Labor Unions, Part I

By Brad Thomason, CPA


Union labor has been in the news a lot this year.  We’ve seen government workers protesting and causing work stoppages, pro athletes from multiple sports engaged in nasty, public feuds, and newly emboldened auto workers coming back to the table to demand a bigger share of the winnings now that car makers are apparently out of their respective black holes.  Seemed like a good time to look at the concept of union labor itself.

Labor unions came along of course in response to poor wages and working conditions that were prevalent back in the heyday of the industrial age.  They were latter-day versions of even older guilds, and through the various evolutions of the business world over the past couple of centuries they too have changed in an effort to keep up with the times and remain relevant.

What always comes to my mind when the topic of labor unions comes up is the exchange between value and payment, that basic building block of commerce.  In fact, in many different venues over the years I have stated that there really is only one business in the entire world: taking to market something that is valuable and getting paid more for it than it cost you to get it there.  To me, the clearest lens to use to try to learn something about union labor is this value-delivered/cost-demanded construct.  I’ll tell you a quick story that follows those lines.

Some years ago I was standing outside one cold morning at some sort of industrial site up in (I think) Michigan.  I don’t recall exactly why I was there, what the project was, or even the type of facility (although I’m thinking it may have been a power plant).  What I do recall is that there was a loaded flat bed truck with some piece of equipment sitting on the trailer, and the whole project was temporarily shut down because the fork lift driver who was supposed to unload the truck was not there yet.  Half a dozen guys probably, just standing around.  In the crowd were other equipment operators, but no designated fork lift driver.  At some point I asked the seemingly innocent question, “Can’t one of you guys just drive the lift and get the show on the road?”  Based on the reaction you would have thought I had just proposed lighting someone on fire.

I guess to fully round out the story I should tell you that my dad was a contractor and I used to work for him as a teenager, both in the warehouse and on jobs.  By the time I could drive a car, I could drive a fork lift too.  It’s not that hard.  So I’m standing there with this group of guys, whom I bet just about all of them knew how to operate the lift – me included – but nobody is moving.  Finally, a crane operator explains to me that no one on the job is allowed to do the other guy’s job because it’s not what they were hired for.  Each must play his own role.  So as the result of what seemed like a pretty arbitrary rule to me, and entire job was shut down and the clock was running on a very expensive crew of workers who were doing nothing, just because some guy overslept.

I was intrigued.  I asked more questions.  Came to learn that a union fork lift guy in that setting made something like $35 an hour.  That’s $70,000 a year.  For driving a fork lift.  This was all the more astounding to me since I had spent my formative years doing it for $5 an hour.  I also found out that the crane driver was a creature of higher residence on the union food chain, a crane legitimately being a more complex piece of machinery to run.  Ticket on that ran about $55 an hour, as I recall.  Driving a fork lift would have been the equipment operator’s version of slumming, it seems.

So here’s the question: is there any way in the world that a union fork lift driver can deliver $70,000 of value to the market place for doing a job that in a non-union shop would go for a fraction of that amount?

If not, then the union is violating that basic rule of commerce: demanding more in payment than the value delivered.  Which I think tells you a lot about why labor unions are regarded the way they are.  And what about the waste created by those other guys standing around (at even higher rates) to make it possible to follow the “rules?”  Just makes it that much worse, you know?

Labor unions came about because employers did not want to pay a fair wage for value delivered.  The great irony is that in many instance labor unions evolved into organizations that were bent on demanding more for what they delivered than it was worth.  Both sides of the problem sprang from violation of the same principle.

The discussion about union labor has become very ugly, and has turned to the qualitative topic of whether or not workers “deserve” to be able to earn a living.  But that branch of the debate ignores what to me is the more important part of matter, the quantitative question of whether or not the value delivered is sufficient to fairly support the payment demanded.  Because if it isn’t, you have a structural defect that is going to lead to problems.

Is there really anything else to talk about?  If you don’t deliver a value that’s consistent with the price you demand, is it really a surprise that sooner or later the market will reject the offer?

Understand that I’m not really trying to opine one way or the other about all of the baggage associated with the union labor phenomenon.  I’m just asking the basic question of whether or not the exchange is commercially reasonable.  I for one have never wanted to be on the wrong side of a commercially unreasonable value proposition.  I know where it leads to.  Obviously there are others who see it a different way; I’ve just never been able to understand exactly how they got to the conclusion.

In our next installment we’ll take a look at union labor in areas other than strict commerce, like the arts and sports.

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