If big employers had more competition, they’d have to pay their workers better.
By Michael Taillard / 05.09.2018
Since at least the 18th century, we’ve known that when there are fewer employers, each has greater power over workers.
“The masters, being fewer in number, can combine much more easily” than their employees, wrote Adam Smith in his famous 1776 treatise on free-market capitalism, The Wealth of Nations. Those masters, Smith added, “are always and everywhere” tacitly cooperating “not to raise the wages of labor.”
When there are only a few employers in town, in other words, people have little ability to argue against unfair wages. So companies pay them less.
That’s where the role of organized labor traditionally comes into play.
By consolidating the representation of workers into larger units — similar to the size and number of employers — workers have been able to improve their position over the years.
Prior to 1935, the conflict between employers and organized labor was often violent. The Great Railroad Strike of 1877, for instance, grew so large that the CEO of B&O convinced President Rutherford Hayes to deploy the federal military to put it down.
Eventually, the National Labor Relations Act of 1935 guaranteed the ability of workers to organize into unions. But it took less than a year for employers to establish new methods of breaking strikes.
First formalized as the “Mohawk Valley Formula,” employers discovered that they could not only break strikes, but also undermine their support from the public by villainizing them.
The formula begins by portraying union strikers as a minority of troublemakers upsetting an otherwise orderly workplace — and then calling for law and order so that society and police see the strikers as a threat. This is a method that continues even today, but has become much more effective with practice.
Undermining unions socially was only half of the plan.
Politicians working alongside employers developed the Labor Management Relations Act, which severely restricted the legal rights of unions and their activities — including the establishment of so-called “Right to Work” laws.
Just as there are collective benefits to organized labor, there are also collective costs. But Right to Work laws allowed people to benefit from union representation without actually joining the union. Increasing numbers of people benefiting without paying has made it difficult for unions to collect enough funds to continue their operations.
In the current Supreme Court Case Janus v. AFSCME, it is argued that no individual in a workplace should have to pay the union. It’s a matter of free speech, they say, since the union may use those funds to promote a pro-union message that a worker disagrees with (though workers already aren’t required to pay into union political spending).
These continued attacks show that it’s not enough to simply consolidate labor into larger units. Employers will always be able to organize more effectively given their smaller number the greater resources.
We also need to increase the number of employers, so they have to compete with each other for workers by offering better terms. That, Smith wrote over two centuries ago, would “voluntarily break the natural combination of masters not to raise wages.”
Lowering the barriers for entrepreneurs and small businesses can help local businesses compete against large companies — which would help workers, too.
So would strengthening anti-trust laws to prevent the consolidation and control of markets by large employers, which must then offer better wages and working conditions in order to attract employees in a more competitive free market.
This is the necessary condition for unions to sustain an equal negotiating position. Unions and small businesses, it turns out, need each other.