Like all progressives, we obsess on the quest for good ‘framing’ quite a bit around here (when I lived in DC, even the cabbies and doormen were reading Lakoff).

So, here’s a frame. Over at AlterNet, I have a feature up arguing that labor markets only work when workers can bargain collectively. As it stands, with private-sector union density in the U.S. hovering at just 7 percent, the wages of many, many workers in this country represent a market failure of significant proportions.

By all means, read the whole thing for some lefty-bomb-throwing goodness, but for our purposes, here is the relevant passage (sorry for the long excerpt):

In economic terms, the wages of many Americans working in the private sector represent a “market failure” of massive proportions. Even the most devout of free-marketeers — economists like Alan Greenspan and the late Milton Friedman — agree that it’s appropriate and necessary for government to intervene in the case of those failures (they believe it’s the only time such “meddling” is appropriate). But the corporate Right, which claims to have an almost religious reverence for the power of “free” and functional markets, has gotten fat off of this particular market failure, and it’s dead-set on continuing to game the system for its own enrichment.

The market does work pretty well for Americans with advanced degrees or specialized skills that allow them to command an income that’s as high as the market for their scarce talents will bear. There are also people with more common skills who have the scratch (and/or connections) and fortitude to establish their own businesses — think George W. Bush or a really great mechanic who owns his or her own shop.

But that leaves a lot of people; about 80 percent of working America are hourly workers, “wage slaves” in the traditional sense. There’s no doubt that their salaries are heavily influenced by the laws of supply and demand. We saw that clearly in the latter half of the 1990s, when, under Bill Clinton, the Fed allowed the economy to grow at a fast clip, unemployment dropped below 4 percent, and for a brief period, a three-decade spiral in inequality was reversed as wages grew for people in every income bracket.

But a common fallacy is that wages are determined by market forces. They’re not, for a variety of reasons that require more explanation than space permits. I’ll focus on two: what economists call “information asymmetries” and coercion. Both are anathema to a functional free market, and both exist today, in abundance, in the American workplace.

To understand these failures of the free market, one has to go back, briefly, to basic economic theory. In order for a free market transaction to work, both the buyer and the seller need to have a good grasp of what the product being sold — in this case, people’s sweat — is worth elsewhere, who else is buying and selling, etc. In other words, they have to have more or less equal access to information. There can be no misrepresentation by either the buyer or the seller in a free market transaction. And both parties have to enter into the transaction freely, without being coerced; neither side can exercise power or undue influence over the other, whether implicitly or explicitly, through threats or other means.

Now let’s look at how that theoretical construct plays out in the real world of the American workplace. When an individual worker negotiates a price for his time, effort and dedication with any business bigger than a mom-and-pop operation, there’s quite a bit of explicit coercion (much of it in violation of our labor laws), which I’ll get to shortly. But there’s always an element of inherent coercion when an individual negotiates with a company alone, because of the power differential: a company that’s shorthanded by one person will continue to function, while a person without a job is up a creek with no paddle, unable to put a roof over her head or food on the table.

The “information asymmetries” in such a negotiation are immense — they’re actually more like process asymmetries. Companies spend millions of dollars on human resource experts, consultants, labor lawyers, etc., and they know both the conditions of the market and the ins and outs of the labor laws in intimate detail. While working people with rarified skills are often members of trade associations or guilds, read trade journals and have a pretty good sense of what the market will bear, many low- and semi-skilled workers don’t know their rights under the labor laws, don’t know how to assert them and (rightfully) fear reprisals when they do. They often have little knowledge of the financial health — or illness, as the case may be — of the company to which they’re applying for a job, how profitable it is, how much similar workers in other regions or firms earn, etc.

For the majority of Americans who lack scarce talents or a high level of education, negotiating a price for one’s time with a firm on an individual basis is anything but a free market transaction. That’s where collective bargaining comes in — when workers bargain as a group, they do so on a level playing field with employers, and the resulting wages (and benefits) are as high as the market can bear, but no higher.

Unions, like corporations, have a great deal of information about the market. They know how a firm is doing, how profitable it is and where it is relative to the larger industry in which it operates. They know what deals workers at other plants have negotiated. They have attorneys who are just as familiar with the American labor laws as their counterparts in management.

And while an individual has very little leverage in negotiations — again, most companies can do with one less worker — collectively, an entire work force has the ability to shut down or at least slow down a company’s operations if management chooses not to negotiate in good faith (as is often the case).

It’s not difficult to quantify the difference between what most hourly employees take home and what the free market would dictate. Economists Lawrence Mishel and Matthew Walters estimate the “union wage premium” — the amount of additional pay a unionized worker receives compared with a similar worker who isn’t a member of a union — at around 20 percent (that’s in keeping with other studies, using different methodologies, which put the premium in a range between 15 and 25 percent). If one includes benefits — health care, paid vacations, etc. — union members make almost 30 percent more than their nonunion counterparts.

Another way of looking at it is this: Millions of American families are scraping by on below-market wages, and if that weren’t the case, there wouldn’t be such a large group of American families among the “working poor.” In economic theory, it’s a given that a producer can’t sell his or her wares below the cost of production. The equivalent to the cost of producing a gizmo, when we’re talking about the sale of someone’s working hours, is the cost of providing basic necessities — nutritious food, safe housing and decent medical care. These are out of reach for the almost three million American families who work full-time and live beneath the poverty level. According to the Working Poor Families Project, half of the working poor have no health insurance.

So, I’m turning the free market argument around and using it against the union-busters. What do you think?

About the Author

Joshua Holland

I write for AlterNet. I've written a book, The 15 Biggest Lies About the Economy, which I recommend. You might also consider following me on Twitter.

3 Responses to Union-Busting Is Market Manipulation and Wage Theft

  1. chundini says:

    Even if scott walker wins for the Koch brothers in destroying the unions and we have to step back over a hundred years of justice stuggles, They (the elites) will pay dearly for that. The teachers will keep on teaching with more subtleties. Fostering truth never before broached. They will not be outspoken to be targeted as subversive. While their prebscribe essays assignments that will filter out the most brightess with a thirst for knowledge. Many of the elites’ children will go to private schools to avoid contamination. These private schools are seldom a den of creativity but of doctrination to appease and justify the high fees in accordance with what they think their high paying customers want. These Elites are prodatory amongst themselves unless a common goal is targetted through their concensus. Why do the Rothchilds inter-marry? It is not a big incestuous fetish. It is in the keeping Monney and and power unto itself. Once the lower classes (middle, poor and poorest) have been usurped and render compliant to their designs. They will historically follow the path to infight amongst themselves as we have seen Bear Stearns and Lehman Brothers. From a text book classical case study one would think, Although it is an ideal position to be in, or will this bring me closer to an anti-trust situation. I lay pleasantly awake a few nights pondering if Obama is a trully bought man or simply our new Gaius Marius

  2. ReneeMax says:

    What’s going to happen is: there will be a mass exodus of the educated middle to upper middle class. Already there are hundreds-of-thousands of educated American expatriates living and working abroad. My niece, who recently obtained a master’s degree in public health, specializing in not-for-profit health care, from the NYU in Manhattan, NY, is now working for an NGO in India. In two years, she will be transferred to the NGO’s main headquarters in Switzerland, where she intends to live out her life. Many young Americans are returning to their grandparents’ (or great grandparents’) homeland like Scotland to attend a four-year undergraduate university program. By the time these young Americans finish their university educations abroad, they will have already formed very close bonds with friends and potential mates. These young Americans, studying abroad — because a university education is no longer affordable or viable here in the U.S. — will make a new home abroad as permanent American expatriates. Most of our grandparents (and great grandparents) would never comtemplate immigration to the U.S. today. The U.S. has evolved into a most repressive and oppressive regime, espousing virulent forms of religious, social, and political extremism. In reality, the Republican party is not much different than the extremist parties in the Middle East like Hamas and Hizb’allah.

  3. I like original arguments, and critique only to strengthen these arguments. The idea that coercion is used in the negotiation of labor is very insightful. Brilliant. Coercion is economic philosophy, but the practical theory is found in contract law. Of course, I have always known of the disadvantage of having rent on your back when you need a job, but I had never thought to consider it through the prism of contract law, or economic philosophy as you seem to do here. From the little that I know about contract law, this could be called “duress” in certain circumstances. The worker has to eat and keep shelter over his head, resulting in a great amount of duress should he not accept the offer to work. A contract signed under duress is often voidable. This duress argument might not apply if there are other market alternatives to the choice of employment. However, in the grand scheme of things, this duress argument might provide a greater theoretical framework for socializing all basic needs, rather than as an argument as to the efficacy of labor unions. So the worker is under duress from his need to eat? How does a labor union remove the existing duress?

    As far as the asymmetrical information argument…I guess I have a couple of thoughts. On the one hand, I don’t know that workers are really that uninformed about their own product (labor). I understand that jornaleros (day laboreres) here in Houston, mostly charge $80 per day, sometimes $50 under specfic circumstances. It is true that many workers of all stripes are unaware of their rights, but I think most understand what price their labor will fetch. Perhaps if you detailed out the asymmetrical information argument and applied it specifically to worker’s rights (as opposed to only the price for labor) I might be more agreeable.

    On the otherhand, the mortgage market collapse nakedly showed what an asymetry of information could do to collapse markets. A pool of overly informed suppliers of mortgages sold to a dismally uninformed pool of buyers (borrowers). The borrower’s lack of familiarity with product features led to the collapse of the market. The analogy is not exact, but perhaps still useful. In the mortgage market, the buyers were uninformed. In the labor market, the seller (of labor is uniformed). Perhaps providing some examples in which uniformed sellers have collapsed market might bolster your argument.

    I reiterate that your take on duress in the sale of labor, viewed through the prism of economic philosophy, is one that I won’t soon forget.

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