The economics of labor unions is straightforward: unions work to create artificial labor scarcity in order to increase the share of profits going to workers (in exchange for a fee, of course). Last week, Charles Krauthammer explained why unions were successful when America was far and away the world's economic powerhouse.
The nostalgics look back to the immediate postwar years when the UAW was all-powerful, the auto companies were highly profitable, and the world was flooded with American cars. In that Golden Age, the UAW won wages, benefits, and protections that were the envy of the world.
Today’s angry protesters demand a return to that norm. Except that it was not a norm but a historical anomaly.
As the rest of the world catches up, it is not only U.S. companies that must become more competitive or else fall by the wayside. So too, American workers today are in competition not only with workers in other states, but with workers in every corner of the globe. This largely eliminates unions' ability to extract "extra" profits, but is also the reason for increasing standards of living around the world and right here at home.
Globalization taketh away. But it giveth more. The net benefit of free trade has been known since, oh, 1817. (See David Ricardo and the Law of Comparative Advantage.) There is no easy parachute from reality.
Obama calls this a race to the bottom. No, it’s a race to a new equilibrium that tries to maintain employment levels, albeit at the price of some modest wage decline. It is a choice not to be despised.
Krauthammer describes the realities of trade that work on the smallest and largest of scales, so long as transactions are voluntary (that is, free). Workers do not get to declare the wages they will be paid just like grocery stores, gas stations, and Amazon.com don't get to declare the prices I will pay. They are all free to make me an offer, and I'm free to accept it or reject it. In the case of unions, the reality of trade--like it or not--is simply catching up with them