Promises, Promises

What’s at stake in most unions? Promises. Laborers in non-union workplaces are offered very few promises. Typically employment is by contract for a specified (and individual) wage that can be severed at any time by either party for [mostly] any reason.

Unions negotiate additional layers of promises. Those promises may be specific regimented work rules, harmonization of wages across workers, significant curtailing of right to fire workers without significant justification, etc. Those promises may also extend out into future guarantees, such as a specific pension guaranteed in perpetuity once a certain term of employment is reached. Some of these promises may be reasonable, some may not. Unions are not an unqualified good or an unqualified ill.

The problem with such long-term promises as pension guarantees, though, is that they assume a static world which doesn’t exist. These guarantees must be funded long-term, or changing conditions may make them impossible to fulfill.

Herein, then, lies the difference between private-sector and public-sector unions:

In the private sector, if the cost of fulfilling promises becomes so great that a company can no longer meet the needs of their customers at a certain price, competition will arise and those customers will go elsewhere. If every GM car, as the Cincinnati Enquirer suggests, has its price increased by $2500 due to the UAW, I very well may choose to buy a cheaper Hyundai because I don’t view it as my responsibility to fund the promises made by GM. Further, if GM cuts corners in quality and reliability to meet the price point of that cheaper Hyundai, I am even less likely to buy their cars. The changing business conditions of market competition ensure there is a natural check on promises offered — a sheep can be shorn many times, but skinned only once.

In the public sector, however, the cost of fulfilling promises can be enforced at the barrel of a gun. Revenue is not derived from free choice or competition*. Whether I choose to support the teachers’ union by sending my child to their school, I’m still on the hook to pay for it. Checks on the power of government to fulfill its promises consist only of dramatic democratic action or entire government fiscal collapse. One is occurring in Wisconsin; the other in Greece. A sheep can be shorn many times; individuals within the flock may be skinned from time to time; but government fiscal problems are the equivalent of poisoning the flock’s water supply.

* It’s not 100% accurate to say that there is no choice or competition. Tax avoidance/evasion are always an option, as is moving to another state. Fundamentally the transaction costs of such a change are so high that they are only minimal checks on the demands of the government to fulfill their promises to the unions.