THE ADVANTAGEOUS RISE AND THE INEVITABLE FALL OF UNIONS

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In late 2008, the United States' "big 3" automakers, General Motors, Ford and Chrysler were desperately hoping for a deal of $34 billion to be signed with the US government so they could stay afloat entering 2009 (Cutler, 2008). Already in a recession and hearing rumours of a major Wall Street bailout package being planned, US citizens were in no mood of rescuing another doomed industry. The 3 automakers were finally able to reach a barley sufficient $24.9 Billion loan. Their real test however, was not securing a bail-out loan, it was to some how gain the support of their unionized workers. Jonathan Cutler, a writer for the LA times stated it wouldn't have mattered if the automakers were able to gain the loan or not they "will continue to be dogged by their most significant competitive disadvantage: a high-priced, unionized work force" (Cutler, 2008)

Unionism is defined simply by a state of being joined or linked together (Princeton Wordnet, 2010). It is derived from the age old belief that together we can accomplish more than we ever could individually. Labour Unions, also referred to as Trade Unions, are an organization joined together to achieve common goals such as higher wages and better working conditions (Princeton Wordnet, 2010). At first glance, unions seem to be an almost necessary entity that helps labourers gain their rights in terms of wages, benefits and working conditions. However, before already deciding that unions are necessary or at least beneficial for society one must ask; where did the idea of unions come from? What are the benefits and drawbacks of trade unions? Lastly, what is the future of trade unions?

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Unions, trade unions to be more specific, are a modern form of the European Guild System and date back to the years of colonization of the United States. The European Guild is similar to our modern unions where each trade or apprenticeship belonged to their own guild which represented them (Reynolds, 2009). These guilds were eventually adopted by workers in the US and were renamed Unions. Early on, unions in the United States had trouble being legally recognized (Reynolds, 2009). They were seen as nuisance and could easily disrupt decades old organizational practices. For example, most workers of a particular trade or apprenticeship belonged to one union. Thus, this union could monopolize the price of hiring that trade. Also, as seen in Europe, unions were very effective in meeting their client's demands by strikes, walkouts and even violence. The courts struggled to decide if this monopolization of labour is lawful and whether strikes and walk-outs should be supported by law (Reynolds, 2009). Legal doctrines even called unions "Criminal Conspiracies" (Reynolds, 2009). In 1842, the Massachusetts Supreme Judicial Court ruled unions as lawful organizations and granted their right to exist. At that time, roughly 2 % of the labour force was unionized. By the First World War, that number had reached 6% (2.7 million members) (Reynolds, 2009). Prior to the war, though union memberships were increasing, there was still much cynicism revolving around being part of a union. Employers did not appreciate all their workers banning together for collective bargaining purposes. However, since many of these trades were considered highly skilled, the trades were highly inelastic (the workers could not be easily replaced). Thus, employers had no choice but to meet the demands of unions (Reynolds, 2009). Employers would also try to negotiate with individual workers rather than going through a union. Though unions were allowed to exist by law, there was no law stating employers must go through a union if an employee is unionized. During the Great Depression (in the 1930's), labour laws were significantly changed and the changes were favoured by unionists (Wachter, 2007). It was believed that the falling wages and low product prices were the cause of the depression and thus six new labour laws were passed. The most prominent law passed; out of the six was the National Labour Relations Act (NLRA) (Wachter, 2007). The NLRA, among other things, paved the newly developed concept of minimum wage. After the bill was passed union membership peaked at 22.4% of the entire labour force in 1945. Even today, the NLRA is seen as the core of all labour laws in the United States (Wachter, 2007).

Though unions are often debated on, their advantages towards employees are clear. Employees love joining unions as many of the advantages deal directly with the average worker. One of the greatest advantages of collaborating with unions is the increase in wages. It is no surprise that unions are able to bargain with management and gain a higher wage rate for workers. During the 1990's, unions were able to raise wages by about 20% and raise total compensation by about 28%. Unionized workers earned 15% more on average than nonunionized workers (Mishel Walters, 2003). This phenomenon of unionized workers earning more is known as the "union wage premium" (Mishel Walters, 2003). As time has passed the union wage premium has increase steadily. Analysts, Freeman and Medoff, concluded that the wage premium used to be about 10% in the 1960's and have risen to 15% in 30 years in their case study What Do Unions Do? (Mishel Walters, 2003). Increasing wage rates not only helps workers, it also helps society as a whole. As unions have increased wage rates for their members, they have helped to reduce the income inequality in the United States. Unions are able to bridge this equality because they are able to raise the wages of low skilled (blue collar) workers higher than those that are highly skilled (white collar). A study conducted by Hirsch and Schumacher concluded that in 1998, the wage premium for blue workers increased by 23.3% while the white collar workers only gained an increase of 2.2% (Mishel Walters, 2003). By increasing wage premiums of low skilled workers unions unintentionally also help reduce the distance between low income and high income families. Besides the obvious increase in wages, unionized workers are also able to enjoy greater "fringe" benefits (Mishel Walters, 2003). Fringe benefits earlier were referred to any form of non-wage compensation benefits such as health insurance, retirement pension and paid leave. Abiding by the old definition, union members are able to receive 22.5% more coverage on health insurance and an 18.3% higher pension plan (Mishel Walters, 2003). Unions have played a major role in creating laws that protect low skilled workers. They have helped federal courts write labour laws dealing with the compensation of overtime pay, minimum wage, health insurance, retirement pension and even unemployment insurance (Mishel Walters, 2003). Their work to increase the quality of life for the average worker has been their greatest advantage to society.

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Although unions are immensely beneficial for workers, particularly blue collar workers, critics of unions believe they are harmful to the overall corporation that employs unionized workers as well as the overall economy. Firstly, unions can create unemployment. Unions work best in an environment with low competition and a high level of communication between the union and the company. When labour markets become more competitive, wages are driven down, however the unions constant strive for higher wages can cause unionized workers to be laid off after their contract expires (Pettinger, 2007). Strikes are always an imminent threat when dealing with unions. If a strike occurs, the company always suffers directly and indirectly. Firstly, there is a financial loss; with the loss of productivity due to a strike, the company losses sales and contracted customers (Pettinger, 2007). A strike can also tarnish the reputation of a company. Depending on the size of a strike and the size of the company, strikes can attract attention from the local and international media sources. The company must be careful on how they handle the manner, as a too aggressive approach could shed a negative view on the company. Lastly, the case analysis What Do Unions Do for Economic Performance? also concluded that on average, unions tend to have a net affect of zero when comparing productivity and profit (Hirsch, 2003). Initially, unions were said have a positive effect on an organization because they helped satisfy employee needs. Since the workers were satisfied and generally happier they would perform better and increase overall productivity. However studies concluded, though every organization is different and some do benefit from the increased productivity, on average the increased productivity is cancelled out by the increased wages and benefits the organizations must pay for (Hirsch, 2003). Thus, the overall impact from the increase in productivity is minimal.

Unions have helped shape the labour laws of the United States and helped employees gain better compensation though unity and empowerment. If unions have such a prominent impact on how organizations conduct business, one must ask why union membership has been in decline for the last 50 years in the United States. From a staggering 35 per cent union membership in the 1950's, today membership percentage stands at a mere 12 per cent (Macaray, 2008). One of reasons for such an accelerated fall is due to the decrease of industry related jobs. Automobile, steel and paper industries are all in a rapid decline due to globalization and the opening markets of Asia. When looking specifically at the automobile industry, one can see that the purchasing of automobiles by Americans has stayed constant; however they are no longer purchasing American cars. Japanese cars have taken a large share of the American market by selling cheaper cars due to their cheap, unionized labour force (Macaray, 2008). Although globalization has put pressure of unions, the primary reason for the decline in union membership is due to the dramatic change in corporate competitiveness. During the 20th century when unions thrived, the United States had a corporatist culture. A corporatism business culture emphasized a cooperative relationship between two parties; in our case unions and organizations (Wachter, 2007). Today, the United States resembles more of a free market cut- throat based economy. During the 1930's, President Roosevelt, created "the New Deal" to help push the economy out of the Great Depression. The New Deal greatly favoured the corporatist approach and unions since it leaned towards Supra- Competitive pricing (pricing products above the competitive market) and it also favoured the idea of "fair" wages for the American worker (Wachter, 2007). At first the New Deal seemed to be working great, however overtime as the economy began to recover, corporations began lobbying for a change of this corporative system and wanted a more competitive based economy. The supreme court of the United States over-ruled the New Deal deeming it "unconstitutional." (Wachter, 2007). 50 years onwards, we still see the competitive economy of the United States thriving (until recently), while the union memberships continue to decline.

In conclusion, unions, originating back to the guild system of the United Kingdom, have created many changes in United States. Unions have helped workers gain rights by influencing labour laws and increasing the quality of life that Americans so proudly enjoy today. Though their advantages have been great, critics argue that this monopolistic presence has harmed the overall economy rather than helping it move forward. As the United States moves into a more globalized economy, the role of unions may be over and their future looks bleak at best. However it is certain that the United States is able to move into the 21st century as an economic power partly due to this simple idea of industrial employees working together to gain their rights in a profit oriented world. The United States is where it is, because of unions.

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Text References

Michael Wachter. (2007). The Rise and Decline of Unions.Available: http://www.washingtonpost.com/wpdyn/content/article/2007/07/17/AR2007071701713.html. Last accessed 16-08-2010.

David Macaray. (2008). Three Big Reasons for the Decline of Labor Unions.  http://www.counterpunch.org/macaray01102008.html. Last accessed 16-08-2010.

Pettinger, T. (2007). Advantages and Disadvantages of Trades Unions. Available: http://econ.economicshelp.org/2007/04/advantages-and-disadvantages-of-trades.html. Last accessed 16-08-2010.

Jonathan Cutler. (2008). The Big Three's real union problem . Available: http://articles.latimes.com/2008/dec/06/opinion/oe-cutler6. Last accessed 16-08-2010.

Lawrence Mishel and Matthew Walters . (2003). How unions help all workers. Available: http://www.epi.org/publications/entry/briefingpapers_bp143/. Last accessed 16-08-2010.

Morgan Reynolds . (2009). A History of Labor Unions from Colonial Times to 2009. Available: http://mises.org/daily/3553#intro. Last accessed 16-08-2010.

Princeton Wordnet. (2010). Definitions of Unions.Available: http://wordnetweb.princeton.edu/perl/webwn?s=union. Last accessed 16-

08-2010. Barry T. Hirsch. (2003). What Do Unions Do for Economic Performance?. Discussion Paper Series . 892 (1), 4-54