Union members outsource; why can't
(This article appeared in the Detroit News on July
by Mark J. Perry
The strike by the United Auto Workers against General Motors Corp., which
may end soon as talks have resumed and intensified, provides an opportunity
to examine the economics of labor unions and their opposition to outsourcing,
or the contracting out of work to outside suppliers.
One of the most misunderstood issues about the labor market is the question
of whom union workers compete against to get higher wages, better benefits
and job security.
Most people believe workers compete against management. Basic economics
tells us that this is wrong -- sellers always compete against other sellers,
and buyers always compete against other buyers. Workers in the labor
market compete against other workers to get higher wages and better benefits,
not against management. In today's global economy, U.S. workers must
now compete with workers all over the world. Companies compete against
other companies to hire the best workers available, not against workers.
For example, Kmart and Wal-Mart, both sellers, compete against each other,
not against their customers. If Kmart wants to increase profits, it
wouldn't eliminate its customers; it would try to eliminate its real competitors
-- Wal-Mart and Target, for example.
Likewise, workers do not want to eliminate employers to get higher wages;
they want to eliminate other workers to reduce the competition for jobs.
Economists generally agree that workers organize in unions to restrict the
supply of their real competitors -- other workers -- and thereby artificially
raise wages above the market level.
As evidence of this, who is more likely to be assaulted or even killed during
a strike -- replacement workers or managers? Replacement workers, of
course, because other workers are the real enemy, and they threaten the unions'
ability to restrict competition and maintain high wages. There have
been more than 9,000 documented criminal assaults by union members against
replacement workers over the decades, 181 of them fatal. In contrast,
when is the last time you heard of a manager being attacked or killed during
Outsourcing is one of the main issues in the strike against GM. Why
do workers object so strongly to outsourcing, when they, as consumers, do
it all the time? Anyone who has ever paid to get their car washed or
have their oil changed has "outsourced" these services. We compare
the cost of washing our own car or changing our own oil with the cost of
paying someone else to do it for us. For most of us, it is cheaper
to outsource these services than to do the work ourselves.
A company is like an enormous household, and it is faced with the same decision
that we face as consumers -- internal production vs. external production.
If a company can buy parts from an outside supplier cheaper than it can produce
those parts itself, it makes perfect economic sense to do so. Preventing
GM from outsourcing would be equivalent to forcing everyone to change their
own oil regardless of the cost, or preventing us from ever "outsourcing"
cooking services by dining out in a restaurant.
With the unemployment rate at the lowest rate in 30 years, the economic conditions
are ideal for workers. If autoworkers feel that they are worth more
than GM is paying them, they can easily test that belief in today's tight
labor market without striking. They can strike out on their own into
the labor market of the strongest economic expansion of the century.
Today's highly technical economy increasingly pays a premium for individual
worker skills, not union affiliating. Many of the fastest growing sectors
of the economy financial services, information technology and telecommunications
-- are in the 85 percent of the economy that is not unionized, and workers
in those industries are getting higher wage increases than union workers.
A strong economy, more than a union, is a worker's best friend; it creates
job opportunities, rising productivity and increasing wages for all workers,
without costly strikes.
Downsizing, outsourcing, restructuring and global competition are here to
stay and will only intensify in the future. Job security, when it means
"I am entitled to lifetime employment at the same company where my father
worked, but I'll give two weeks' notice to leave if it benefits me," is a
thing of the past.
Flexibility, adaptability and efficiency are the keys to economic success
in the 21st century for workers and companies. If the UAW continues
to preserve the status quo and resist adjusting to the dynamic global market,
economics tells us that they will be left behind in the Information Age and
become relics of a fading, industrial era.