Unions: Good or Bad?

It would be difficult to argue that labor unions haven't done a lot of good for American workers. But have they got a little too much power now? They may be interfering with companies' abilities to compete -- and perhaps investors should consider unions when evaluating companies.

By Selena Maranjian (TMF Selena) October 30, 2003 I've long supported unions. I've even belonged to two -- when I was a high school teacher and when I was a university administrative worker. (For the record, the Harvard Union of Clerical and Technical Workers had some great songs.) But in recent years, I've come to doubt my pro-union convictions. Permit me to share some of my thoughts and then to solicit your thoughts. I suspect that many who read my words are much more informed about and experienced with unions than I am.

Why unions are good In much of industrial America, workers toiled under very unsafe conditions, earning extremely low pay and enjoying little to no legal protection. Unions were successful in bringing about many improvements for such workers, such as more reasonable working hours. They have generally served workers well by helping them avoid being exploited by employers. Even in these days, unions have a strong impact. According to the Bureau of Labor Statistics, union members in 1999 had median weekly earnings of $672 (that's $34,944 per year) while non-union workers had median weekly earnings of only $516 ($26,832) (source).

Why unions are problematic Much as I'd rather not accept it, while unions have done a lot of good and have helped workers avoid exploitation, they also seem to have helped workers exploit employers. Perhaps it has been a gradual shift over time, with unions slowly accumulating more and more power. (Perhaps not -- again, I welcome your thoughts.)

Unions can have the power to impede a company's ability to compete and thrive. A firm might be in desperate trouble, yet its unions may be unwilling to bend or compromise in order to help the company survive. Many employers find themselves left very inflexible when they have union contracts to abide by.

Anti-competitiveness. The Socialstudieshelp.com website suggests that, "unions… are victims of their own success. Unions raised their wages substantially above the wages paid to nonunion workers. Therefore, many union-made products have become so expensive that sales were lost to less expensive foreign competitors and nonunion producers."

A decline in the value of merit. In many union settings, workers can't advance much or at all on their merits, but must generally progress within the limits defined by union contracts. Employers may have trouble weeding out ineffective employees if they belong to unions. In theory, at least, unionized workers might become so comfortable and protected that they lose the incentive to work hard for their employer. And outstanding employees might lose their get-up-and-go if there's no incentive to excel -- or worse, if they're pressured by the union to not go the extra mile. Here's a webpage detailing some other union drawbacks.

Is there a problem? So there's both good and bad associated with unions. I suspect that most businesses, and even many or most investors in said businesses, would prefer that the businesses be union-free. But that's easier said than done.

Is ownership an answer? One strategy for companies to avoid unions taking hold on their premises might be to ensure that as many of their workers as possible are as satisfied as possible. That's simple and makes sense, but it can become mighty difficult to maintain as a company grows huge. Another option is to convert employees into owners -- via stock ownership or profit-sharing, for example. If workers have a real stake in a firm's bottom line, they may be more sympathetic to management's point of view and more eager to work extra hard to help the firm succeed.

That's not a perfect solution, though. Starbucks (NYSE: SBUX), for example, is known for awarding stock options. Yet some of its workers in the U.S. and Canada have organized into unions, while others would like to.

Consider also Southwest Airlines (NYSE: LUV), which has long made employees part-owners via profit-sharing and stock options. It hasn't escaped having unions in its midst. Yet, as this Foundation for Enterprise Development case study notes, "A few years ago the pilots' union at Southwest struck an extraordinary deal with the airline to freeze wage increases for 10 years in exchange for an increased proportional allocation of stock options. The flight attendants' union has since also signed a similar agreement that is unprecedented in the industry." And Southwest has continued to thrive in its notoriously tough industry.

American Airlines, whose parent company is AMR (NYSE: AMR), also decided to issue stock options to its employees, making the announcement in April -- and just a week or so ago it reported a long-elusive (though tiny) profit. Are the two items related? Perhaps, at least to some degree. Though it's worth pointing out that stock options aren't necessarily always attractive. If they're for stock of a shaky company in a wobbly industry, they may not be worth much at all. (Bill Mann noted earlier this year why investors might want to walk away from American Airlines.)

The healthcare crisis If ownership isn't the best answer, perhaps healthcare coverage might be. Along with compensation issues, healthcare is a major factor in the recent strike of grocery workers in California. The unions don't want to lose ground on the healthcare package workers currently receive. The grocery chains are crying that they're being pinched as they fight the threat of Wal-Mart (NYSE: WMT) -- yet some have been recording increases in sales and earnings lately. Kroger (NYSE: KR), for example, posted a 3% increase in sales and a 16% increase in earnings between fiscal 2001 and 2002.

What's really going on? I suspect that both sides fear a slippery slope: Workers fear that if they give in a bit on healthcare, they'll eventually lose it all. (And with healthcare costs skyrocketing lately, that's a valid concern.) Employers fear that they're already on a slippery slope as they fight the encroaching behemoth that is Wal-Mart.

The Wal-Mart situation Wal-Mart itself is interesting, when you consider unionization. Thus far, in its not-that-short history, it has escaped having most of its workers belong to unions. But a passionate fight is being waged right now, as workers struggle to establish a union.

This raises interesting questions for us investors: Should we root for the union, as it might lead to more livable wages for employees and might keep more of Wal-Mart's million-plus employees enjoying healthcare benefits? Or should we root for Wal-Mart, figuring that a union will almost certainly put pressure on profits and might threaten the company's ability to sustain its track record of formidable global growth?

I'd like to tell you what I think of the Wal-Mart situation, but I can't. I'm torn. I see both sides of the issue. I wouldn't want to see Wal-Mart unduly restricted by union stipulations. I recognize that although it's enormous, its net profit margins aren't that hefty, at around 4%. That doesn't leave lots of room for adding expenses (though of course there is some room). But at the same time, I wouldn't want employees to be taken advantage of simply because Wal-Mart is big enough to do so. I admire generous companies, ones that treat their workers well. I'd want Wal-Mart to be, as many folks would argue it currently is, fair or even generous to workers. I suppose what I'd like to see is a more perfect solution than a traditional union or successful union-busting.

Questions that remain So after this brief foray into union considerations, I'm left with more questions than answers. Once more, I invite your thoughts. Please share them on our discussion board for this column -- or pop in to see what others are saying. (We're offering a painless free trial of our boards right now.) I hope to revisit this topic soon, to share some of the most compelling responses of yours that I read. Some food for thought:

If unions are no longer so critical, should they disappear, and if so, how? They enjoy many protections by law. By what process might we become a union-free nation?

If unions are indeed still vital, how worried should we be that less than 15% of our workforce belongs to unions, and that this figure has been dropping?

How might unions and employers/managements better coexist, without one side exploiting the other?

How should investors view companies that have unionized workers? Fool coverage of unions If you're interested in other Fool articles that have touched on unions, look no further. Whitney Tilson recently explained how JetBlue Airways (Nasdaq: JBLU) is "JetBlue is ALPA's (the militant and powerful Air Line Pilots Association) worst nightmare, and they will do anything to unionize JetBlue." And earlier this year, I questioned whether Wal-Mart (NYSE: WMT) was exploiting employees and received many responses from readers.

Guess what? The Apollo moon landings weren't "biblical" either.

We are commanded to subdue the world. The moon belongs to this world so to subdue it we must be there. Therefore exploration is biblical. I'm certain with a little more thought I can come up with even more scripture to support this but it's off topic.

The biblical references, as I stated before, are listed as footnotes at the end of each encyclical.

Which if you read them you would realize that they DO NOT discuss unionism or collective bargaining. The only scriptural reference that comes close to that topic is the one I gave in my original reply.

If you don't have the intellectual capacity to follow the pope's logic in applying Christian biblical teaching to more contemporary situations, that is your problem, not mine.

Have you even read the encyclicals? They do not use scripture to establish their points. Everything is by papal fiat. Read them again and check the references this time. The only things established with scriptural basis are private ownership of property and mutual aid societies (which are not labor unions BTW)

Furthermore, you can also take your disrespectful Anti-Catholic papal bashing and stick it where the sun don't shine.

While I'll admit it was slightly disrespectful it was not pope or Catholic bashing. The guy sits on St Peters throne in Rome, right? He wears a miter which anyone can tell you is a funny hat, right? So my statement was factually correct. The truth is never a bash.

Now if I were to bash the popes I'd state that in their own words they encourage Catholics to sin. I know of no greater way to bash them than that. (and as is seen from JPII's encyclical this is also factual)

Now I ask you to get over your Catholic only view of the world and read the bible and show me where unions are authorized.

BTW, both Karl Marx and Ayn Rand were atheists. It isn't surprising at all that you worshippers of corporatism would mock moral authority.

I've never read Marx and I've never read Rand. From the snippets I've seen of them their writing styles are exceedingly boring to me (others mileage may vary) and their moral starting point is so wrong that it destroys any credibility for their arguments

Also I don't worship corporatism. I worship the Living God, Jesus Christ (who established private ownership of property) and try my best to follow the written instructions He gave us. So if the bible speaks against it how can I support it. As far as I can tell from my study of the Word, there is no authority for unions and the only scriptures that come close to touching the subject speak against it. So unless you can show me biblical support for unions I have to be against them

I have read the bible, the Word of God. Moral authority is established on the Word of God. That's why I keep asking you to show me from the bible where unions are authorized.

In this entire discussion I have tried hard not to insult you. Why do you feel the need to insult me. Either admit that there is no scriptural basis for unions or prove that there is. You don't have to attack me because you don't like the truth of my statements

(we have a major problem here. We are both real wordy. I'll try to keep this as short as I can.:^) )

me-> By striking they are interfering with his right to use his property as he wills. They are stealing from him.

you->---I was with you up until that second to last line. You want to just ban strikes? If it isn't okay for strikes to happen, then it isn't okay for people to walk off their jobs--you want to force people to work, regardless of their contract or (in most cases) lack thereof!

If they just walk off and leave then they are not interfering with the owners rights. If they strike, including picketing, harrassing replacement workers, blocking entrances etc, then they are interfering with his property. It is always ok for people to walk off their jobs. You can't force someone to work. Strikes have nothing whatsoever to do with people working. They have to do with people blackmailing other people out of their property

But preventing strikes is saying that no matter what workers can't quit en masse, which is pretty much their best negotiating tool.

No. Strikes are not just the workers walking out en masse. That is easy to deal with, just hire new workers. Strikes are walking out AND preventing the owner from hiring new workers or running his operation. The workers are always free to walk out. The owner should always be free to hire new workers

Don't negotiate with unions, don't give them what they want. Calling unions a group of people 'trying to destroy your business' is going overboard. Unions don't try to 'destroy businesses,' though they often DO exactly that.

And if I don't give them what they want what do they do? They try to destroy my business by interfering with its operation, they harass my replacement workers, they block deliveries they do everything they can to disrupt my business

You act like two week notice isn't standard, but guess what, you need references to get future jobs! Employees don't get to walk off jobs unless they don't want to work in the future, contrary to your imaginative scenario. And what if everyone else wants to leave, too? You want to prevent them from doing so at the same time.

Like I'd give a reference anyway to someone who struck against me. References are nice but are not neccessary in blue collar type work. If you can do the work there is always someplace that can use you. I never said that I want to prevent them from walking off en masse. They have the right to do that. They don't have the right to expect jobs to be there when they come back though. I'd hire replacements as soon as I could. The job doesn't belong to the worker it belongs to the employer

I'll have to remember that. Meanwhile, I have a mote to pick out of my eye. Check out the plank in yours.

I have biblical basis for believing unions are bad. See my discussion with Willie Green.

You object to this, and yet seemingly you see no way that unions could possibly prevent this from occuring on the part of the MANAGEMENT, that management has done in the past exactly this, what you complain of unions doing today, with the building of 'company towns' and strikebreakers. Unions were literally the only way workers could protect themselves from abuse WITHOUT government intervention.

In one of my early posts I make the point that they were once needed but that those days are long gone. Worker mobility prevents such things as company towns etc. The way for the worker to defend himself against bad management is to vote with his feet and leave

Union LAWS are a problem. Government intervention is inevitably wrong. But collective action is not. I fail to see the difference between a walkout by one person and a walkout by many, and you seem to think strikes are clear cases, situations where unions are always at fault.

A walkout by many is not a strike. If the entire workforce decides to quit and go elsewhere that is not a strike. If they decide to walk out and prevent me from hiring new workers or prevent me from running my business that is a strike. Mass walkouts are legal, strikes are criminal activities. The union is always at fault in a strike. Other people's actions do not excuse criminal behavior.

(I'm inserting some text here from your earlier reply to keep the discussion accurate)
you-What American union today speaks against the Bible? NONE, for good reason, that most union members consider themselves Christian and wouldn't stand for it!

me->The NEA speaks against the bible. Most unions preach forced socialism or forced communism which are both anti-biblical concepts. But this is beside the point.

you->---No, this is the point you made, that they go against the Bible.

from post 86
me->The point I am making is that the very existence of a labor union is anti-biblical.

This specific reply was disproving your statement that no union speaks against the bible.

---There's no support for flying planes or piloting submarines or universal suffrage or manumission either. Just because the Bible doesn't MENTION it doesn't mean it is AGAINST it.

The only scriptural reference even close to this topic speaks against collective bargaining in that it establishes the right of the owner to do what he will with his own property

Exactly, just as the Christian soldier has no standing in scripture, so I expect to see your post wanting to force Mr. Boykin out any second now.

John the baptist as reported in the Bible:
Luke 3:14 And the soldiers likewise demanded of him, saying, And what shall we do? And he said unto them, Do violence to no man, neither accuse any falsely; and be content with your wages.
(The word translated here as violence means "shake thoroughly" as to intimidate. (see Matthew Henry's commentary or John Gill's expositor for additional background here))

Jesus did not correct this statement so this is an authorization for Christian soldiers.

Either the Bible is literal or not. Christ never said a thing about unions, here or elsewhere in the Bible, and you are reading to your bias in claiming that any mention of extortion means unions are evil. Unions only 'extort' what owners and management are willing to give. If they break the law, and REALLY extort, they can be charged with a crime.

In many places the bible is both. It's a very deep book which can be understood with one reading and yet never understood after hundreds of readings. We'll know all the truth of it when we get to heaven but we do the best we can while we are here.

The parables of Jesus were based on common truths of his day. He used this story about the right of an owner to control his property to demonstrate God's right to allow people into heaven. If the parable itself was not truthful, that is, if the owner was wrong in controlling his property, then the lesson would also be wrong, that is, God has no right to control entry into heaven. Obviously Jesus believed that the owner was correct in controlling his property. Unions get the thumbs down here.

Unions only 'extort' what owners and management are willing to give

Interesting remark here. I guess this means that all blackmail is legal because the victim is willing to give the blackmailer what he wants rather than face the consequences. If the union is striking to get what it wants then the owner has given it under duress. This isn't willingly. Under the same reasoning rape is allowable because the victim would rather have sex with her attacker than be killed by him.

But your central tenet is to say owners should not be forced to do with their property what unions would have them do. They aren't, just as people aren't forced to show their drivers' license to fly on a plane. They make that choice.

The law forces them to recognize a union if the workers vote one in. The law forces them to negotiate with this union. The union when on strike will destroy the business (or has done so in the past). The choice is whether to sacrifice your property rights and stay in business or stand for your rights and go broke. More and more companies have found that it's really a choice between go broke now or go broke after a couple union contracts. And more and more companies are figuring out that if they treat their employees right the employees will be anti-union also.

Your response to solving the issue you feel created by unionization is yet unknown to me--what would you do to stop the 'problem?' Ban unions outright? Or are there ANY such things as good unions?

I'd repeal all labor laws and let the owners do what they want. (this includes all discrimination type laws). Those owners who are good employers will succeed. Those who are not good employers will fail. The owner must recognize that his employees and their skills are his most valuable asset and he should treat them accordingly. If he fails to, his competitor down the block will steal his good workers and leave him with the dregs.

I'd have all criminal laws ruthlessly enforced. Strike (as defined above)- go to jail. Collude with other owners to limit the market - go to jail. The owner is free to hire whomever he can get to work for him and the worker is free to work wherever he can get hired

(and there are no 'good' unions. The very concept is anti-biblical)

"---In the U.S., maybe. You still haven't managed to address what I said about Japan or Korea. Not that you've managed to supply any more than assertions about union labor vs. non-union in similar assembly plants."

Comparing an assembly plant in Japan or Korea would be comparing apples to oranges. I am comparing a US OEM with a US transplant. Just so you know, the transplants being compared are Japanese OEM's. I will post a productivity article in the next post.

"No, I might not agree with your broad assertions of truth as opposed to documentation thereof. Show me the numbers."

Here ya go:
2002 HPV (manHours per Vehicle)
Nissan - 29
Honda and Toyota - 31
GM - 39.3
Ford - 40.8
Chrysler - 44.2

You can find it at: http://www.chinacars.com/english/content/overseas/200306/71230.asp

"I don't doubt that unions are harder to police, but I would be surprised to see you compare much in the way of union vs. non-union plants in the same company and finding big differences."

There isn't any US OEM that has some assembly plants that are union and some that are non union. It is either all or nothing.

"---So we agree here, then, that unions are just trying to get what they want. That they aren't inherently inefficient. What's inefficient is agreeing with their demands when it'l break a company to do so."

Yep, when GM tried to not give in to the demands and create a cultural change in the UAW, it cost them $5 Billion then and it cost them much more over the following couple of years. What would you do with the shares?

"---No, there is government intervention there preventing it in lots of places, and you admit it below."

A transplant is an assembly plant located in the US. There is no government intervention preventing the establishment of the UAW. The transplant employees realize that joining the UAW would be more negative than positive.

"---Okay, so you think that government should set working conditions, and anything they do is okay."

Reread what I said. I am saying that unions are generally negative and that the government in china is basically their union. Equating the two would mean that I think government intervention is just as bad as a union!

"And let me point out that you think that unions are without value, and I should judge China in from THEIR cultural perspective, yet your bias against unions is from YOUR cultural perspective."

Actually unions are of negative value. They hinder a company therefore making them less competitive. That point of view is based on economic fact. Basing the pay in any given area should be done on a cost of living scale for that area. I know that if I wanted to move to California or NYC that I would need to get paid a much higher wage to afford the lifestyle I currently live. If I move to Montana I would need to earn less for the same lifestyle. That same principal applies in China. Their wages are very low and with the introduction of manufacturing they will generally earn more. Just because we percieve it as an unlivable wage, doesn't mean it is "slave labor".

"---You mentioned this was during their lunch break. Explain how productivity was affected during an hour they weren't working?"

So alcohol or drugs does not effect a persons ability to perform duties. We should legalize DUI then. Reread your question, you can figure out the flaw!

"However, again, you're quibbling over something that unions SHOULD be doing to protect their workers, since they're negotiating to protect current members (not future ones). Unions (which ARE productive for their members) can protect workers (who could be unproductive from a management perspective in all sorts of ways) because unproductive management signs unproductive contracts."

The unions always protect future members. It is inherent in every thing they do that they protect the number of jobs, not the individual. Their interest is in the amount of dues they can collect, without protecting jobs their dues might just decrease. Unproductive people are easy to spot, they are the ones not producing. That is the only thing that matters to the risk taker/investor. If they don't see a return on their investment they will no longer spend money on that investment. The employees time is nothing more than a commodity the investor is willing to spend money on with the expectation of productivity. An expectation of a return on that investment. If there is no return, then that investment will be withdrawn (firing). This phrase; "because unproductive management signs unproductive contracts." is my favorite of yours and it is very telling of your real motivation.

All contracts that management signs carry an expectation of productivity. The contracts are company investments in assets. Two of these assets are labor and capitol. Labor will not be productive without the capitol. The capitol, management investment/contract, is what allows an employee to even have the job! Which guy will make more, a person that can shape metal with his hammer or the person operating a stamping press? Hint: The guy operating the press can produce thousands more parts per day than the guy with the hammer. The company makes more, the company can pay more for the most productive employee. The press made that possible, not the labor.

"---I will say exactly what I am trying to point out about your argument, slowly. And I'll use small words, just for you. You say that it is wrong that workers get to do what they're doing. Yet you float no ideas as to what you'd have them do."

Why should I float any idea. They should be working, that is not a new concept. They should be producing for the full shift, that is what the concept of pay for work is. Why is this a new idea that I need to float to you?

"You are saying that workers should be forced to take a hit because the line doesn't work, instead of the owner."

You are not understanding. I said the next day they completed their quota early. The line was still available for production, the labor was not willing to participate and sat around waiting to make up the production on OT. If they are getting paid for 8 hours, they should produce for 8 hours! On the day one, when the line broke down, it is perfectly acceptable that they not produce. The investment/capitol was not available so the investor should take the hit for less production. That is the risk that they are taking.

"I don't disagree the situation's lousy, but GM negotiated the contract and that makes THEM stupid and inefficient."

They tried to change the contract and the strike cost them $5 Billion. What part of that do you think is OK? The union held them hostage and the government does not allow GM to hire a replacement labor pool.

"I'm not trashing management to say that management is the problem, not the unions, who are rationally pursuing their goal of making the most money for the least work."

They are persuing that with an unfair advantage provided to them by the government. In a normal contract situation, the company would be able to set a wage and a negotiation can take place. In this situation, the UAW says, increase pay or we will not work. The government says, no you can not hire non UAW members. The company is held hostage, and therefore forced to meet the demands.

"---That workers don't want to do the work for less doesn't make them evil, no matter your portrayal of them as 'holding the company hostage.' It just makes them rational actors. The market takes care of inefficient companies, and the managers should make their decision rationally. If they didn't think the contract was okay, they shouldn't have signed it."

I could agree to this if the government hadn't intervened and made it illegal to hire alternative labor! However that is not the case.

"---Uh huh. So if you work in a plant straight out of high school instead of college, you take no risk? If you work a line until you're fifty, you take no risk?"

The return for their "risk" is immediate. They are not investing in the company, they are investing in themselves and their return is immediate. They know the value equation and make choices accordingly. Their risk is not in the company one bit.

"To a person who works 8 hours, that's a day's labor. To a person who's worked 20 years on the line, that's a lifetime's work."

Yes, to the person. To the company it is nothing. The 8 hour cost of labor or the 20 years cost of labor has already been rewarded to the individual employee that has taken the risk for 8 hours or 20 years. Every hour the employee works they get compensated immediately. Yes, technically they don't bet paid but once a week or bimonthly, but they know that the reward for that hour, heck 15 minutes, is rightfully theirs. If they walk off the job after only 1 hour of work, they will receive the pay for that hour. Therefore, they have no risk!

"Just calling labor valueless doesn't mean that the owner or the laborer doesn't place value on it."

I didn't say it did not have value! I said it didn't carry risk for the employee. Big difference. They have agreed to work for a wage, that is the value the employee placed on the resource of their time that they will sell. That is the value and they receive it immediately.

"---I think you mistake the union goals--they want to get as much money as possible for the least WORK. Not least efficient."

You are obviously mistaken. The individual wants to get as much money for the least work. The union wants to get as much money as they can. The only way for them to do this is to increase the amount of workers that pay money to them from each paycheck. They can only do this by increasing labor, therefore capitol improvements that would help each individual be more productive is not looked at as good for the union.

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