Are Unions Still Necessary? A Conversation With Labor Specialist Richard Epstein

Richard Epstein: “If people know what they're doing nothing outperforms the competitive market. The way in which workers are protected is to get away from one job and take another.”

Richard Epstein, professor of law and director of the Law and Economics Program at the University of Chicago, has written columns arguing against the Card Check bill for Forbes and the Wall Street Journal, calling the bill "unconstitutional" and "a job killer of the first magnitude." TheWrap talked to him about the future of organized labor.

Why aren't unions necessary?

If people know what they're doing nothing outperforms the competitive market. The way in which workers are protected is to get away from one job and take another….  If you leave the system to its own devices, what you see is always occasional failure, because you're talking about millions and millions of arrangements and lots of arrangements that are never counted because nothing goes wrong. People who have had jobs for 40 years, they don't have a written contract.

But don't there have to be regulations on pay, working conditions, etc.?

The moment you start talking about regulations, you're going to raise the cost of doing business. The moment you raise the cost of doing business, some of these arrangements are going to disappear…. So, you spend a lot of public money, which raises taxes generally, and then you make the contracts in the markets less efficient.

Labor contracts are trying to create monopolies where there are none. Monopolies create discontinuity… In most markets, the wages go up and down…. With any system like this small changes are difficult to adopt, and so what happens is that the only time there's motion is when there's a strike or a bankruptcy. The ability to make adjustments as you go along is effectively blocked because no side can unilaterally change the terms of a collective bargaining agreement. So, instead of having a few people laid off here and there, you get the catastrophe you see with General Motors and Chrysler. American labor policy has supported these arrangements for 80 years. 

You cannot raise purchasing power by giving people a cartel. [The union] may make more money, but the number of people who get jobs is going to shrink…. So, you can't create social improvements. The only way you create social improvement is through higher productivity and no union has ever advanced productivity.

But don't low-wage workers need protection from employers who might exploit them?

No. What happens is you protect them out of jobs. What they need are skills…. You never want to look at the thing and say, ‘Oh, 10% of workers are at a minimum wage this year and the next year, nothing's happened.’ No. What's happened is last year's 10% of the people have acquired skills on the job and they're getting above minimum wage. This is a new crop that's coming in…. Once you say it, it becomes obvious.

Are people disenchanted with the infighting and politics within some unions?

Union leaders always have a conflict with their workers. They want to maximize dues and influence in power. They don't necessarily want to maximize workers’ interest…. Some are better than others. Some of them are outright thieves; some are quite selfless.

There was a small rise in union membership last year. Do you think public opinion is changing?

Unions are not wildly popular among the public…. In bad times when people think they are going to be fired, they want protections. A protection in one way is to keep out the strangers and keep your job in the union…. In the end, it's completely ruinous. You keep your job and you bring the firm down and everybody loses.

Some union contracts can stop layoffs…. But this whole system is giving the union control over bargaining and they're having this bitter campaign and then this big controversial bargain. This is not a great system.

What's wrong with the Card Check Bill?

You don't have campaigns, you get a card check. And those can be every bit as ugly because you pull people aside, you start to use influence…. employers start to rail against it, they go over the line and get sued for an unfair labor practice. You can have a card check go through secretly so that nobody knows that there's a campaign…. Campaigns are always public. Card check doesn't give you the right to have an election.

It's no great secret that the Obama administration laid an egg yesterday with [new Treasury Secretary Timothy] Geithner. Everybody thought it was terrible. It's also clear that there's absolutely no bipartisan cooperation for the other stimulus bill…. My prediction is that [Card Check] will not go through this time because the Republicans in the Senate will stay solid against it…. I don't think they'll get cloture.

Obama would be crazy to push this now. Nobody believes in it, which unfortunately he does. So much resentment will basically guarantee a completely polarized administration if he tries to ram it down their throats.

I hope that he has enough sense of self-survival….because he could spend an enormous amount of political capital and even then his chances of survival are little.

It's hard to explain how far off-base this bill is.

What do you think of workers’ centers and other groups of workers who use ordinances and lawsuits?

That's standard strategy, but they wind up shooting themselves in the foot because it turns out these things are not negotiated, the employers shut down, people wind up losing jobs. There's a lot of that going on.