Saturday, February 19, 2011

Is it Good for the Company?

During the Industrial Revolution, working conditions were abhorrent. Seven-day work weeks, extremely low pay, pay in company scrip ("I owe my soul to the company store"), and non-existent child labor standards were the norm. Without a doubt, the organized labor movement changed conditions to the extent that these phenomena are rarely experienced in the United States. Those bumper stickers that say something like, "Unions, the folks that brought you weekends," are not really off-base.

However, we have to ask ourselves an honest question in 2011. Are labor unions still relevant?"

Take Detroit. What really caused the auto industry crash? Is it just that they're not responsible corporate citizens? Is it because they're just that inept at managing their books? Is it just about exeutive bonuses? Or, is there a less populist element to that story?

How about ever-increasing demands by organized labor and ever-increasing difficulty to discipline or terminate employees without union action? Wouldn't that lead to cost inefficiency? Wouldn't that breed a certain complacency in the workforce? It's not unreasonable to think that part of this whole Detroit mess is a tolerance for overpaid labor building an underpeforming product. Here, I'll be blunt about it. Overpaid, overcoddled employees building crappy products contributed to the implosion of their own industry.

Mad at me already? Think I'm way off-base? Toyota makes a high-quality vehicle which holds its value and has a huge worldwide following. It hasn't been easy for them, either, and they requested a bailout from the Japanese government in 2009 (around $3 billion---compared to GM's $52 billion). Despite their troubles, Toyota has managed to (during a worldwide recession) surpass GM as the world's largest automaker. How many of its plants are unionized? The answer: 0. The only union plant was closed in 2009. We don't see any tear-jerker "imported from San Antonio" commercials trying to sell Tacomas, do we?

While I'm thinking about it, listen up Chrysler. I'm not buying your products because I feel sorry for your employees. Let's talk quality, safety, and resale value, then I'll give a rat's.

My first job out of college was as an insurance adjuster. Workers compensation, to be specific. My team's biggest client was the now-closed Goodyear plant in Tyler, Texas. It was a union plant. Part of our process in setting up a new claim was to get wage information on the injured worker (we had to use this to figure out what number to base our temporary disability payout on).

There were literally PhD's working out there because of the wages. We're talking (with overtime) clearing $100K per year, two weeks off at Christmas, to bond rubber to tires. I'm all about a laborer being worthy of his wages, but there's also the concept of "market value." Are the services performed by a factory worker really worth $100,000 per year?

I'm even aware of situations were organized labor is responsible for de-incentivation. For a lot of Air Traffic Controllers, working "Oshkosh," the world's largest airshow, is a really big deal. Historically, any FAA controller was eligible. Now, the National Association of Air Traffic Controllers (NATCA) has an agreement with the FAA that only controllers from the Great Lakes region can work the show. Small example, maybe, but clearly an example of a union taking incentives away from its members. That doesn't seem like good stewardship.

That brings me to a central theme in the debate about unions. Are they still really about representing the worker, or are they seeking to maintain their own power? A basic fact about bureacracy that freshmen political science majors are taught, and normal people know from experience, is this: Once established, a bureacracy's primary objective is to further itself. Could it be that unions, fully cognizant that their social necessity is dwindling, make calculated moves to amass power and perpetuate themselves?

What's going on in Wisconsin isn't some kind of organic populist uprising. It's a union orchestration. If the union there is interested in actually helping its employees, having them walk off the job en masse isn't the most effective way of doing it. The union wants to demonstrate its power. It wants to perpetuate itself. It wants to stay alive. This is not about the teachers. It's about the union. I dont' know how it could be any more obvious.

It's interesting that the most venemous unions out there are the ones representing pubic sector employees. Whether you agree that it's fair to target them or not, you have to understand a few things. Public sector employees work in the wealth-spending world, not in the wealth-generation world. For a country to survive, it must generate wealth. Ask the Soviets.

When a big chuck of the public can't pay the bills, it seems a little less reasonable for public employees to continue to expect sweetheart benefits packages. In the case of Wisconsin, public employees are still being asked in the new measures to contribute less to their pensions and benefits than the average private sector employee does. Continuing to capitulate to union demands is a pretty stupid way for a state, or a country, to go even more broke.

To be sure, there are industries where unions do still hold some relevance. The Air Line Pilots Association just closed negotiations on a new salary contract to get pilots at several regional airlines closer to a reasonable level. (These are not the "rich" pilots---regional pilots make between $20 and $45k per year. They're responsible for 30-50 lives at a time, but they still have less benefits than my PhD running the tire machine for Goodyear). Did they walk off the job to accomplish this? Nope. They negotiated. (ALPA's demands are not always good for the companies, either...US airlines are not exactly a juggernaut of positive financial activity).

However, I think the Wisconsin governor realizes what we all need to realize. The era of Upton Sinclair and The Jungle is long over in the United States. We can't give organized labor carte blanche power or capitulate to their demands as a matter of policy. Cost-benefit analyses are more vital now than ever.

After all, once you milk your employer dry with your demands, it's going to suck a whole lot worse to not have a job than to not get everything you want. If you like cashing your paychecks, it turns out it may be a good idea to ask the question so ingeniusly lampooned in the movie Office Space: "Is it good for the company?" Ask Detroit.


  1. I would be inclined to agree if those working "on the line" in the auto industry had input into the design process of the products they "build." If a waiter doesn't like the look of a plate he can send it back before the customer sees it, but that type of analogy does not apply here, as you seem to imply.

    There are many smaller industries that don't unionize. The difference is that most employers ask employees to sacrifice (ask being the operative term) during hard times, instead of simply forcing it upon them.

    It is debatable whether the current union structure is relevant, but to simply dissolve it without putting some other protections in place is irresponsible expediency. Whether folks realize it or not, collective bargaining does still have a place even in the public sector.

  2. 1. "...forcing it on them." I wasn't aware that we had some inalienable right to workplaces being democracies. In the end, someone has to take the risks and make the decisions. Making the owner (or stockholders in the case of a corporation) money, as it turns out, is actually the purpose of a business.

    2. I didn't suggest dissolution; in fact I provided an example of a union with continued relevance. However, I did question the folly of the relative power and acquiescence that contemporary organize labor enjoys.

    3. I'll continue to argue that organized labor actually has no place in the public sector. When taxpayer money is in play, those who have been placed in positions of responsibility by the taxpayers need to be able to make unimpeded decisions. If those affected don't agree with the decisions, the voting booth still wields some significant power. The left side of the aisle in Washington was reminded of that last November.

    3. Even the Wisconsin measure does not completely strip public employees of collective bargaining rights. They'll still be able to bargain collectively for pay. As I stated in my blog entry, their contributions to pensions and insurance will still not bring them up to the level that private sector employees pay. These facts further embolden my stance that the goings-on there are nothing but a union power grab.

    4. My blog is now configured to require moderation of comments, and I'll decline to accept comments from anyone who does not have their profile set to public. Thank you for your time.