In his description of a threatened statewide strike at Connecticut nursing homes in 1999, Manheim shows how government regulation can work to the SEIU’s benefit. Given Medicaid-mandated cost controls, the nursing homes simply could not afford the pay increases demanded by the union. The impasse energized the state’s governor, John Rowland, who met with legislative leaders and subsequently announced a 10 percent increase in Medicaid reimbursement rates in each of the next two years, for a total of $179 million, $150 million of it earmarked for salary increases.
But this sort of thing doesn’t work very often, which is why the SEIU can’t successfully conclude more contracts and keep its campaign promises to secure higher wages. The employers cannot afford to pay more, and the people in the low-wage, low-prestige jobs that are the SEIU’s stock in trade cannot afford to go on strike. Without the strike weapon, the SEIU has little leverage unless it can find a pushover like John Rowland who doesn’t have the experience or sophistication to recognize a bluff when he sees one. Even then, the SEIU has to have enough of a state’s nursing homes under contracts with a common expiration date to mount a credible bluff.
The SEIU’s continued expansion in the health care industry depends less on its ability to deliver higher wages than on its political clout. In July, for example, the Health Care Finance Administration delivered a report to Congress recommending new rules that would force thousands of nursing homes to hire more nurses and health aides. But that will happen only if Congress dramatically increases Medicaid payments to nursing homes.
Organized labor’s future was far brighter 100 years ago, even if its market share was no greater than it is today. Early in U.S. history, unions were organized around skilled trades or crafts: bricklayers, plumbers, pipe fitters. Unions established apprentice programs to train employees and ensure quality. They served as clearinghouses and hiring halls. Samuel Gompers, the legendary head of the American Federation of Labor (AFL), was a cigar maker’s son who apprenticed as a shoemaker and later as a cigar maker. As industrialization increased throughout the United States in the late 19th and early 20th centuries, the labor movement adapted by forming industrial unions, such as the United Mine Workers, headed for many years by John L. Lewis, the son of an immigrant Welsh miner and a mine worker himself. The early unions were bottom-up associations, organized and run by the members. While often resisted by employers, collective bargaining during the first third of the century unquestionably served to improve safety and conditions in a wide range of American industries, from the mines to the mills.
Led by Lewis, the industrial unions split from the AFL in 1934 and formed the Congress of Industrial Organizations (CIO), a split that continued until 1955, when the rival groups merged. The rivalry between the AFL and the CIO did not prevent them from uniting to secure the passage of the National Labor Relations Act (NLRA) of 1935, which marked the end of labor unions as voluntary organizations. The NLRA not only permitted but encouraged compulsory union membership as a condition of getting and keeping jobs.
The power of the federal government had a predictably dramatic effect on the fortunes of labor unions in the 1930s and ’40s. In 1902, 9.3 percent of all private sector nonagricultural workers belonged to unions. By 1935, the figure had increased only to 14 percent. But by 1940, unions had nearly doubled their size, to 24 percent of private sector workers. At the end of World War II, union membership had soared to almost 34 percent of private sector workers. That figure inched up to 35 percent in 1955 and hit a peak of 37 percent in 1960. The years that followed were all downhill for unions in the private sector, which gradually dropped to 31 percent of nonagricultural workers in 1970, 28.5 percent in 1975, 20.6 percent in 1980, 14.6 percent in 1985, 12 percent in 1989, and 9.5 percent today.
A major reason for the decline is that free markets are natural enemies of monopolies. Scratch a trade union, and you always find a would-be monopolist underneath. While few succeed, they openly seek to eliminate wages as an element of competition in an industry. As United Steelworkers General Counsel Arthur Goldberg wrote in 1956, "Any labor union is a monopoly [whose purpose is to] eliminate competition between working men for the available jobs in a particular plant or industry [and] increase by concerted economic action their wages."
This is not easy to do. If a union fails to organize all of the companies in a particular industry, it cannot maximize its power. So long as nonunion competitors are not paying the same labor costs, unionized companies in a competitive industry are not in a position to pass on all their wage increases to their customers in the form of higher prices. Or if they pass on their wage increases, they are likely to suffer severe losses in sales volume to their nonunion competitors. As a consequence, unions in highly competitive industries usually are not very powerful. Labor cost remains a competitive factor. Unionized companies are hard bargainers. They know wage increases can’t be passed on to their customers unless their nonunion competitors raise their prices at the same time.
The Teamsters faced such problems in the 1930s with the fledgling over-the-road trucking industry: It was decentralized, with many small nonunion firms, and entry for new companies was relatively easy because of low capital investment requirements. Labor costs were the single largest expense in the trucking industry. Because of the intense competition, wage increases could not be offset by price increases. That fact frequently led companies to move their headquarters to cities where labor costs were lower.
Ease of entry and cutthroat competition: not a pretty picture for a union. Fortunately for the Teamsters, they had the Motor Carrier Act of 1935 and the Interstate Commerce Commission (ICC) on their side. The New Deal brought competition in over-the-road trucking to a rude halt. Interstate truckers had to apply to the ICC for a "certificate of public convenience and necessity," which rigidly specified the routes to travel, terminals to use, and territory in which to operate. The ICC also eliminated competitive rates, establishing rate bureaus run by the truckers themselves. In other words, the ICC took a growing, highly competitive, decentralized industry, in which anybody who could buy a truck could go any-where there was a road, and substituted a rigid, stultifying cartel under which government consent and fixed rates replaced market demand and competitive prices.
Lucky for the Teamsters, who by the 1960s had the country’s largest union. Lucky for organized crime, which drew on the Teamsters’ pension fund to jump-start its hotel and casino empire. Without the iron hand of the federal government to bring order out of the imagined chaos of trucking in the ’30s, the Teamsters never would have been able to achieve a nationwide contract; organized crime would have had to find different sources of funding for its Las Vegas investments; Teamsters boss Jimmy Hoffa wouldn’t have spent the late ’50s and early ’60s fighting off the Kennedy brothers; and James Hoffa Jr. would know where his father is buried. Jimmy Hoffa understood the vital role the ICC played in the Teamsters’ success. He knew that trucking companies were woefully weak bargainers on economic issues because the ICC was always there to grant rate increases. In response to a question about whether he anticipated a strike over a 1962 dispute, Hoffa said, "Only if we need one to convince the ICC to grant a rate increase."
The market eventually catches up to monopolies. Deregulation did in the Teamsters. Unions also once had a virtual monopoly in three major U.S. industries: autos, steel, and rubber. The preeminent position of American automobile companies in the U.S. market was substantially altered by foreign competition. Honda and Toyota now have plants in America, all nonunion. Something similar happened with the U.S. rubber industry. Michelin of France has many nonunion plants in the United States, and there are only two American-owned tire companies left. Foreign companies bought the rest. The United Steelworkers saw their membership drop from more than 1 million in 1981 to barely 600,000 in 1988. Even today, after merging with the United Rubber Workers, their membership is only 670,000.
As a generation of economists has demonstrated, monopoly positions cannot be maintained by corporations for any extended period without government assistance. Without legal barriers to entry, the prospect of high profits lures competitors into the market. Unions are no different. It is virtually impossible for them to achieve monopolistic goals in highly competitive, growth-oriented industries where new jobs are being created, like the businesses of the new information economy. As a consequence, unions have a vested interest in government regulation, and they tend to be strongest in stagnant or decaying industries, where seniority or union hiring halls raise barriers to entry, and in heavily regulated industries with little price competition.
Let’s not forget the public sector. Like transportation in the past and health care today, government is a monopoly to which ordinary economic rules don’t apply. Accurate statistics weren’t kept on union membership in the public sector before 1983, when 35.7 percent of all public sector employees belonged to unions. During the next 10 years, unions managed to increase that by only three percentage points, to 38.7 percent. Since then the trend has been down, with the figure dropping to 37.3 percent in 1999. Meanwhile, however, the importance of government employees to the labor movement has been rising. Back in the early 1980s, only one of every three union members was a public employee. Now it’s closer to one out of every two. Low-paid service workers on the one hand, government employees on the other: That is the face of New Labor.
In its role as a left-of-center special interest group relying on campaign contributions rather than votes for political clout, Old Labor does not have much of a future. What about New Labor? Fifteen of the 25 biggest-spending political action committees in 1998 were labor union PACs. Well over 90 percent of organized labor’s political contributions and expenditures go to Democrats. More important, during the ’90s five of the top six and six of the top 10 soft money contributors to the Democratic Party were New Labor unions–i.e., unions representing government employees and workers in heavily regulated service industries. The big givers included the SEIU, Communications Workers of America, the United Food and Commercial Workers, the National Education Association, the American Federation of Teachers, and the American Federation of State, County, and Municipal Employees.
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