as you cannot shove the water in the bathtub in a downward direction without slopping some of it out onto the floor, it is impossible for any substantial length of time to maintain wages above productivity levels. (Actually, the former is a mere physical impossibility; the latter, in addition, violates the economic laws of logic, or praxeology.)

What determines the level of productivity, and hence the wages that are dependent upon it? This is based on how hard and how smart people work, and the amount and sophistication of the tools and capital equipment they are given by their employer to work with. This, in turn, depends upon how much saving occurred in the previous periods, and, even before that, how economically free and law abiding is the populace. The more reliance on private property rights and free enterprise, other things equal, the better in this regard.

If organized labor is really the only institution that stands between the workingman and abject poverty, how is it that real wages have been increasing, while the rate of unionization has been declining over the last half century (see Table 1)? Why is it the some industries that have never come within a million miles of unions (computers, banking, accounting) pay very high wages, often in excess of that earned by the rank and file? Given that they are at the mercy of the capitalist pigs, should they not have been ground into the dust? How can it be that the south, which is the least unionized part of the country, is the fastest growing? What accounts for the fact that countries where western style unionism is all but unknown (Hong Kong, Singapore, Japan) are economic powerhouses, with standards of living envied in many places on the globe?

Be this as it may, it is all dismissed by professors, pundits and politicians on the left side of the aisle. Let it never be said that the present writer has no empathy for these sorts of people. In order to demonstrate this, I shall now assume, arguendo, that everything the opponents of free enterprise say about the employer’s relationship with the employee is true. The former is a blood-sucker, always ready to pounce on the hapless worker. The bosses have cash registers for hearts, and dollar signs on their eyes; no pity for the downtrodden masses ever bestirs them. Had they their way, the situation of the worker would be hopeless indeed.

As part of this present touchy-feely analysis of mine, I must also acknowledge the benevolent role played by the government in labor relations. Were it not for magnificent pro-organized labor legislation such as the Clayton Act, the Railway Labor Act, the Davis-Bacon Act, the Norris-LaGuardia Act, National Industry Recovery Act, the Wagner Act, the National Labor Relations Board Act, the Byrnes Anti-Strikebreaker Law, the Walsh-Healy Act ,and Fair Labor Standards Act, the firm would not have been taken down a peg or two, and the workers plight would have been horrific.

Okay, okay, enough with the economic illiteracy. Instead, let me ask proponents of these sentiments just one single solitary question: if the government is such a great institution, that totally eschews profiting from the blood, sweat, and toil of the workingman, from whence comes the justification of, wait for it, public sector unions? My point here is that these sorts of labor organizations are simply incompatible with the leftist case (articulated above) to the effect that the capitalist is an exploiter, and that the government has rescued the worker from the baleful influence of the corporation. If the state is so wonderful as all that, why the need for a public sector union, all of whose members have the benevolent government as their boss?

Table 1
U.S. Union Membership, 1948–2004 (numbers in the thousands)
Year	Percent Workforce	Total Members
1948	31.8	14,271
1949	31.9	13,935
1950	31.6	14,294
1951	31.7	15,139
1952	32.0	15,632
1953	32.5	16,310
1954	32.3	15,808
1955	31.8	16,126
1956	31.4	16,446
1957	30.2	16,497
1958	30.3	15,570
1959	29.0	15,438
1960	28.6	15,516
1961	28.5	15,400
1962	30.4	16,893
1963	30.2	17,133
1964	30.2	17,597
1965	30.1	18,268
1966	29.6	18,922
1967	29.9	19,667
1968	29.5	20,017
1969	28.7	20,185
1970	29.6	20,990
1971	29.1	20,711
1972	28.8	21,205
1973	28.5	21,881
1974	28.3	22,165
1975	28.9	22,207
1976	27.9	22,153
1977	26.2	21,632
1978	25.1	21,756
1979	24.5	22,025
1980	23.2	20,968
1981	22.6	20,646
1982	21.9	19,571
1983	20.7	18,633
1984	18.8	17,340
1985	18.0	16,996
1986	17.5	16,975
1987	17.0	16,913
1988	16.8	17,002
1989	16.4	16,960
1990	16.1	16,740
1991	16.1	16,568
1992	15.8	16,390
1993	15.8	16,598
1994	15.5	16,748
1995	14.9	16,326
1996	14.5	16,269
1997	14.1	16,110
1998	13.9	16,211
1999	13.9	16,477
2000	13.5	16,258
2001	13.5	16,275
2002	13.3	16,146
2003	12.9	15,776
2004	12.5	15,472

Source: http://www.laborresearch.org/charts.php?id=29

Look at Table 2. As can be clearly seen, if present trends long continue, private sector unions will all but disappear. The only thing propping up over all union membership percentages are those organized against the government. Organized against the government? That wonderful institution that protects the working stiff from the evil capitalists? The one responsible for the plethora of pro-union legislation mentioned above? This can only make sense to those entirely innocent not only of elementary economic reasoning, but of basic logic as well. It is time, it is long past time, for all public sector unions to be disbanded.

Table 2
Year	Public	Private	Total
2004	36.4	7.9	12.5
2003	37.2	8.2	12.9
2002	37.5	8.5	13.3
2001	37.4	9.0	13.5
2000	37.5	9.0	13.5
1999	37.3	9.4	13.9
1998	37.5	9.5	13.9
1997	37.2	9.8	14.1
1996	27.7	10.2	14.5
1995	37.5	10.4	14.9
1994	38.7	10.9	15.5
1993	37.7	11.2	15.8
1992	36.7	—	15.8

Sources:

• http://www.bls.gov/pub/ted/2002/jan/wk3/art03.htm

• http://www.bls.gov/news.release/union2.nr0.htm

• http://www.bls.gov/cps/wlf-table38-2005.pdf

• ftp://ftp.bls.gov/pub/news.release/History/union2.013197.news

• http://www.bls.gov/schedule/archives/all_nr.htm#UNION2

Or is it?

Let us turn to one last issue in conclusion. When a public sector union (firemen, garbage men, post office workers, librarians, teachers, bus drivers, civil servants, etc.) goes on strike, whom does the libertarian favor? They are in effect both of them criminal gangs, only one is usually far stronger than the other. One stance is, at any given time, root for the weakest one. That virtually always implies the public sector union. Of course, this means to the extent the rooting is effective, higher wages, and ultimately an increase in taxes will result. This can be obviated when the government bears down and does not accede to the wishes of these labor organizations, but the downside is that the state, the source of union power in the first place, emerges even stronger. Perhaps the best reaction is “A pox on both your houses.” In which case it is clear that we libertarians should champion an end to public sector unions.

But what is crystal clear is that the existence of these labor organizations cannot be reconciled with the usual leftist rhetoric about mean-spirited private capitalists and benevolent politicians. Were this the case socialists would defend private unions only. However, they of course do not. This is yet one more bit of evidence attesting to their irrationality.

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Published September 14, 2005.

Chapter 20

Is There a Right To Unionize? It All Depends

I resist the notion that we have a “right to unionize” or that unionization is akin, or, worse, an implication of, the right to freely associate. Yes, theoretically, a labor organization could limit itself to organizing a mass quit unless they got what they wanted. That would indeed be an implication of the law of free association.

But every union with which I am familiar reserves the right to employ violence (that is, to initiate violence) against competing workers, e.g., scabs, whether in a “blue collar way” by beating them up, or in a “white collar way” by getting laws passed compelling employers to deal with them, and not with the scabs. (Does anyone know of a counter example to this? If you know of any, I’d be glad to hear of it. I once thought I had found one: the Christian Labor Association of Canada. But based on an interview with them I can say that while they eschew “blue collar” aggression, they support the “white collar” version.)

But what of the fact that there are many counterexamples: unions that have not actually engaged in the initiation of violence? Moreover, there are even people associated for many years with organized labor who have never witnessed the outbreak of actual violence.

Let me clarify my position. My opposition is not merely to violence, but, rather, to “violence, or the threat of violence.” My position is that, often, no actual violence is needed, if the threat is serious enough, which, I contend, always obtains under unionism, at least as practiced in the U.S. and Canada.

Probably, the IRS never engaged in the actual use of physical violence in its entire history. (It is mostly composed of nerds, not physically aggressive people.) This is because it relies on the courts-police of the U.S. government who have overwhelming power. But it would be superficial to contend that the IRS does not engage in “violence, or the threat of violence.” This holds true also for the state trooper who stops you and gives you a ticket. They are, and are trained to be, exceedingly polite. Yet, “violence, or the threat of violence” permeates their entire relationship with you.

I do not deny, moreover, that sometimes, management also engages in “violence, or the threat of violence.” My only contention is that it is possible to point to numerous cases where they do not, while the same is impossible for organized labor, at least in the countries I am discussing.

In my view, the threat emanating from unions is objective, not subjective. It is the threat, in the old blue collar days, that any competing worker, a “scab,” would be beat up if he tried to cross a picket line, and, in the modern white collar days, that any employer who fires a striking employee union member and substitutes for him a replacement worker as a permanent hire, will be found in violation of various labor laws. (Why, by the way, is it not “discriminatory,” and “hateful,” to describe workers willing to take less pay, and to compete with unionized labor, as “scabs”? Should not this be considered on a par with using the “N” word for blacks, or the “K” word for Jews?)

Suppose a small scrawny hold-up man confronts a big burly football-player-type guy and demands his money, threatening that if the big guy does not give it up, the little guy will kick his butt. I call this an objective threat, and I don’t care if the big guy laughs himself silly in reaction. Second scenario. Same as the first, only this time the little guy whips out a pistol, and threatens to shoot the big guy unless he hands over his money.

Now, there are two kinds of big guys. One will feel threatened, and hand over his money. The second will attack the little guy (in self-defense, I contend). Perhaps he is feeling omnipotent. Perhaps he is wearing a bullet-proof vest. It does not matter. The threat is a threat is a threat, regardless of the reaction of the big guy, regardless of his inner psychological response.

Now let us return to labor management relations. The union objectively threatens scabs, and employers who hire them. This, nowadays, is purely a matter of law, not psychological feelings on anyone’s part. In contrast, while it cannot be denied that sometimes employers initiate violence against workers, they need not necessarily do it, qua employer. (Often, however, such violence is in self-defense.)

This is similar to the point I made about the pimp in my book Defending the Undefendable: For this purpose, I don’t care if each and every pimp has in fact initiated violence. Nor does it matter if they do it every hour on the hour. This is not a necessary characteristic of being a pimp. Even if there are no non-violent pimps in existence, we can still imagine one such. Even if all employers always initiated violence against employees, still, we can imagine employers who do not. In very sharp contrast indeed, because of labor legislation they all support, we cannot even imagine unionized labor that does not threaten the initiation of violence.

Murray N. Rothbard was bitterly opposed to unions. This emanated from two sources. First, as a libertarian theoretician, because organized labor necessarily threatens violence (see Man, Economy and State). Second, based on personal harm suffered at their hands by his family (see Justin Raimondo, An Enemy of the State: The Life of Murray N. Rothbard).

We must never succumb to the siren song of union thuggery.

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Published January 1, 2004.

Chapter 21

In Defense of Scabs; The Limited Justification for Trade Unions

I wrote a piece called “Is There a Right to Unionize?“ (see chapter 20) and received dozens and dozens of responses. Many of them raised interesting points I did not address in that article, or, at least, not fully enough. Rather than responding to all these letters, substantively and in detail, I thought I would reply to some of the points in a second essay.

1. Unionism Is Legitimate

Many insisted that theoretically, unions are compatible with the free society. I agree, I agree. Nothing I said before should be taken to be inconsistent with this view. All such a union would have to do is to eschew both white- and blue-collar crime. I only argue that it has never happened in fact, not that it would be impossible for it to occur.

However, I am something of a fuss-pot about language. Surely, a workers’ association that totally eschews the initiation of violence, or even the threat thereof, deserves different nomenclature from organizations it only superficially resembles; e.g., unions. My suggestion is that we not characterize as a union any labor organization that strictly limits itself to the threat of quitting en masse.

What, then, should we call a group of workers who eschew both beating up “scabs” and laws compelling employers to bargain with them? Here are some possibilities: workers’ associations, employees’ groups, organizations of staff members, etc.

Thus. Are workers’ associations as defined above compatible with free enterprise? You bet your boots they are. Do unions, or organized labor qualify in this regard? No, a thousand times no.

2. Public Sector Unions

One reader, a very distinguished fellow columnist, takes the position that public sector unions are the worst of them all (not his exact language, which is too pithy to be fully recorded here).

In my view, public sector unions present theoretical libertarianism with a very complex challenge (albeit in a slightly different manner than do private sector unions: in this case, they are not necessarily incompatible with the free society, but, as it happens, there are no actual cases in existence of such employee organizations that are consistent with economic freedom).

The complexity presented by public sector unions is that, on the one hand, from a libertarian perspective they can be seen as a counterweight to illegitimate governments, while on the other hand they constitute an attack on innocent citizens. Each of these different roles calls for a somewhat different libertarian response.

Let us take the first case first. For the limited government libertarian, or minarchist, the state is illegitimate if, and to the extent it exceeds its proper bounds. These, typically, include armies (for defense against foreign powers, not offense against them), police to keep local criminals in check (that is, rapists and murderers, etc., not victimless “criminals” such as drug dealers, prostitutes, etc.), and courts to determine guilt or innocence. Some more moderate advocates of laissez faire add to this list roads, communicable disease inoculations, fire protection and mosquito control. For the anarcho-libertarian, of course, there is no such thing as a licit government.

What, then, are libertarians to say about a public sector teachers’ union, on strike against a state school? (A similar analysis holds for public sector unions in garbage collection, post office, buses, or in any other industry where government involvement is improper in the first place). It is my contention that the correct analysis of this situation is, “A plague on both your houses.” For not one, but both of these organizations is illegitimate. There is no libertarian who can favor government schools, whether anarchist or minarchist (Milton Friedman, who champions public schools, as long as they operate under a voucher system, thus falls outside the realm of libertarianism on this question.) So, on one side of this dispute, there is illegitimacy. But the same applies to the other, the union side, as we have previously demonstrated. Thus, there are here two contending forces, both of them in the wrong. From a strategic point of view, we may well even support the union vis-à-vis the government, since they are the weaker of the two opponents. But from a principled perspective, my main interest here, we must look upon the two of them as would all men of good will witness a battle between the Blood and the Crips, or between Nazi Germany and Communist U.S.S.R. Root for both of them!

Now, let us consider the second case. Here, we note that the public sector union does much more than attack illegitimate government. It also vastly inconveniences practically the entire populace. When schools are closed, garbage is not collected, the buses do not run — because public sector unions utilize violence and the threat thereof to these ends — then the libertarian response is clear: opposition, root and branch.

Let us take one last crack at public sector unions, which brings about a further complication. One of my correspondents mentions that “The last 2003 show of ABC’s 20/20 news show had a story on how public employee unions are fighting against people who volunteer for the public good,” referring to “one of the great Give Me a Break segments by host John Stossel” (see on this “No Good Deed Goes Unpunished: Are Volunteers Taking Workers’ Jobs?” ABCNEWS.com).

The general issue is that citizens have been volunteering to do things like help public sector unionists collect trash in parks, aid them in planting flowers, help them stack books in public libraries, etc., and the unions have reacted viciously, as is their wont.

Before we can shed libertarian light on this contentious issue, let us first ask, What is the libertarian analysis of ordinary people volunteering to help the government do jobs it should not be doing in the first place? To put it in this way is almost to answer the question.

There is no difference in principle between volunteering to help the state perform illegitimate acts (of course, these are not illicit, per se, as are concentration camps; rather, it is improper, in libertarian theory, for governments to take on such responsibilities) such as regarding libraries, schools, parks, etc., and sending them monetary donations for such purposes. In either case, one is aiding and abetting evil, and risking being found guilty of crimes against humanity by a future libertarian Nuremberg trial court.

Repeat after me: free enterprise, good, (excessive) government, bad. Once again from the top: free enterprise, good, (excessive) government, bad! The appellation, “libertarian,” is an honorific. It is too precious to be bestowed on all those who claim it. It is my contention that people who support (excessive) government are simply not entitled to its use. (At least in the specific context in which they violate the non-aggression axiom. John Stossel is indeed a libertarian on many other issues, but certainly not on this one.)

Here is a lesson for libertarians. If you want to be worthy of this designation, and desire to contribute money to a good cause, do not give to a government that goes beyond its legitimate authority. There are many worthy causes that oppose statist depredations, not support them. If you want to be worthy of this honorific, and wish to donate time to a good cause, e.g., by collecting garbage, planting flowers, or filing books, etc., then do so for the relevant private groups, whether charitable or profit seeking, it matters not one whit.

3. Can a Libertarian Join a Union?

Several asked if it is proper, if it is even logically possible, for a libertarian to join a coercive union? Much as I hate to be controversial (okay, okay, I don’t mind it a bit) my answer is Yes. There are many issues upon which I disagree with William F. Buckley, but his decision to join ACTRA is not one of them. (This was the requirement imposed upon him for being allowed to air his television show, Firing Line.)

Why would I take such a seemingly perverted stance? Let me answer by indirection. Given that it is illegitimate for the government to run schools and universities, is it illegitimate for a libertarian to join them whether as a student or a professor? Given that it is illegitimate for the government to organize a post office, is it illegitimate for a libertarian to mail a letter? Given that it is illegitimate for the government to build and manage roads, streets and sidewalks, is it illegitimate for a libertarian to utilize these amenities?

True confession time. I have been a student at public schools; grade school, high school, and college. I have even been a professor at several public colleges and universities. I regularly purchase stamps from the evil government post office, and mail letters. I walk on public sidewalks, and avail myself of streets and highways. Mea culpa? Not a bit of it.

If Ayn Rand‘s heroic character Ragnar Danneskjöld has taught us anything, it is that the government is not the legitimate owner of what it claims. Why, then, should we respect its “private property rights” when there is no practical reason to do so? If this means that libertarians can partake of services for which they favor privatization, then so be it.

Similarly, with coercive unions. If a hold-up man demands your money at the point of a gun, giving it up is not incompatible with libertarianism, even though it amounts to acquiescing in theft. If organized labor threatens you with bodily harm unless you join with it and pay dues to it, I cannot think that agreeing to do so per se removes the victim from the ranks of libertarianism. Buckley, to give him credit, never ceased inveighing against the injustice done to him in this way. If he had reversed field, and starting defending unions, then what little claim he has to be a libertarian would have vanished. In this regard, there is all the world of difference between a Marxist professor at a public university who promotes interventionism, and a libertarian who opposes it.

4. Not Aware of Violence

Several objected on the grounds that they were not aware of any violence in their own unions. But, many employees of the IRS are probably not aware that what they are doing amounts to the threat of the initiation of violence. I don’t see why all union members should necessarily be aware of this for my thesis (this is hardly original with me) to be correct. My understanding is that after the British left India, the government of the latter began polling people in far removed rural villages as to their thoughts on this matter; they had to stop when they learned that they were not aware that the British had even arrived there in the first place. Heck, there are probably some people out there who still think the earth is flat, or that socialism is an ethical and efficacious system! That does not make it so.

5. Self-defense

Some readers objected on the grounds that union violence did indeed exist, but was justified on the grounds that this was only in self-defense, against employers, scabs, or foreigners. Let us consider each of these in turn.

Yes, employers are violent too. The Pinkertons spring immediately to mind in this regard. Some of these cases were justified in self-defense, against prior union aggression, some were not. In the former case, there is certainly no warrant for invasive behavior on the part of organized labor. But even the latter cases cannot serve as justification for pervasive union aggression, even against non-invading employers. (It is only a Marxist who would claim that employers are necessarily offensive; for an exposure of this fallacy, see Eugen Böhm-Bawerk, Capital and Interest, particularly his “Exploitation Theory of Socialism-Communism.”) At best, this can validate self-defense on the part of the rank and file in those cases of employer aggression only.

And what of “scabs?” The claim, here, is that “scabs” are stealing, or, better yet, attempting to steal, union jobs. But the scab can only “steal” a job if it is owned, like a coat, or a car. However, a job is very different. It is not something anyone can own. Rather, a job is an agreement between two parties, employer and employee. But when an employer is trying to hire a scab and fire the unionist, this shows he no longer agrees. Do not be fooled by the expression “my job.” It does not denote ownership, any more than “my wife,” “my husband,” “my friend,” “my customer,” or “my tailor” indicates possession in any of those contexts. Rather, all of these phrases are indicative of voluntary interaction, and end (apart from marriage laws which may prohibit this) when the agreement ceases.

Then, there is the supposed “threat” imposed by Mexican workers (or Indian or Japanese workers, whoever is the economic Hitler of the day). Remember that “giant sucking sound?” The best remedy for this bit of economic illiteracy is to read up on free trade. Henry Hazlitt’s book, Economics in One Lesson, would be a great place to start.

6. But They Signed a Contract

Several respondents argued that since the employer signed a labor contract, he should be forced to abide by its provisions. But why should the employer have to honor a contract that was signed under duress? Suppose I held a gun on you, threatened to shoot you unless you signed a “contract” with me, promising to give me $100 per week. Later on, when you were safe, you reneged on this “contract.” Certainly, you’d be within your rights.

7. Maximize Income

One reader asked: “How else is a man who sells the only product most of us have, labor and time, going to maximize the return of his investment, other than by joining a union?”

First of all, even if this were true, any criminal could say no less. A hold-up man, too, wants to “maximize the return of his investment” and does so by committing aggression against non-aggressors. How is the unionist any different than the hold-up man in this regard?

Second, it is by no means clear that organized labor is the last best chance for economic well being on the part of the workingman. Anyone ever hear of the rust belt? Unions from Illinois to Massachusetts demanded wages and fringe benefits in excess of productivity levels, and employers were powerless to resist. The result was “runaway shops.” Either they ran into bankruptcy, or they relocated to places like Alabama, Mississippi, and Louisiana, where unionism was seen more for the economic and moral scourge that it is, than in Taxachussetts. If organizing workers into unions is the be all and end all of prosperity, how is it that wages and working conditions are very good in computers, insurance, banking, and a plethora of other non-unionized industries?

8. Hierarchy Is the Real Problem

This claim must have been made by a left-wing libertarian. He acknowledges that unions are illegitimate, but thinks that their real problem is that they are hierarchical, and chides me for not opposing all hierarchical organizations, which would certainly include employers, too.

But this is just plain silly. Libertarians oppose the initiation of coercion or the threat thereof, not hierarchy. Yes, all groups that violate the non-aggression axiom of libertarians are hierarchical. Governments, gangs, rapists, impose their will, by force, on their victims. They give orders. And yes, in all hierarchies, people at the top of the food chain give orders to those below them. But the difference, and this is crucial, is that the recipients of orders in the latter case have agreed to accept them, but this does not at all apply in the former case.

When the rapist orders the victim to carry out his commands, this is illegitimate hierarchy. When the conductor orders the cellist to do so, this is an aspect of legitimate hierarchy. I oppose unions not because they are hierarchical, but because the scabs have never agreed to carry out their orders.

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Published January 5, 2004.

Chapter 22

The Yellow Dog Contract; Bring Back This Heroic Institution

The Yellow Dog Contract is an honorable contract. It states that one of the conditions of employment is that the worker agrees not to join a union. It is no different, in principle, from the requirement that if you come visit someone in his house at his invitation, you must wear a funny hat, or agree not to associate with anyone he specifies, say, an enemy of his. In each case, that of the firm, and the private home, the one making this “demand” is exercising his rights of free association. He is saying, in effect, “if you want to associate with me, you must do thus and such.” You are perfectly free to refuse to do so, but then, he will not associate with you. He will not allow you into his home, nor agree to employ you.

But suppose you need a job? Is it not “unfair” that the employer will not hire you unless you give up, in advance, your rights to organize with others for better wages and working conditions? No; this situation is no more illicit than if you need to go to a party, and hate to wear a funny hat but the host insists upon it. Or demands, as the price of entry, that you not consort with his enemies. After all, it is his house.

We all assert our rights of free association through implicit “threats” of this sort. The wife says to the husband, “If you gamble away our money, I’ll leave you.” The husband may say to the wife, “If you run around with other men, I’ll divorce you.” The customer says to the shopkeeper, “If you give me a bad product, you’ll never see me in here again.” The restaurant owner says to his diners, “If you can’t behave yourself, I’ll have to ask you to leave.”

Free association is a crucially important element of liberty. Without the right to associate with those we (mutually) choose, we are in effect and to that extent, slaves. The only thing wrong with slavery was that the slave could not quit. He was forced to “associate” with the slave master against his will.

But the principle is the same with the Yellow Dog Contract. When it is banned, the employer is compelled to associate with a potential union member. To force him to do so is to coerce an innocent man. It is to violate his right to freely associate with others on a voluntary basis.

The argument for doing so is that without unions, wages would plummet to whatever low levels the “generosity” of employers would yield. But nothing could be further from the truth. Wages are, rather, determined on the basis of (marginal revenue) productivity, which in turn stems from how hard and smart we work, and with the cooperation of how much and of what quality capital equipment. Wages were rising long before the advent of unions in the early part of the twentieth century, in industries (computers, banking, insurance, baby sitting, lawn mowing) and countries (Hong Kong, Singapore, Taiwan) without any such labor organizations. Labor unions reached their apex decades ago, and now account for single digits in the private sector; during this sharp decrease in the proportion of workers “protected” by organized labor, wages catapulted.

No, labor organizations are instead an economic tapeworm, infesting firms and eating away their substance. It is no accident that what is now the “rust belt” in the northeastern quadrant of the country is the most heavily unionized sector of the nation, and suffered the greatest degree of plant closings when they were trying to suck the blood of entrepreneurs. Nor is it any puzzle that the south, the least unionized part of the country, became one of the fastest growing areas. Parasitical labor organizations in the coal-fields were also responsible for the economic devastation of West Virginia.

Are unions per se illegitimate? No. If all they do is threaten mass quits unless their demands are met, they should not be banned by law. But as a matter of fact, not a one of them limits itself in this manner. Instead, in addition, they threaten the person and property not only of the owner, but also of any workers (they call them “scabs”) who attempt to take up the wages and working conditions spurned by the union. They also favor labor legislation that compels the owner to deal with the union, when he wishes to ignore these workers and hire the “scabs” instead.

The Yellow Dog Contract, in addition to safeguarding employer and employee rights of free association, also serves as a remedy against union inflicted economic disarray and violence against innocent people and their property. Long live the Yellow Dog Contract. Bring it back. Now.

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Published September 5, 2005.

Chapter 23

Stop Whining About Jobs; It’s Production That Counts

A Primer on Jobs and the Jobless

With the economics of employment and unemployment constantly discussed on the business pages and in political campaigns, let us turn our attention toward fundamentals and root out some fallacies.

If the media tell us that “the opening of XYZ mill has created 1,000 new jobs,” we give a cheer. When the ABC company closes and 500 jobs are lost, we’re sad. The politician who can provide a subsidy to save ABC is almost assured of widespread public support for his work in preserving jobs.

But jobs in and of themselves do not guarantee well-being. Suppose that the employment is to dig huge holes and fill them up again. What if the workers manufacture goods and services that no one wants to purchase? In the Soviet Union, which boasted of giving every worker a job, many jobs were just this unproductive. Production is everything, and jobs are nothing but a means toward that end.

“We must not allow government to create jobs or we lose the goods and services that otherwise would have come into being.”

Imagine the Swiss Family Robinson marooned on a deserted South Sea island. Do they need jobs? No, they need food, clothing, shelter, and protection from wild animals. Every job created is a deduction from the limited, precious labor available. Work must be rationed, not created, so that the market can create the most products possible out of the limited supply of labor, capital goods, and natural resources.

The same is true for our society. The supply of labor is limited. We must not allow government to create jobs or we lose the goods and services that otherwise would have come into being. We must reserve precious labor for the important tasks still left undone.

Alternatively, imagine a world where radios, pizzas, jogging shoes, and everything else we might want continuously rained down like manna from heaven. Would we want jobs in such a utopia? No, we could devote ourselves to other tasks — studying, basking in the sun, etc., — that we would undertake for their intrinsic pleasure.

Instead of praising jobs for their own sake, we should ask why employment is so important. The answer is, because we exist amidst economic scarcity and must work to live and prosper. That’s why we should be of good cheer only when we learn that this employment will produce things people actually value, i.e., are willing to buy with their own hard-earned money. And this is something that can only be done in the free market, not by bureaucrats and politicians.

But what about unemployment? What if people want to work but can’t get a job? In almost every case, government programs are the cause of joblessness.

Unemployed: 16 Years & Over (Thousands)

Minimum Wage

The minimum wage mandates that wages be set at a government-determined level. To explain why this is harmful, we can use an analogy from biology: there are certain animals that are weak compared to others. For example, the porcupine is defenseless except for its quills, the deer vulnerable except for its speed.

In economics there are also people who are relatively weak. The disabled, the young, minorities, the untrained — all are weak economic actors. But like the weak animals in biology, they have a compensating advantage: the ability to work for lower wages. When the government takes this ability away from them by forcing up pay scales, it is as if the porcupine were shorn of its quills. The result is unemployment, which creates desperate loneliness, isolation, and dependency.

Consider a young, uneducated, unskilled person, whose productivity is $2.50 an hour in the marketplace. What if the legislature passes a law requiring that he be paid $5 per hour? The employer hiring him would lose $2.50 an hour.

Consider a man and a woman each with a productivity of $10 per hour, and suppose, because of discrimination or whatever, that the man is paid $10 per hour and the woman is paid $8 per hour. It is as if the woman had a little sign on her forehead saying, “Hire me and earn an extra $2 an hour.”

This makes her a desirable employee even for a sexist boss. But when an equal-pay law stipulates that she must be paid the same as the man, the employer can indulge his discriminatory tendencies and not hire her at all — at no cost to himself.

Comparable Worth

What if government gets the bright idea that nurses and truck drivers ought to be paid the same wage because their occupations are of “intrinsically” equal value? It orders that nurses’ wages be raised to the same level, which creates unemployment for women.

Working Conditions

Laws that force employers to provide certain types of working conditions also create unemployment. For example, migrant fruit and vegetables pickers must have hot and cold running water and modern toilets in the temporary cabins provided for them. This is economically equivalent to wage laws because, from the point of view of the employer, working conditions are almost indistinguishable from money wages. And if the government forces him to pay more, he will have to hire fewer people.

Unions

When the government forces businesses to hire only union workers, it discriminates against non-union workers, causing them to be at a severe disadvantage or permanently unemployed. Unions exist primarily to keep out competition. They are a state-protected cartel like any other.

Employment Protection

Employment-protection laws, which mandate that no one can be fired without due process, are supposed to protect employees. However, if the government tells the employer that he must keep the employee no matter what, he will tend not to hire him in the first place. This law, which appears to help workers, instead keeps them from employment. And so do employment taxes and payroll taxes, which increase costs to businesses and discourage them from hiring more workers.

Payroll Taxes

Payroll taxes like Social Security impose heavy monetary and administrative costs on businesses, drastically increasing the marginal cost of hiring new employees.

Unemployment Insurance

Government unemployment insurance and welfare cause unemployment by subsidizing idleness. When a certain behavior is subsidized — in this case not working — we get more of it.

Licensing

Regulations and licensing also cause unemployment. Most people know that doctors and lawyers must have licenses. But few know that ferret breeders, falconers, and strawberry growers must also have them. In fact, government regulates over 1,000 occupations in all 50 states. A woman in Florida who ran a soup kitchen for the poor out of her home was recently shut down as an unlicensed restaurant, and many poor people now go hungry as a result.

When the government passes a law saying certain jobs cannot be undertaken without a license, it erects a legal barrier to entry. Why should it be illegal for anyone to try their hand at haircutting? The market will supply all the information consumers need.

When the government bestows legal status on a profession and passes a law against competitors, it creates unemployment. For example, who lobbies for the laws that prevent just anyone from giving a haircut? The haircutting industry — not to protect the consumer from bad haircuts but to protect themselves against competition.

Peddling

Laws against street peddlers prevent people from selling food and products to people who want them. In cities like New York and Washington, D.C., the most vociferous supporters of anti-peddling laws are established restaurants and department stores.

Child Labor

There are many jobs that require little training — such as mowing lawns — that are perfect for young people who want to earn some money. In addition to the earnings, working also teaches young people what a job is, how to handle money, and how to save and maybe even invest. But in most places, the government discriminates against teenagers and prevents them from participating in the free-enterprise system. Kids can’t even have a street-corner lemonade stand.

The Federal Reserve

By bringing about the business cycle, Federal Reserve money creation causes unemployment. Inflation not only raises prices; it also misallocates labor. During the boom phase of the trade cycle, businesses hire new workers, many of whom are pulled from other lines of work by the higher wages. The Fed subsidy to these capital industries lasts only until the bust. Workers are then laid off and displaced.

The Free Market

The free market, of course, does not mean utopia. We live in a world of differing intelligence and skills, of changing market preferences, and of imperfect information, which can lead to temporary, market-generated unemployment, which Mises called “catallactic.” And some people choose unemployment by holding out for a higher-paying job.

But as a society, we can ensure that everyone who wants to work has a chance to do so by repealing minimum-wage laws, comparable-worth rules, working-condition laws, compulsory union membership, employment protection, employment taxes, payroll taxes, government unemployment insurance, welfare, regulations, licensing, anti-peddling laws, child-labor laws, and government money creation. The path to jobs that matter is the free market.

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Published September 7, 2011 in The Free Market.