THE SMITH CENTER

for Private Enterprise Studies

Unions : On the Road to Irrelevance

by

Charles W. Baird

The Bureau of Labor Statistics data on American labor union market shares (densities) for 2003 were released last month (January 2004), and they continue to show uninterrupted decline in the private sector­ especially in manufacturing. American unions are holding their own among civilian government employees (37.2 percent market share), but in the private sector they are approaching irrelevancy (8.2 percent).

The diagram below shows the unions' market share in both government and private sector employment from 1983 through 2003. The government data are for the

total of federal, state and local government employment. In that twenty-one-year period the unions' market share in government employment was relatively steady, while the unions' market share in private employment steadily declined. In 1900 there were no unions in government employment, and unions had a 7 percent market share in the private sector. The 8.2 percent private sector density in 2003 is not much above what it was in 1900. Leo Troy, a labor economist at Rutgers University, calls this the symmetry of history. The highest market share unions ever obtained in the private sector was 35 percent, and that was in 1954. Since then its decline has been uninterrupted.

It is not difficult to explain why unions do better in the government sector than they do in the private sector. Private enterprises operate in an open, global and highly competitive environment. Under these circumstances unions cannot secure better terms and conditions of employment for workers than those determined in the market. Employers cannot pass on cost increases to customers when customers have many alternative enterprises with which to do business. Therefore, labor compensation increases that do not result in less labor being employed are limited to improvements in labor productivity. But these are precisely the compensation increases that are forthcoming in the market without unions.

It is different in the government sector. Government employers are agencies that have at least a near monopoly in the provision of their goods and services. The government school near-monopoly in K-12 education is an excellent illustration. Most families cannot afford to pay tuition to private schools at the same time they are forced to continue to pay tuition to government schools (in the form of property and other taxes used to finance government education). So teacher unions in government schools don't have to worry about losing customers (students) when they impose above-market compensation costs on government school districts. The school districts can simply pass the costs forward on to taxpayers, who cannot refuse to pay without going to jail. Moreover, teachers unions, and unions of other government employees have an interest in common with the agencies that employ them ­ picking the pockets of the taxpayers. Government employee unions and their employing agencies actually sit on the same side of the bargaining table. Taxpayers are on the other side, but they are unrepresented in the collective bargaining process.

Let's focus on what has happened to unions between 2002 and 2003. Table 1 shows the actual numbers of employees in the private sector that are unionized and union-free as well as the unions' market share in 2002 and in 2003. Union-free employment expanded by 843,000 jobs, while unionized employment fell by 348,000 jobs. Table 2 shows the corresponding figures for civilian government employment, where union-free jobs expanded by 59,000, and unionized jobs fell by 22,000.

Table 1

Total Private Sector Employment (in thousands)

Year	Total	Union	Union-Free	Market Share
2002	102,153	8,800	93,353	8.6%
2003	102,648	8,452	94,196	8.2%
Change	+495	-348	+843	-0.4

Table 2

Government Sector Civilian Employment (federal, state and

local combined, in thousands)

Year	Total	Union	Union-Free	Market Share
2002	19,673	7,346	12,327	37.3%
2003	19,710	7,324	12,386	37.1%
Change	+37	-22	+59	-0.2

Table 3 tells an interesting story about manufacturing employment in the private sector. Manufacturing is the area where unions have had most of their success in the private sector since the passage of the National Labor Relations Act in 1935 which was designed by Congress to empower unions to increase their market shares notwithstanding the desires of individual workers. Table 3 shows that between 2002 and 2003, total manufacturing employment fell by 257,000 jobs. Almost all of that decline was

Table3

Manufacturing Employment (in thousands)

Year	Total	Union	Union-Free	Market Share
2002	16,387	2,399	13,988	14.6%
2003	16,130	2,173	13,957	13.5%
Change	-257	-226	-31	-3.1

in unionized employment (226,000). Union-free manufacturing employment declined by only 31,000 jobs. While manufacturing output as a percent of GDP has remained fairly constant over recent years, large increases in manufacturing productivity have allowed manufacturing enterprises to employ less labor, which is then free to seek alternative employment in expanding industries. Table 3 indicates that if manufacturing employees want to increase the chance of keeping their manufacturing jobs, the last thing in the world they should do is associate with unions.

In Conclusion

John Sweeney became president of the AFL-CIO in October 1995 promising to reverse the decline of American unions. He has tried, and continues to try, to keep this promise through political privilege seeking rather than by addressing the genuine concerns and interests of American workers. Perhaps that is because even he recognizes, but cannot admit, that competitive markets are the best friend of workers. In any event, it seems that not even politics can rescue the union dinosaur.