Labor and Unions

0:00Getting more specifically to labor, back in the 1890s, John Bates Clark, one of the great economists in the history of American thought, wrote a book called The Distribution of Wealth, which has been derided, which was very popular then, has been derided ever since. What he said basically was, this is a really pretty good thing, because this means everybody is getting his just desserts on the market. Every laborer is getting his marginal productivity, every landowner is getting his marginal productivity of the land, every capital goods owner, etc. The particularities applied to labor when you're dealing with personal income have hung heavy on many economists, like squirming around trying to deny this one way or the other. They said, well, it's not a value-free statement. Well, it's true, it's not a value-free statement. It still seems to be a pretty good statement. I see nothing wrong with the concept that the person is getting his margin of productivity, and this sounds pretty good.

0:50Ethically, it integrates into what we know of a good, rational individual with an ethical system. Clark didn't quite put it that way, but he wasn't really stressing the ethics, he would stand back and say, hey, this is really terrific, it's really pretty good, the way things work out, it's really just. This is very galling to many critics of the market, because they say everybody's getting his just desserts, everybody's getting his marginal product. This was very galling to egalitarians, for one thing, because obviously it's not exactly an equal distribution of income. Also, there's a certain aesthetic critique. Why should Sophia Loren, or whoever, get a million dollars a picture, earn a few million dollars a year, while I, Joe Blow, the critic, obviously genius intelligence, especially compared to Sophia Loren, why am I only scraping along a six grand a year?

1:37of the Year. It's obviously unjust. This is sort of the inner core, I would say, of the critical argument. The attackers, of course, on capitalism, which is somehow corrupting the system, and so that people like Sophia Loren are getting several million a year, whereas the good guys like Joe Blow are only getting six thousand. If we're going to make any criticism of this at all, the answer is we have to say that Sophia Loren is earning her marginal revenue product, and Joe Blow is earning his marginal revenue product. And if you don't like that, you either try to improve Joe Blow's marginal product in some way, or else you can make an aesthetic critique, or even an ethical critique if you want to, of a consumer's values. You can say the consumers really are dumbclocks and they don't really know what's good for them, because they shouldn't be watching these movies, they should be paying all this money to Joe Blow because he's a great philosopher or something like that.

2:24Well, you can go out there and try to argue with the consumers on that. I mean, I wish him luck, I suppose. I don't think he's going to get very far for pretty obvious reasons. That, you see, is an ethical critique which we're not going to deal with here. We're only dealing with ethics when it overlaps economics here. So, if Joe Blow were content to simply go out there and harangue the consumers, they shouldn't go to so many movies or whatever, and they should give him a lot of money, which is what the essence of the critical argument is, This, of course, is not the way it's usually put. In other charges, a very common charge now, is the market discriminates against... This is really equivalent to the Joe Blow thing, except instead of talking about Joe Blow, you're talking about groups of people, different groups of people discriminated against on the market.

3:10Almost always by employers, the argument is always put that evil capitalist employers are discriminating against various groups of employees The group that I always like to think of, I like to use as my model here, so as to eliminate emotional connotations, are redheads. Redheads, of course, might have a different reaction than this. If I pick on Redhead's model group here and say that the charges of the anti-market critics that Redheads are disseminated against because employers don't like Redheads and therefore their income is lower and they don't get promoted and that sort of stuff. The answer to that, everybody's getting his marginal product and not only that, from that you get a couple of things deriving from this.

3:56One is, if the employer deliberately pays less than the marginal product, he's sacrificing In order to indulge his anti-redhead whims, he's deliberately hiring fewer redheads than he would because he doesn't like them, but he's paying for it in the sense that he's stepping lower profits. Now I'm not saying this is impossible, it certainly could happen, but the point is that on the free market you have, in contrast to every other sphere of life, you pay for your own group discrimination. In other words, if you want to discriminate, if your consumer wants to discriminate, you can peg along for a long time without suffering at all. in the government sphere. You don't have to suffer. But if you're an employer and you decide to discriminate, in other words, by discrimination, I can be very precise. It's not just a fuzzy willy had a term anymore. By discrimination, we mean a systematic of wages lower than the marginal revenue product. If you're going to do that, you're going to lose profits and you're paying for it. Now usually, the least thing we can say is that if you're going to discriminate and you have to pay for it, this will induce less discrimination than you would have if you don't have to pay for it. So in other words, the free market

5:00will induce less discrimination given people's values, which are really not a market problem, they're really a value question, given people's values, there'll be less embodiment, less discrimination than there would be in any other system. Because if you're, for example, working for the government, let's say you're a government, let's say you have socialism, and the government hires everybody, and in that case, you see, the government bureaucrats can indulge their anti-redhead discrimination fairly well. There's nothing to stop them. I mean, the taxpayer picks up the tab, or society as a whole picks up the tab, and so So they can go and assign redheads to Siberia, or whatever the moral equivalent of Siberia in this country, assign them to lower Slobovia, and nobody pays for it, except the bureaucrats don't pay for it, is the point. Whereas if an employer makes an equivalent decision, refuses to hire redheads, even if redheads' productivity is staring them in the face, then employers are suffering from it.

5:51So at least we can say that, but there's something even more we can say about it. And what we can say is, if this is going on systematically, if redheads are being paid

6:29System. You can't have, I think we can safely say, you can't have systematic discrimination going on for any length of time because these discriminated against groups will be hired by other entrepreneurs and will leap into the system and see this gloom opportunity lying around for laborers or discontent who are getting less than their product and therefore can be bid away from their current posts and use them to out-compete the, and still make a profit, and out-compete the existing employers. So the fact that this hasn't been done, presumably, in the cases that we hear about, of groups of people being oppressed and discriminated against, the fact that no entrepreneur has done this seems to indicate that this kind of systematic discrimination is not taking place. So this pushes the thing back. Let's say we look around at groups of people, for example, who might be getting less than other groups of people.

7:17One group of people, as far as I know, and there are no empirical studies of this question, The one oppressed minority group which I belong to, which I feel deeply for, as far as I know there has been no liberation front that has arisen. That's the night people, the night people liberation movement, which is so far non-existent. Night people are people who reach the peak of their productive activity sometime after midnight, and who during the morning hours and during the twilight hours are just totally zonked out. And we don't want that. Because of our culture, because of the society in which we live where everybody is supposed to work 9 to 5, night people are grievously discriminated against and always working on something where they have less than half their potential. We can say this and we can say we can push this forth as being an important problem, but it seems to be the only way that, well first of all you can hire night people, etc.

8:07In the existing system, until values are changed, until general outlook is changed, the existing system, there's no question about the fact that night people are earning less and being promoted less than day people, because night people can't function very well from nine to five, because they're zonked out, they're walking around as quasi-zombies most of the day, so naturally they'll be getting paid less, and their marginal productivity within our existing system is lower, no question about it. If any sociologist wants to go out and study night people versus day people, I'm sure he'll come out and tell you a priori without spending the $100,000 will be required for the study. Yes, it will find that the night people are getting less than the day people. And it's too bad, I suppose, but the point is, and I certainly feel for night people, especially being a night person myself, but the point is that there's nothing much going to be done about it because within the current structure of day work, et cetera,

8:55here there are marginal products, us night people's marginal product is lower. We're getting paid, I guess, what we deserve. However, someday we can try to convince the public that night people and night work and so forth and so forth is really just as good and we don't have to be confined to the old pre-industrial revolutions kind of schedule before electricity was invented, but that you see is a problem of changing general values and outlooks and it has nothing to do with current productivity of the market and so similarly it could very well be, let's take an old press group, let's take redheads, let's say the redheads have been taught from birth, I think it's a lot of nonsense, let's say they have, just for the purposes of this discussion, let's say they've been taught from birth that they can't work very hard and they're sort of temper

10:03The Eskimos, let's say, never work more than a half hour a day, the rest of the time they have to spend doing other things, obviously their productivity is going to be pretty low and they're not going to develop much. So if you can come to them and sort of convince them, no, no, or change their religion or something like that, and change their religion of hard work and imbue them with the idea of the Protestant ethic, no question about the fact that they're going to develop more. That's true, they might not want to develop more, they might prefer lying around in the snow, but that's their choice. They presented with that. So what we're dealing with here really is a problem with cultural values and the basic values of individuals or the groups involved, rather than the problem of the market.

10:49Because, say, given this hypothetical value system of the Eskimos, their wage rates can be pretty darn low, obviously, on the market. And, properly so, if they change and they become Calvinist instead of whatever it is, then they might work hard and they'll be in great shape and income will go up. They can have high-five stuff for the rest of us. Okay, so this is a so-called discrimination question. What happens if this person gets on the job? For example, get back to the redheads again, or even the Eskimos, the same thing applies to them. The employer wants to hire redheads and eskimos, but not because he's a great guy or an altruist, but because he wants to equate the wage rates to the marginal product. On the other hand, the other workers involved, let's say also the other people on the assembly line or in the shop, also hate redheads or hate eskimos or whatever.

11:35In their case, their hatred of redheads is more or less costless. In other words, they don't suffer the loss, except in a very indirect sense, certainly not directly. They can cause all sorts of trouble for the employer. They can tell the employer, if you hire this blankety blank redhead, we walk out, we quit, or we sabotage, or whatever. In order to keep peace in the plant, therefore, the employer decides not to hire redheads. In that case, the low marginal productivity of the redhead is low because it includes the disruption that will occur if the redhead is hired because the other employees don't like it. And there, the problem is, of course, the values of the other employees. The point here again is that if there's any discrimination going on in the market, it's not the employer who will discriminate, it's the employees, the fellow employees. And of course, I think it's pretty clear with anti-Negro discrimination in the South, it was almost always the fellow workers who didn't want the Negroes to be hired and not the employer.

12:28Because once again, the fellow workers lose nothing by not hiring Negroes, because the employer doesn't lose because its profits get lower. Getting back to the labor market in general, wage rates in general, what will tend to happen to wages over time in a free market society is this. If everything is going fairly smoothly and they'll be in the course of the free market, increase capital investment. As capital investment increases, productivity will increase. And as improved capital investment comes on the market with better technology, productivity will increase. and so what happens is with more investment coming on the market more capital piling up per worker what you have is a continually over time an increase demand curve for labor because the productivity goes up because capital investment is going up and as productivity is going up wage rates go up and employment goes up this is what tends to happen in a free market society over time as the decades go on their tendency is toward a continuing and

13:26Fairly smooth increase in productivity, which means an increase in real wage rates, real wage rates meaning wage rates per purchasing power, in other words, not just money wage rates where you can't buy what you've got, but wage rates in terms of actual goods and services. Real wage rates tend to go up and employment tends to go up, so everything is hunky-dory. This is essentially what's been happening since the Industrial Revolution. Usually productivity goes up something like 2 to 3 percent a year, this is a very vague figure and hunky measure, but looking at sort of an overall rough estimate, and wage rates The labor unions tend to go up 2 to 3% per year overall, which of course mounts up quite a bit over a 20 year or so period. They have this Nirvana situation, sort of everything looks great, everything is going great, and suddenly a new force enters into the picture, sort of a disruptive force, namely labor unions.

14:13Okay, what effect does a labor union have? One of the apologia for labor unions is they get everybody to cooperate instead of increasing the productivity of the worker. I think this is pretty obviously nonsense. If a union does anything, it disrupts the productivity by imposing all sorts of work rules. So you can't do this, you can't do that, and you have to be a senior guy to do this, and you have to be a plumber to turn a valve and all that sort of stuff. So if there's any effective work rules, to decrease enormously the productivity of labor through feather bedding and all that sort of stuff. Of course, we all know about the ghost firemen. This is just one example among many. The ghost firemen on railroad trains, you had to have, of course, a fireman to stope a coal and all that, and when a coal engine The Union now tries to push up wage rates beyond the non-union level.

15:07Let's assume they're successful. That's not by any means self-evident. The Union is going to be successful just because you form a Union. Let's assume for a minute they're successful and they push up wage rates. How do they do it? They have to go up the given demand curve. When they push to the higher level, what you're getting then is a higher wage rate, but at the expense of what? Well, the expense of diminishing employment, so what you then have, and unions can raise wage rates in particular occupations or particular industries, but they can only do it at the expense of disemploying or unemployed people. Also, another thing that happens, of course, is you tend to attract more people, even higher wage rates here in the plumbing business, try to become a plumber in which a pool of unemployment develops because there's no jobs available. On the contrary, there's less jobs than there were before.

15:55Usually, in a free market kind of situation, when wages are going up, this is a signal that there's more jobs available. People flock into that area. In this situation, we have this peculiar change in signals in the market where an increase in wage rate reflects not an increase in jobs available, but a decrease in jobs available. There's often a hiatus before the workers find out what's going on. The human wage rate has gone up. We see now what the real class struggle is all about, and we'll see it even more when we get to profits and interests and so forth. The real class struggle that unions are engaged in is not really a struggle against the employers, although disproportionately, the real class struggle is against other workers, against non-union workers, against workers with weaker unions. What you really have is a savage class struggle within the so-called working class, where strong unions are able to gain at the expense of disemploying non-union workers.

16:49What you really have, as a matter of fact, you raise the question immediately, what happens to these displaced workers? Why do they do it? Well, if the union is not spread over the whole country and over all the working force, which it almost always isn't, these people, A, B, go into some other occupation where either there's no union or the union doesn't have this economic power. They become clerks, let's say, instead of being electricians. Pushed out of the electrician business In the business of the plumbing business, they become clerks, they push the supply curve of clerks to the right, as a result, the wage rate of clerks fall. Now we see what unions actually do in the economic sense. What they do is they gain wage rates for certain workers, those who are in strong unions, at the expense of the displaced workers, the non-union workers, who get lower wage rates as a result.

17:34In other words, what you have is a class struggle within the so-called working class. Unfortunately, this place, workers don't know what hit them. They don't really understand this. And so what you have is, we'll get back in a minute, when a strike occurs, what I call the mystique, don't cross the picket line, which almost has a quasi-religious significance in American life. You mustn't cross the picket line. Set up any picket line at all. Mrs. Roosevelt, for example, had the fixed political philosophy of never crossing a picket line at all. The thing to do with them would be just to throw up a picket line wherever she was and she wouldn't be able to move. So the mystique of not crossing the picket line implies, of course, that there's some kind of working class solidarity. The unions are somehow fighting for the entire working class against the employer. This is the direct opposite of what's really going on. And what's really going on is that the unions benefit a certain group of people at the expense of another group of workers.

18:23Incidentally, empirically, overall, I don't know, the strong unions get something like the average of 15 to 20 percent gain at the expense of an equivalent drop of weaker union or non-union people. Which unions will be the strong unions? In other words, which unions will be the unions who can succeed in doing this? Just because you have a union doesn't mean you can succeed in pushing the wage rate up. We can look at the situation. There are two basic keys here. Again, we look at demand and supply. First place, if you take the demand curve for labor, the more inelastic the demand curve for labor, the easier it is to push up your wage rate. Say you have a very inelastic demand curve, you push up your wage rate a large amount, you only cause a small dropping off in employment. On the other hand, if you have a very elastic demand curve, you push up your wage rate by a wee bit and you're disemploying two-thirds of the labor force in that industry.

19:10So the more inelastic the demand curve, the easier it is to get your economic power, your union power. You have less disruption, you don't disappoint too many people. On the other hand, if you have a very elastic demand curve, it's almost impossible to raise your wages, because only two-thirds of the people are kicked out, are fired. And the union can't survive in that kind of a huge hassle. So one of the things is an inelastic demand curve. How do you get an inelastic demand curve for labor? Well, there are several conditions. One is, if the demand curve for the product is inelastic, The tendency would be to have an inelastic demand curve for the factors. That's one vector that goes into it. Another key thing is dealing with a small proportion of total cost. In other words, if this union is representing just a few people, then the whole thing doesn't matter a hill of beans as far as the employer goes. And also the third thing is, if it's difficult to substitute capital for labor,

19:57if it's difficult to mechanize this occupation, you're in better shape than if it's easy to mechanize. Well, if you take the second condition, It means if you have a small, highly skilled group of people, you're in better shape to raise your wage rates above the non-union level than if you're a large union or it makes a lot of noise, you can increase your wage rate. For example, if the United Automobile Workers Union, which, let's say, covers the whole industry in a big proportion of total cost, if they get a 10% wage increase, it means something like, I don't know, not a 10% cost, but almost. The General Motors is hiring three glassblowers, or all members of a glassblower union or something, which only includes overly Italians of over 70, or stonemasons, something like that, they can triple their wage rate, it doesn't mean a darn thing, it's peanuts for the cost of the firm.

20:46So therefore, the union which has the most power is not the ones we usually think of, not the ones with a lot of membership and a lot of publicity, but a small, highly sealed craft union that's in there, with low costs to the employer, therefore has an inelastic demand curve. The second thing which can give the union, we call economic power, the power to raise your wage rate above the non-union level, the second thing is controllable supply, that's the second key thing. In other words, if you can limit the supply, if you can push the supply curve up, then you can go up to the man curve, disemployed AB, and then raise your wage rates. So the key thing is to keep these AB people, the disemployed people, from entering the industry even. Kick them out, or else keep them from coming in. So in other words, have control over entry into the occupation. If you have control over entry, then you go a long way toward achieving your economic power to raise wage rates.

21:35We have examples of this in small, highly skilled craft unions. In order to be a member of the electrician's union, you have to be the son of an existing union member. There's a very tight control over supply. If you're a non-son, you can't get in, you can't enter the electrician's business. And if the electrician's union has control over the clothes shop, which they usually have, then what happens is a young kid growing up in Hoboken who liked to be an electrician, whose maybe the love of his life is to be an electrician, can't do it and he has to become something else, The Union has been accused of racial discrimination against all people who are not sons of existing members and this of course if you start with white Anglo-Saxon workers then you're not going to have too many Negroes sons of white Anglo-Saxon members.

22:34Discrimination against Negroes is really a subset of discrimination against all non-sons. As a matter of fact, if you're, for example, a nephew of an electrician or a plumber or something, you can get on a waiting list, but you're not really in there. You really should be a son of a member. If you're a nephew, it's sort of the second pool. If there are no sons left, you turn to the nephews. It's a very tightly structured kind of business, and so the union is able to push their wage rates up by keeping the non-sons out. and non-sons either were kicked out directly or else more of course subtly they're simply frozen out you can't just can't enter it you can't become a taxi owner in New York unless you can buy a license for the cab and a Danian for about 25,000 and these ways you're just everybody knows you're growing up you know well it's too bad I can't become an electrician I've become something else

23:16you're just frozen out of this noble occupation so therefore it's the craft unions the small highly organized I say preferably if you if you can keep out everybody except elderly Italians like the stonemason union unfortunately this is The Great The High Art of Stonemasonry is Dying Out The Unionized, a faculty which has been oppressed and exploited for many years.

24:04We had our industrial union, we all joined the AUP, and they started collective bargaining arrangements. And while this was going on, first of all, before the Unionized, we were getting a sort of a steady 7% a year increase, source of living or whatever it was. That was before the Union, it was a non-union situation, while we were being oppressed and exploited. As soon as the Union came in, they started monkeying around, they started a lengthy, permanent bargaining kind of hassle. And they bargained for three years before they could achieve the contract. During those three years, of course, we got no increase at all, because we couldn't get it. As a matter of fact, it was illegal for the employer to give an increase, because it would have violated the collective bargaining arrangement. So for three years, we sat around and waited, and finally we got the same 6% or 7% or something. So it means that the whole thing was slowed up. The only thing the Union accomplished, this great unionization principle, was to slow up our increases for three years.

24:51There's a great lesson which I'll return to in a minute, about the function of unions to slow up everything. While this was going on, while this big hassle was going on, we almost struck and so forth and so on, while this was going on, there was a small, very tiny boiler tender union, which had no connection with our union. There were only about four or five boiler tenders in the whole place, and I remember the local something or other boiler tenders union, they wanted a wage increase, and they had a little strike, it was the most pleasant strike you've ever seen in your life, it was a mini strike. They had one picket way out in the corner somewhere and nobody could see him. So our union organizers were really gung-ho union types. They went to this guy and they said, hey, don't you want solidarity? Don't you want the faculty and the students or whatever to protest them? No, no, no. Stay out of it. We have our own.

25:33We know what we're doing. Go away. That's the union solidarity, working class, all that nonsense. We have our own ways. Don't worry about it. Sure enough, after about two weeks of this mini strike, The only sort of threat was that they tried to get the teamsters to honor the picket line or whatever, and they wouldn't be able to carry food into their beloved cafeteria, which wouldn't have been a picture of a loss. They had a little mini strike often, very quiet. At the end of this whole hassle, while we were still worrying about our 7%, they got something like a 30% or 40% wage increase. They settled, and why I was probably able to do this was because the five workers amounted to a hell of a beans. Why not? The origins, the economic origins of racial and religious discrimination always look for trade unions, because it's almost always there that you'll find it.

26:22For example, our most famous case in the modern world of racial discrimination is apartheid in South Africa. Everybody thinks that apartheid originated with the boars of the rural areas, who were sort of nutty anyway, and they wanted to keep everybody in their place, but it did not originate with the Boer Farmers. It originated, as William Hutt, distinguished economist wrote in his Great Path of the Economics of the Colour Bar, it originated in 1919 or so with the Anglo, the non-Boer workers of South Africa, who were very bitter about the fact they were skilled craftsmen. The Negroes in the urban areas had been essentially common labourers. Negroes were beginning to get educated and rise up a bit, becoming shop form in a sense. This struck terror into the hearts of the WASP workers. And so the WASP workers, organizing and Trade Union put enormous pressure on the South African government to pass laws preventing Negroes from becoming foremen and from rising up from the common laborer level, which they

27:17finally did. They did it under the pressure of a general strike called by the WASP unions. The general strike was headed by certain William Andrews, and the punch line here is that William Andrews was the head of the Communist Party of South Africa. What we have is the Communist Party of South Africa, the leading Marxist-Leninist promoters Workers of the idea of class solidarity, working class solidarity and against racism, these are the guys who were promoting the racial apartheid laws in the labor market in South Africa. Professor Huck goes into this with great relish. This same pattern appeared in the late 19th century United States. The origins of racial discrimination on the government level against the Chinese workers who were coming in from China and coming into California and the West. And the Chinese were fantastically good workers. They had all the Protestant The White Workers turned to the government, local government, county government, and state government, the federal government finally, to either exclude the Chinese altogether, or once they're here to kick them out, in California for example, they pass ordinances, just kicking Chinese out, not allowing Chinese own real estate, or operate a business, or anything, or live practically, and of course these laws were eventually declared unconstitutional, but in the meantime they were being employed,

28:32And the people who are most gung-ho about discrimination against Chinese, government discrimination of the most severe sort, the most gung-ho people were the labor unions or the vanguard of this, and the most gung-ho of these were the Marxists and the left wing unions. As a matter of fact, there was a congress in San Francisco, an anti-Chinese congress, I forget the year or something, I think late 80s. The most anti-Chinese, the ones who wanted to use immediate violence, lynching, to lynch all the Chinese immediately without even waiting for the government, were the communist anarchists, When it came to immigration restrictions in general in the 1920s, the leaders of immigration restrictions were the AFML-CIO who wanted to shift the supply curve to the left and thereby keeping out immigrants and thereby raising the wage rates of those workers who were lucky enough to be here before the immigration restrictions descend.

29:25The point is, you see, not that workers are more racist basically than employers, but The point is that the way the economics of the thing operate is that it pays employers not to be racist, but it pays workers to be racist. In other words, it pays workers to get laws passed to keep competitors out. Now, this idea of keeping competitors out, of course, is not just racial competitors, any kind of competitors, any identifiable group. For example, child labor laws, where nobody can work until a certain age unless you have working papers and you satisfy the government and the other thing. These are essentially put in by unions because they want to keep the wage rate higher of And of course, they don't exactly put it that way, although they do put it that way if you read their literature with a certain amount of care, because the general public, they don't say we want to keep child laborers out because they're competing with us, they'll say we've got to protect the children, we've got to keep them in school until they're 25, that sort of stuff, because what you're doing is that the older workers find that the supply curve of their youthful competitors is being, their youthful competitors are being kicked out of the market, their own supply curve gets pushed to the left.

30:27So far from an inherent solidarity of the working class, what you really have is a constant temptation of one group, actually a temptation of businessmen too, to use the government to smash their competitors. So the point is we get in the labor market the temptation of one group of workers to try to use the government to eliminate in some way or hobble or restrict your competition. But doing it using all sorts of fancy rhetoric, which doesn't disclose your truth. And usually in their own literature they disclose them, in their own magazines, but in dealing If we look at the history of what labor unions were successful in America, while it was a relatively free market, in other words before 1935, usually what you had is the industrial unions didn't make it.

31:15In other words, industrial union is based on the principle that trying to get everybody who works in this industry to join the union, everybody who works in General Motors to join the UAW, that's an industrial union. These unions didn't make it, they were very unsuccessful, because the demand curve for labor was elastic, they didn't control their supply, as a matter of fact they were trying to encourage more people, usually they were trying to encourage more people because this meant more money for the union bureaucrats, it wasn't an idealistic thing particularly. This is contrast of a craft union, the principle of a craft union is to have each craft, each small highly skilled craft gets together, the broiler tenders or the carpenters or the doughnut

32:22is a very localized kind of industry. You can't compete. In other words, U.S. Steel competes with Jones & Lockhart, competes with steel plants all over the country, even all over the world. We compete with German steel companies and so forth. In what sense can you say that a construction project in New York competes with a construction project in San Francisco? There's really no competition. There's no inter-local competition in the construction business, except in a very remote sense. If you're giving construction contractors in New York a bad time, they can't just pick up and move to Memphis, but you can do that in other firms. You have in other words an absence of inter-local competition. You have sort of local, I wouldn't say monopolies, an absence of inter-local competition. Therefore, it's much easier for the craft unions to take over because, say, if you raise the wage rates in New York construction, you can't move out very quickly.

33:09You can cripple it, of course, eventually, but you can't move out and immediately start competing. are competing. The construction industry was ripe for aircraft unions, which they did get. Anthracite coal was another example, and contrasted by tuminous coal, which has deposits all over the eastern seaboard practically, in Kentucky and West Virginia and Pennsylvania, etcetera. Anthracite coal is confined to a teeny area in eastern Pennsylvania, so it was very easy to unionize it. In other words, the anthracite coal union got together and they unionized it fairly quickly. They couldn't, despite all their efforts, they could not unionize it by tuminous coal industry. Unionized a couple of mines, you'd raise the wage rates, which would raise the cost, and then the mines can't compete with the other mines, and these mines go out of business, and the unions bust them. This is a classic way in which unions can't operate. There's any kind of wide competition.

33:56And then the railroad brotherhoods, this is before 1926, because the railroad industry was essentially nationalized as far as labor went in 1926, but even before then, the railroad then was the big four, So the firemen and the engineers and whoever the other two groups are, the highly skilled groups, in contrast to the operating workers, the guys who speak to the tracks, etc., who were not unionized, the highly skilled craft unions were unionized. And there again, they didn't have too much inter-rural competition, except in a very larger sense. Apparently the only industry, the only union that doesn't fit this pattern of localized non-competition as a musician union, somehow the musicians were able to unionize strongly A lot of attempts to unionize the textile and the garment industry in particular, because the people who came over in the early 20th century, who were garment workers, politically and philosophically dedicated to unionism, so they desperately tried to organize the The garment industry, ladies and men's garment industry, they never succeeded. They succeeded for a little while and then they'd be wiped out.

35:09The garment industry, for example, is very mobile. You could unionize a Manhattan garment firm and impose higher costs and then overnight, where's the firm? You go to work and then the firm's gone. The guy's packed up with two or three machines and going to Memphis or whatever. Headed for the hills and then you have to start all over again. So you have a very mobile industry and it was very difficult, even with great dedication and the philosophic fanaticism of the government, union and organizers, to do anything successfully before 35. The other thing you can say about the history of American Unionism is that during boom periods, during inflations or boom periods, prosperity periods, the tendency for Unionism to increase. The reason was because during booms, the demand for labor goes up, wages are increasing and employment is increasing, and the unions sort of ride the wave.

35:59Since the demand for labor is going up anyway, you can unionize without any penalty, without causing unemployment, and the unions can take credit for the increase. Boy oh boy, you see what we're doing if you fellas were increasing wages by 10%. The fact that this would have happened anyway is of course shoved under the rug. So in boom periods, the tendency for unions was for unions to increase. The thing is that the percentage of the labor force the unions have is always pretty small, even at the best of times. The percentage that would fluctuate, we define the labor force as being all those people who are either working or seeking work. Now, who's seeking work is very difficult to determine, no question about that. Defining the labor force is all those working and seeking to work. The percentage that the unions have of labor force, the 435, range from 2%, say 7% or 8%.

36:46In other words, during boom periods, the percentage of unions, people unionize and go up to 7%, then there'd be recession. What happens in recession? Recession is the demand for labor falls. The swollen boom in inflation and wage rate is now a surplus of labor. In other words, heavy unemployment, because the demand for labor is now much less than the supply at this obsolete rate. As a result, you have this big pool of unemployment, and this busts the union. The Union tries to keep wage rates up and the unemployed workers undercut it and the Union is busted. This happened in every recession and so the recession period you go back down to your 2% or so, 435. So in other words, the Union would be concentrated in certain key craft industries or craft organizations. They'd be in those industries usually which are not geographically competitive, so it was more naturally monopolistic if you want to use that term.

37:36And then they would do better on the booms and they immediately lose out again on the recession. The only exception of this was during World War I, well it wasn't an exception, but during World War I of course it was a boom period. The percentage of unionization would tend to go up anyway, but during World War I we had our first collectivist economic planning in America. And the Wilson administration encouraged unions in every way possible to try to get people into unions and generally use the force of government to unionize the population as a labor force. Force, and did that in order to, well, for many reasons, support the new idea of a partnership of government and industry, a tripartite corporate that's controlled the whole system, and also the push for the war effort, to get the workers behind the war effort. The result of all this, the war labor board and its decisions, was to raise the rate abnormally to 12 percent.

38:24During the 1920s, there was still a boom, and most of the 20s, of course, was the biggest boom we had had in American history up until then, so you'd actually assume that a unionized and the proportion of labor force would go up, but instead of that it went down. In the first boom in American history, the percentage of people in unions dropped steadily during the 20s. Why? Well, one is because you're getting rid of this excess fat, so to speak, the artificially induced World War I kind of situation. And two, because the employers rather cleverly started putting in what was known as employee representation plans as a competition to unions, so that the workers in the plant would have their own collective representatives

39:31What we can only call coercive unionization. The start of the Norris-LaGuardia Act in 1931 or 32, which did two things, one it outlawed what was known as yellow door contracts, because the word yellow door contract is sort of a smear term, obviously. What it was was non-union contracts, in other words, you hire a guy, as part of your condition of employment, you agree not to join a union. Beautiful contract, which meant the guy, if he tried to join a union, he was immediately fired because he violated his contract. This contract was outlawed in the Norris-LaGuardia Act. Secondly, the Norris-LaGuardia Act prohibited the use of injunctions in any labor dispute. This meant that if the union was about to commit violence, you could no longer go to the court and get an injunction preventing this. You had to wait until the violence was committed and then try to do something about it. So that was a key thing, the Norris-LaGuardia Act, in privileging labor unions against anybody else, putting them above the law, so to speak.

40:23And then a whole bunch of other things where local governments in particular looked the other way at union violence. The unions are inherently committed to violence in this sense. Employers are always trying to keep their production going, that's their major interest here. The unions, when they're striking, their major interest is keeping non-striking workers from working. In other words, they're trying to keep non-strikers out from taking their jobs and therefore rendering them useless in this whole situation. Because if you can hire other workers, you can say, I'm going on strike. Supposing I did that, supposing I quit my job and say, I'm on strike now, I'm going to pick a sign, Pauli would be very happily say, okay, we'll hire somebody else and that's to you and I can be picketing for the rest of my life. So the point is the Union cannot do anything at all, no power whatsoever, unless they can in some way keep that non-striker from replacing him on the job.

41:11The only way they can really do that, first they can cultivate this mystique of never crossing a picket line, that's extremely important in this thing, but basically it's like physical force. In other words, when union strikes, they're almost impelled by the logic of the situation to use force to keep the strikebreakers out. And that's what they do, almost inevitably. So in other words, we find out that there was violence in 1877 on the Pullman strike, or whatever. You know immediately right away who is responsible. We know the unions are responsible without even looking at the facts. That's their inherent interest in the situation. It's true that employers have used violence in the past to try to beat up union organizers and stuff like that. But the point is that inherent in the situation of the unions almost always have to use violence in a strike situation. situation where the employers either can or can't. The local governments, especially in the north, the south is still pretty firm on this.

41:56In the north, the local governments, the police are instructed not to do anything, not to interfere in quotes and labor disputes. And that really means, of course, the unions are permitted to beat up strikebreakers. That's the essence of the whole thing. Here we have the class struggle, the real class struggle totally nakedly revealed. The real class struggle is not between workers and employers, not between unions and employers, the real class struggle is between the union and the strikebreakers. These two groups of workers, the non-union workers are trying to get in, the union workers are claiming so-called property right on the job and try to keep the other workers out. This privileging of unions allowing them to use violence and strikes is endemic. The second fixing that happened was that in addition to allowing union violence, which incidentally is not being allowed in the South.

42:41One of the reasons why the South has not been industrialized much is that the South takes no guff from union violence. In 1935, the Federal Government passed the Wagner Act, which succeeded the Section 7 of the N.I.R.A., which is 1933, which is similar, but the Wagner Act really fastens this thing. We've been living under the Wagner Act ever since. When the Republicans came in in the mid-40s, they passed the past Hartley Amendment to the Wagner Act, which is really just cosmetic. It did not change the situation. We've been living under the Wagner Act ever since. When the Republicans came in in the mid-40s, they passed the Taft-Hartley Amendment to the Wagner Act, which is really just cosmetic. It did not change the situation, or what most people think it has. We were still living essentially under the Wagner Act. But the Wagner Act was essentially this, one that outlawed, quote, anti-union discrimination, unquote. Not only was it a yellow dog contract outlawed, but an employer was prohibited from firing a union organizer.

43:30In other words, if you're an employer and you see this guy troublemaking, type, wandering around instead of working, he's out there trying to organize a union, you can't fire him. Secondly, the Wagner Act set up machinery headed by the National Labor Relations Board for compulsory collective bargaining for any union who can win a majority vote held by the National Labor Relations Board anytime when the union wants it. Petitions are sent in. If they can get a majority vote of the so-called bargaining unit, who defines the bargaining unit? The NLRB defines the bargaining unit. And usually, especially in the early days of unionization, the NLRB would change the definition to a core of where they think the union could win. In other words, if the union had a majority in the whole industry, they'd call the unit the whole industry. If it was the whole firm, they'd call it the whole firm. If it was just one plant on the firm, they held an election only in that plant.

44:19The Union wins the majority, then all the minority are compelled to be represented by that union. They cannot bargain individually with the employer anymore. It's not illegal. The employer is forced to quote, bargain in good faith, unquote, with a majority with an officially designated union. What's bargaining in good faith? Who knows? It's all what the NLRB says it is. If they have a conservative NLRB, they'll allow this whatever, and if they have a left-wing NLRB, they won't allow much of anything. If you went in, if you didn't offer a wage increase, it was called not bargaining in good faith.

45:04Under this regime, we have compulsory collective bargaining, the majority of the so-called unit, and outlawing anti-union discrimination. Take a diagram, starting with, say, 1900 and continuing on to 1935. This is the fourth percentage of unionization in the y-axis. It goes from somewhere like 2% to 8% until 1935, and all of a sudden zip is up to about 25%. From then on, it's been going down slowly ever since, because what's happening is there's been a shift, a relative shift over time, since World War II, from manufacturing industry to service industries. The service industry is usually non-unionized, so the impact of unionization is dwindling anyway. What happened to the real wage rates while this was going on? What happened was nothing. Zip. Zilch.

45:49In other words, if you take average wage rates, average wage rates for the whole industry, in this whole period, going up to 3% every year, keeps on going up 3%. Before and after, there's no change whatsoever. Sudden staggering increase in unionization had no effect whatsoever on average total wage rates. What does it do? Well, it benefited some unions, the expense of others. It shifted around a little bit. It redistributed some income from strong unions to weak unions, or from non-unions to weak unions to strong unions. But overall, it did not benefit the labor force. What does the union actually do? What the union actually does, really, down deep, is to slow everything up, to slow up change. Because as I said before about Brooklyn Polly, if you have a non-union situation, The wage rates fluctuate rapidly in accordance with the demand and supply of the labor force.

46:39If you have a union situation, you can't change anything. You've got a three-year contract, a three-year contract, you have to negotiate for months, there's a whole big headache. There's a big, long process involved in changing anything. So what you have essentially with unions is sand in the machinery, sand in the gears, slowing down everything. Well, this means that you're slowing down in both directions. In other words, in an inflationary period, in a boom period, union wage rates tend to lag behind non-union wage rates, and say nothing in prices in general. In general, unions tend to do badly during an inflationary period, which of course is one of the reasons why many business interests tend to like inflation. During a recession, however, unions also throw down any cut in wage rates. So the economic power in general of unions at this point is really only in recession period. Aside from the Kraft Union situation, which has been there anyway before 1935, as far as economic power goes, it's really mostly in recessions where you can't cut wage rates and cause unemployment right away. In boom periods, they do pretty badly.

47:36Hey, interesting thing has happened about economists and unions. When I was first entering the economic profession, there was a whole wing of people called labor economists. There still are. They specialize in labor and they were very gung-ho pro-union. Pro-Union By this time, or after unionism has been in full flower now for 25, 30 years, you can finally find anybody who is pro-union in the economics profession. The labor economists will talk mostly about discrimination, they say very little about unions. If they say anything about unions, it's very apologetic. They really pretty well acknowledge that the unions don't increase wage rates, that they benefit one group of workers in the sense of the other and so forth and so on. It's hard really to do anything else. The other cheering thing about this is that for all veteran anti-union types like myself it's kind of encouraging because you look around and I was brought up in total and intense hatred of labor unions, but if you realize that unions really don't have that much power

48:26even though they're 25% of the labor force, they really don't do much except putting sand in the machinery, then you don't have the sort of panicky outlook as many conservative economists do still about unions tend to think the world is going to go under, the economy is going to collapse because it's heavily unionized. It's really not true because unions don't have that much of an impact, except for the craft unions, which have been around for a long time anyway. The industrial unions, even though they make a lot of noise, they slow up the machinery, they really don't cause much dislocation, they don't have much economic power. It doesn't mean I look benevolently on unions, it means I just don't have the historical hostility of unions, which many of my conservative economic brethren have. Some interesting examples of one of the things that unions do, and one of the reasons why labor economists are disillusioned with them, This business union collusion, which happens quite often, for example, in the coal industry,

49:14John L. Lewis, who was the famous head of the coal miners union, was an extremely good economist. He understood the way you increase wage rates is by disemploying a whole bunch of people. He said, great, this is exactly what he wants. He was only interested in maximizing the income of his senior workers, in other words, the guys with seniority. He destroyed the coal mining industry because you only do it slowly enough so that his favorite, The workers of seniority will get theirs and everybody else gets shafted. You do it in such a way, you disemploy only the younger workers and the workers without seniority, and the workers who have seniority can continue off the rest of their lives with a very high wage rate. Many employees are willing to go along with this because the big minds, the lower-cost big minds, were very happy to put their smaller competitors out of business by this, by raising the general cost for everybody. They put their marginal competition out of business, thereby raising the price of coal.

50:02So we have an employer collaboration at the expense of the smaller marginal co-operators and the non-union workers and the younger workers, as a result of which we have now Appalachia. One of the reasons for Appalachia is you have co-workers who can't find a job. One of the reasons they can't find a job is because they've been kicked out of the whole thing by union employer collaboration. But this sort of thing goes on quite a bit. I think it's one of the reasons why the labor economist friends have sort of become disillusioned with Unionism. So how do you solve the Union question? Many conservatives, for example, Professor Hutt, who's just written a very good book, called The Strike Threat System. People like Hutt are so anti-Union, they want to use the power of government to crack down on Union. So there are either outlaw strikes, which really means compulsory arbitration, whereas it really means the government stepping in and deciding wage rates, or outlawing unions altogether, or outlawing industry-wide bargaining, or so-called right to work laws, which really

50:57outlaw a closed shop, which really interfere with a contract. Because if you're an employer, you want to have a closed shop for some reason, you want to have your stone masons, elderly Italian stone masons, give them a closed shop, why should you be prohibited from doing it? The right to work laws do that. They interfere with the right of free contract. So these people are so anti-union, they're willing to use the, probably use the power of government to crack down on unions. My contention is you don't need any of this nonsense, aside from the violations of property rights. All you have to do is eliminate what the union meant us, is simply remove the special privileges which have grown up around them, on them, repeal the Oswald-Guardia Act, repeal the Wagner Act and TOTO, end all this looking the other way for union violence and the whole problem would disappear overnight. We'd be back to our old electricians in Hoboken and that would be about it. Maybe the crazy musicians.

51:42And so the whole union problem would really wither down, wither away, wither down back to the pre-1935 side. It was dramatic but really not so important.