United They Fall
Unions won't prosper if American corporations don't.
Jan 13, 2003, Vol. 8, No. 17 • By STEPHEN MOORE
LAST WEEK the machinists' union indignantly rejected the latest contract offer by bankrupt United Airlines, complaining that they were being unfairly rushed into a bad deal. One could only wonder whether the union bosses have lost all sense of economic reality. With $2 billion in debt and daily operating losses in the millions, United has to cut costs dramatically in the next several months or the airline will be out of business.
The unions are hardly innocent victims of the demise of United, which not that long ago was a financial titan among airlines. In fact, the extravagant pay scales union members enjoy is one reason for United's swift plummet toward insolvency. Through collective bargaining, United pilots and mechanics have extracted pay structures that are by leaps and bounds the highest in the industry. Such costs have made the airline hopelessly uncompetitive against discount rivals like Southwest and JetBlue. Federal officials cited out-of-control salaries as a primary explanation for turning down United's recent $1.8 billion-dollar loan guarantee request. It would appear that the pilots and mechanics will soon discover an important lesson: The alternative to accepting reduced salaries will be no jobs at all.
The United labor fracas raises the question of whether unions have so outserved their usefulness that they are now doing more harm than good for American workers. The unions are already losing hundreds of thousands of members every year, and their recent behavior suggests that labor bosses are intent on accelerating their own demise.
Consider, for example, the narrowly averted New York Transit strike, in which the union was demanding massive pay increases from an all-but-bankrupt municipal agency. New York City is facing its worst fiscal crisis since the late 1970s (when President Ford allegedly told the city to "drop dead"). Yet the comatose transit union, whose workers already receive about 30 to 40 percent more compensation than comparably skilled private sector workers, demanded even more concessions from the city. Lord knows where the money was supposed to come from.
Then there is the headline-grabbing case of the dockworker strike on the West Coast this past October. The dockworkers, who with overtime can earn six-figure salaries, were essentially striking against the evils of technological progress. The union's beef was with the decision to automate the tabulation of containers moving in and out of ports. This would be the economic equivalent of the accounting profession trying to block the introduction of calculators. "I'm not talking about Star Wars," one industry executive pleaded. "I'm talking about everyday technology. Think supermarket scanners. FedEx or UPS tracking systems. Simple information management." Said another: "The top ports in Asia, and in Europe, are at least a decade ahead of us. Our ports literally cannot keep up."
Before President Bush invoked the Taft-Hartley Act to suspend the work stoppage, the American economy was losing an estimated $1 billion a day in output and, throughout the economy, thousands of union and non-union jobs were put at risk.
In each of these cases, the labor unions' irrational objections to technological change and economic reality have needlessly reduced the profitability and the competitiveness of American firms. The Luddite attitude of "man versus machine" will not protect jobs or raise wage scales. Just the opposite: Throughout the last century, computerization and technological progress have been the driving force behind the increased productivity of workers and their higher salaries. For example, one study recently found that when an employee works with a computer in front of him, his salary is likely to be $10,000 to $20,000 higher than if he is without one.
One of the most baffling and self-defeating of union tactics is the $1million TV and radio campaign by the Communications Workers of America against Verizon, the Baby Bell of the Northeast. As even the most casual investor knows, the last three years have been brutally unkind to the telecom industry. In 2000, the telecom sector contracted by 28 percent and bled almost $1.7 trillion in lost share values. Overall telecom expenditures are down 45 percent this year--a cut in capital investment of over $30 billion. More than half a million telecom workers have lost their jobs.
That hasn't deterred the CWA from spending members' dues blasting Verizon's planned cutbacks of about 3,500 jobs in the New York region. The union complains with some validity that the firm is paying million-dollar bonuses to management even as it executes its downsizing plans. Those bonuses do seem unwarranted given the wobbly financial condition of the industry.