Believe it or not, there has been a time where unions were legitimate champions of the middle class. In fact, we still see benefits from the first labor union movements in the U.S., from worker safety regulations to the 8-hour workweek. However, there is no question that our perception of unions has taken a turn for the worse; we are now more inclined to see them as leeches of taxpayer money and killers of company competitiveness rather than a genuine force for the middle class. Why? Unions have not adapted to the realities of a globalized, more competitive market and the new challenges it offers.

Unions came to power at a time in which American firms competed almost exclusively against other American firms. This favored the growth of industry-wide labor unions such as the United Auto Workers union since they can ensure that all companies in that industry bear the same labor costs. It’s easier to negotiate wage and benefit increases when the company knows that all its competitors will suffer the same wage increases. In addition, unions could lobby the federal government to mandate labor regulations more easily as the laws would be applied equally to all competitors in an industry, eliminated the worry of a competitive disadvantage. The uniformity in which labor wages and benefits increased across all competitive firms in a market allowed unions to more effectively and easily negotiate said increases.

However, with the advent of globalization, there was suddenly an influx of foreign workers that played by different rules. If a company thinks all labor in America for their industry was too expensive, they could simply outsource the work to a less regulated, unionized foreign country that provided cheaper labor costs. In the beginning of the globalization period, that’s precisely what happened- companies outsourced their operations in droves, and thousands of jobs fled from America to developing countries like China and Mexico. Furthermore, foreign companies and their products were outcompeting U.S. firms on both quality and cost. Most U.S. firms responded by trying to cut costs more aggressively. In response, the government lowered tax rates and rolled back regulation in order to entice companies to continue manufacturing and doing business in the U.S. Aside from political philosophy, globalization has led to the U.S. government adjusting their attitudes on regulation to ensure that companies stay on equal footing with its competitors without going offshore.

Free from the electoral pressures that forced the government to adapt to reality, unions have not been so attuned to global changes. Since they were accustomed to the wage and benefit increases of the past few decades, they continued to demand increases at a similar level. Obviously, this incentivized companies to go global lest they get outcompeted by outsourcing-based rivals or foreign companies. As a result, the power of unions has decreased as their membership diminished due to company layoffs. Simply put, unionism as it is right now is an anachronism to a time where all companies in a unionized industry operated under the same cost structures and regulatory rules. As globalization changes this assumption, unions must adapt to the new reality of a global labor market with uneven rules.

One thing they should do is voluntarily benchmark their wage and benefit rates to non-unionized or foreign wage rates. For example, the UAW should keep in mind wage rates in common outsourcing destinations when setting their initial asking price, and ask for a reasonable fixed percentage over that price. This way, their wage and benefit demands keep in mind the alternatives available to companies and will not force them to look overseas as much. Another thing they need to do is to start or expand worker training- if the unions made their members more productive, then their members would be more attractive as employees to companies.

Whatever the reforms end up to be, the unions must base their demands on a global market rather than a local one. Just as U.S. automakers need to make better cars to compete with the Hondas and Toyotas, unions should make their workers a more attractive hire- either by lowering their wage demands or increasing their productivity- to compete with workers overseas.


(Photo: Ricardipus)