The Potential for Anti-Labor Consequences within Labor Unions

The prevailing belief that labor unions are essential for protecting workers from exploitation and ensuring fair wages is a misconception, argues George Reisman. This viewpoint overlooks the fundamental economic principle that real wages, meaning the actual purchasing power of wages, are driven by falling prices relative to wages. This crucial relationship is often obscured in an inflationary environment, where rising money wages are mistaken for real wage growth. The reality, however, is that real wages across the economic system can only increase through enhanced productivity, which leads to a greater supply of goods and services relative to the labor supply, thereby lowering prices.

While increases in money wages might give the appearance of improved living standards, they are primarily a consequence of monetary expansion and the resulting increase in overall spending. Without a corresponding rise in productivity, such increases in money wages would merely fuel inflation, leaving real wages stagnant or even declining. Real wage growth is dependent on prices rising less than wages, a phenomenon made possible only by increased productivity. The underlying mechanism is the increase in the output per worker, which effectively lowers prices relative to wages, leading to tangible improvements in living standards.

The pursuit of higher money wages by labor unions, while seemingly beneficial to their members, actually undermines the very foundation of real wage growth. Unions primarily focus on artificially restricting the labor supply through various tactics like apprenticeship programs, licensing requirements, and imposing above-market wage demands. By limiting the number of workers in a specific field, unions drive up wages for their members, but at the expense of overall economic productivity and employment. This artificial scarcity of labor ultimately translates into higher prices for goods and services, negating the purported benefits of higher money wages.

This artificial inflation of wages by unions creates a ripple effect throughout the economy. When unions successfully impose above-market wages, non-unionized employers often feel compelled to match or even exceed those wages to prevent their own workforce from unionizing. This widespread increase in wages further reduces employment opportunities, as businesses struggle to absorb the higher labor costs. Minimum wage laws exacerbate this problem by preventing wages in less unionized sectors from adjusting downwards to absorb the surplus labor, resulting in greater unemployment.

Beyond unemployment, one of the most detrimental consequences of union activity is the suppression of productivity growth. Unions frequently oppose the introduction of labor-saving technologies and practices, fearing job losses for their members. They advocate for practices like featherbedding, make-work schemes, and restrictive work classifications, all of which impede efficiency and ultimately harm the consumer by increasing prices and limiting choices. This resistance to productivity improvements directly contradicts the fundamental driver of real wage growth and reveals a profound misunderstanding of basic economic principles.

The irony is that labor unions, often perceived as champions of the working class, inadvertently contribute to lower real wages and a decline in the average worker’s standard of living. Their focus on artificially raising money wages through restricting labor supply and opposing productivity enhancements ultimately leads to higher prices, unemployment, and a stagnation of real wages. This misguided approach stands in stark contrast to the true drivers of economic prosperity: increased production, greater supply of goods and services, and a resulting decline in prices relative to wages. The pursuit of individual gain through increased production and supply ultimately benefits everyone, while the artificial manipulation of labor markets by unions benefits a select few at the expense of the broader economy.