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A Critique of What Do Unions Do?

Morgan Reynolds

rofessors Freeman and Medoff have created quite a stir with What Do

Unions Do颗the first substantial pro-union book by economists in

decades. The book has drawn an extraordinary amount of (mostly fa-
vorable) attention, with articles in magazines such as Business Week and For-
tune, a full-scale symposium in Industrial and Labor Relations Review, and
coverage in many academic journals. All the attention, in my view, says more
about what articulate opinion wants to hear than what is true.

There always has been abundant pro-union writing in the academic com-
munity, but economic analysis and many economists continued to stand in
the way of the complete celebration of unionism.! Freeman and Medoff do
not frontally attack the economics of trade unionism, although the book is
the centerpiece of the Harvard school’s campaign to neutralize the traditional
monopoly/cartel analysis of unions. An accurate subtitle for the book would
be The Case for Worker Collectives.

The case is weak. Freeman and Medoff (F-M) offer no coherent theory,
integrated with general economic theory, to displace the core theory. Instead,
they acknowledge that “most economic studies, implicitly or explicitly, have
judged unions as being a negative force in society” (p. 4). This admission
gives an appearance of balance and accommodates the fact that many econ-
omists perceive the similarity between labor combinations and other pro-
ducer groups who try to raise their prices by restricting access to markets.

Given the obvious validity of the economic model, union apologists must
shift the ground of the debate. F-M claim that there is a “shortage of statis-
tical evidence concerning what unions do beyond raising wages that set the
stage for our research agenda” (p. 4). My unsympathetic translation is: set
economic reasoning aside; number crunching from Harvard will deliver the
truth. This stretches credulity beyond the breaking point for most economists,
much less Austrian economists.”

Review of Richard B. Freeman and James L. Medoff, What Do Unions Do? (New York: Basic
Books, 1984).


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260 + The Review of Austrian Economics

Instead of rigorous theory, F-M give us speculation about how the voice/
response face of unions can induce better management and greater produc-
tivity within unionized enterprises by reducing labor turnover, enhancing
worker morale and cooperation, negotiating “more efficient” workplace
characteristics, resolving grievances, and pressuring management into stricter
efficiency. This thin porridge follows Albert Hirschman’s book, Exit, Voice,
and Loyalty, in identifying two mechanisms of adjustment: exit (the classic
market mechanism of mobility) and voice (discussion of problems). To the
Harvard professors, unions basically are agents of collective voice rather than
rent- and power-seekers: “In modern industrial economies, and particularly
in large enterprises, a trade union is the vehicle for collective voice—that is,
for providing workers as a group with a means of communicating with man-
agement” (p. 8). This version of unionism has an eerie parallel: Valery
Chalidze, editor of Kronika Press, a periodical of Soviet dissidents, says that
Soviet propaganda maintains that “the individual has no need for freedom of
speech, it stresses instead expression of the collective will” (Wall Street Jour-
nal, 7 January 1980, p. 13).

What Do Unions Do? is not wrong about everything—it definitely con-
tains some useful information. But the book is parochial: it ignores public-
choice theory, property-rights theory and law, economics, and related fields
of economic inquiry; it relies on Harvard-connected empirical studies; and it
ignores foreign experience with labor unions, especially Great Britain’s. Most
importantly, the book is misleading or wrong about the important things.
There are numerous sins of omission and commission.

Their research may appear sophisticated and far-reaching to some read-
ers, but F-M’s main contentions can be easily summarized in four statements:

1. A trade union is basically a vehicle for collective voice—a means of com-
munication at work and for all labor in the political arena.

2. Unionism on net probably raises productivity.

3. Unions promote economic equality by reducing wage inequality and low-
ering profits.

4. Unions are democratic, noncorrupt organizations.

F-M conclude that the positive effects of voice/response outweigh the negative
elements of monopoly and that “unions do much social good” (p. 250).

To many economists and businesspeople, I suspect, these claims appear
fantastic and absurd on their face. I have tried to refute them in Power and
Privilege (pp. 77-91) and in two papers listed in the references, as have other
economists. Instead of rehashing those discussions, I propose to glide through
What Do Unions Do?, chapter by chapter, citing deficiencies.

Freeman and Medoff boldly title chapter 1 “A New Portrait of U.S.


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Book Reviews = 261

Unionism.” New always promises a lot but seldom delivers. What Do Unions
Do? is mostly old ideas recast in terms such as collective voice and fleshed
out with recent statistical results. The old ideas boiled down to this: (1) Em-
ployees and employers are natural antagonists and employers have a pow-
erful advantage over employees (labor monopsony). (2) The state should pro-
mote unions and the practices of collective bargaining to offset this inequality
(i.e., promote bilateral monopoly). That is Freeman and Medoff’s basic story,
though not put so succinctly. For example, in the last chapter, “Conclusion
and Implications,” F-M say, “We believe that steps should be taken to limit
the power of management to oppose unionization. . . . We are convinced that
current trends have brought the union density below the optimal level. . ..
[Union and nonunion firms] limit management’ power over workers.”

Chapter 1 is an overview and it asserts that unions improve productivity
(1?) partly because they “pressure management to be more efficient in its op-
eration” (p. 3) and “management can respond to unionism in more creative
ways” (p. 11). This proposition supports P.T. Bauer’s comment that “in eco-
nomics we have sunk to such depths that statement of the obvious has be-
come the first duty of thoughtful people” (p. 142). Ignoring the restrictive
work practices of labor unions, F-M implicitly rely on Leibenstein’s erroneous
X-inefficiency theory (see Stigler), which, in turn, resembles the old “shock”
theory of the Machlup—Lester debate in the late 1940s. W.H. Hutt soundly
disposed of the shock theory of improvement by pointing out that if adversity
stimulates managerial imagination, enterprise, and effort more than incre-
mental prosperity, it would be wise for government to impose burdens on any
sector they wished to foster—taxing them to give them a jolt and thereby
causing them to flourish.

On union power, F-M say, “Most, if not’ all, unions have monopoly
power, which they can use to raise wages above competitive levels” (p. 6).
The authors, however, fail to point out the source of this undefined power to
raise labor prices. The book shares this failing with most pro-union writing.
Union power rests on legal privilege and immunities, both by statute and tacit
nonenforcement. State support allows worker cartels to use coercive threats
and initiate violence in ways denied to others. A century of intellectual effort
sold the idea that the noble ends of unionists justify their means and that
allowing unions wide compass to use their tactics helps “labor.” As Mises
said in 1922, “The long and short of trade union rights is in fact the right to
proceed against the strike-breaker with primitive violence” (p. 435). These
truths make F-M statements such as “the wages obtained by unions must be
viewed as the joint responsibility of management and labor” (p. 6)
disingenuous.

F-M relate that unionized “workers” usually report themselves less sat-
isfied with their jobs than nonunion employees: “Unionists are especially dis-
satisfied with their work conditions and their relations with supervisors.”


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262 The Review of Austrian Economics

F-M explain, ° ‘unions galvanize worker discontent in order to make a strong
case in negotiations with management. To be effective, voice must be heard”
(p. 21). Certainly, the adversarial mentality and politicization of the work-
place matter, but two other factors matter: in view of the excess labor supply
available at union prices, firms demand more effort and output (“speed-
ups”), and unionized firms also lack the flexibility to equalize the marginal
returns to all forms of compensation and effort by all types of labor. Firms
in competitive labor markets are relatively free to make these adjustments,
and the market disciplines them to accommodate worker preferences for
wage and nonwage conditions.

Chapter 2 discusses the union membership statistics and other institu-
tional facts. Oddly enough, F-M seem to believe that competition in the labor
market is the natural condition if monopoly unionism disappears:

When a market is national or international, with output produced in one
plant competing with that produced in other plants, independent bargaining
by individual locals would lose unions their monopoly power, as locals
would compete for jobs through lower wages. .".. The result would be a
reduction in wages to more or less competitive levels. (p. 37)

Oh horrors! Too bad. F-M believe in a muddled way that without monopoly
unionism, competitive results generally would obtain rather than monopsony
exploitation of labor. But why would competitive markets be destructive?
E-M do not tell us why, which makes their support of unionism and pro-
union regulations puzzling. They endorse competition in product markets, so
they believe that labor is different. Yet F-M’s version of labor’ disadvantage
does not fit the monopsony model in a straightforward way. Strange.

An erroneous thread through chapter 2 and the rest of the book is F-M’s
notion that we live in a world of labor against capital, those two great macro
abstractions. F-M say, for example, “The principal role of the AFL-CIO is to
serve as the voice of labor in the political sphere” (p. 38). We might debate
whether the AFL-CIO speaks for all organized labor, but Lane Kirkland cer-
tainly does not speak for labor, defined as all who labor for a living in the
United States. The U.S. economy has always been predominantly nonunion,
83 percent nonunion as of 1985 and rising. Another example of F-M’s bloc
thinking: “In: short, just as workers organize into unions to enhance their
power in both economic and political forums, employers organize into as-
sociations for the same purposes” (p. 41).

Chapter 3 on the union wage effect is, for the most part, sensible. They
argue that the union wage effect produced a premium of 20 to 30 percent in
the 1970s and that givebacks in the 1980s were part of the market correction
process. F-M, however, are much too sanguine about the discoordination
chronically caused by these pricing failures. F-M also forget the whole ques-


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Book Reviews * 263

tion of rent seeking and who suffers the losses from union plunder. I do not
believe that F-M exaggerate the size of union wage premiums, though H.
Gregg Lewis has an alternative view. He carefully analyzed two hundred stud-
ies and concluded that the union—nonunion wage differential was only 14—
15 percent in the 1970s.

Chapter 4 summarizes F-M’s research on fringe benefits. They find that
unions drive up fringes by 30 percent, ceteris paribus (p. 41). They concede
. that part of the union effect represents the social cost of monopoly power,
but part is a social gain: “at the same labor cost, unionized workers will have
a desirable set of benefits” (p. 74). This is simply an implausible, even fan-
tastic, conjecture. F-M claim that there is good reason to expect unions to do
a better job of eliciting workers’ preferences because of the adversarial rela-
tion between employers and employees—“the fact that ... nonunion em-
ployees have an incentive to withhold information about preferences” (p. 71).
This argument can be dismissed out of hand—free markets do not produce
fearful, helpless employees. The F-M argument fails to apply in product mar-
kets; it also fails to recognize that firms are intermediaries between product
and resource markets in which resource suppliers voluntarily cooperate to
their mutual advantage, that free markets pressure surviving (low-cost) firms
to tailor their compensation mix to suit worker preferences, and that non-
union mechanics, loggers, truckers, and dockworkers are not afraid of their
bosses. Work opportunities—not entry barriers erected by labor unions—
inspire confidence.

Chapter § tries to counter the charge that unions are a labor elite, that
is, unions advantage high-wage workers and increase economic inequality.
F-M claim that their empirical research shows that unionism “tends to be in
general a powerful force for equalization of earnings in the economy” (p. 78).
This claim is bound to be wrong, but it is not theoretically impossible. F-M
argue that union policies of a single rate for the job tend to even up wage
rates within unionized plants (at the cost of incentives for individual perfor-
mance) more than they offset the disequalizing impact of unions elsewhere.
H. Gregg Lewis, however, points out that we cannot observe wage dispersion
in the absence of monopoly unionism, nor can we statistically infer it from
fitted wage equations. W.H. Hutt argues that if competition among workers
in different fields had been unrestrained, we would have far more people in
the higher-paid kinds of work and far fewer in the low-paid kinds of work. I
agree with Lewis and Hutt.

Chapter 6 claims that unionism substantially reduces quits beyond the
union wage effect. F-M argue that this phenomenon should be attributed to
the “voice” effect. The lower turnover in union jobs supposedly raises GNP
about 0.2 to 0.3 percent, just offsetting the static welfare loss in GNP from
the monopoly wage effect, estimated via Harberger’s procedures. Ironically,
economists used to praise resource mobility and flexibility, while F-M now


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264 + The Review of Austrian Economics

praise union-induced immobility. Econometric results to support the opposite
view are available, of course. Jacob Mincer’s longitudinal study, for instance,
finds that more than half of the union wage premium of over 20 percent is
rent, with the remainder a quality adjustment in hiring, and that the union
wage-fringe premium completely accounts for the lower quit rates in union-
ized jobs. Mincer also finds that the seniority wage rates of union jobs reduce
employee investment in general training.

Chapter 7 of What Do Unions Do? is about adjustment to business
cycles. F-M agree with everybody else that unions reduce wage flexibility and
rely on layoffs and unemployment benefits much more than the nonunion
sector, though the authors downplay the union—nonunion differences. F-M
overlook union inflexibilities as a factor delaying recoordination of markets
and the restoration of employment and output. The pricing mechanism, not
fiscal or monetary policy, recoordinates.

Chapter 8 discusses the seniority policies of unions. F-M’s struggle to
make unions look good works very poorly on this issue. The inverted incen-
tives of union rules are nowhere better illustrated than by F-M’s observation
that one-quarter of union contracts have clauses that allow senior employees
to be laid off ahead of junior employees—*“layoff vacations.” As with other
researchers, F-M find that union members’ wages do not rise as rapidly with
seniority as those for nonunion workers, but that nonwage benefits rise by
enough to compensate. The trouble is that the flattening of union wage pro-
files in human-capital variables such as schooling and experience is inefficient
in terms of the lifetime income and substitution effects on work effort.

F-M argue that the inferior metering of rewards to individual productiv-
ity in union situations is offset by the gains from reducing the uncertainty of
“managerial discretion.” Another gain supposedly is the protection of “vul-
nerable” older workers. This is not economic analysis. If managers are ca-
pricious, the logic of free labor markets constantly works to correct it. F-M,
by contrast, only offer their faith in union caprice (“rules”) to replace com-
pany caprice (how widespread?) plus an appeal to emotion about helping the
old. F-M conclude that “our best guess is that the rules are, on net, socially
beneficial, but we lack the quantitative studies of the various circumstances
to reach a clear conclusion” (p. 134). This conclusion plays to the gallery:
numbers never speak for themselves.

What about the impact of union seniority rules on minority workers? No
problem, F-M claim. Unions again are on the side of the angels because black
employees are nearly as senior as white employees and seniority clauses pro-
tect blacks from arbitrary discrimination in the marketplace. Yet blacks often
complain that union seniority rules work against them. F-M seem to forget
that the marketplace is the historic protection for minorities, not government
and unions. Further, it is plainly false to claim that blacks have the same ratio


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Book Reviews * 265

of insiders to outsiders as whites do. We need only look at the huge numbers
of blacks who are young, unemployed, illiterate, and out of the work force.

Chapter 9 takes up the question of job satisfaction. F-M accurately ob-
serve that union workers have very poor perceptions of supervisors and their
own relationship with supervisors. Union workers claim that their supervi-
sors do not encourage or help them to contribute to improving the produc-
tion process. These facts are well known to industrial relations specialists and
the explanations are obvious, though uncited by F-M. Unions impose job
rigidities which increase worker boredom (e.g., UAW auto plants have over
135 job classifications and no one may do another’ job, no matter what the
temporary production situation), union headquarters constantly spew anti-
company propaganda, and prickly workers file grievances when supervisors
try to change something. All very unpleasant.’

F-M point out that union workers are dissatisfied with how unions affect
their say on the job and in the company and are dissatisfied with what little
unions do to make their jobs interesting. Yet a few pages later, the Harvard
professors lament that “many nonmembers appear to have an incorrect per-
ception of what unions do” (p. 145). F-M admit, however, that “voice oper-
ates by fanning discontent” (p. 149).

Chapter 10 discusses what unions do to nonunion labor. Here F-M
waffle:

Some nonunion workers gain from unionism, notably those in large non-
union firms and in firms threatened by organization that choose to combat
unionism with “positive labor relations.” Other nonunion workers, notably
less skilled “secondary” workers, appear to lose from unionism. The net
effect on the entire nonunion workforce is unclear. (p. 161)

Extraordinary. This flatly contradicts economic analysis. So-called union sub-
stitution policies by companies cannot be extensive—why should companies
incur unionized costs without a fight? Some companies consciously follow
union avoidance strategies, but this is part of the social waste induced by
monopoly unions and the interventions supporting unions. The overriding
truth is that an artificial scarcity implies artificial abundance elsewhere.
Unions therefore harm prosperity and lower the flow of real wages. Over the
long run, unions particularly impoverish by deterring investment.

Chapter 11 makes the case that unions improve productivity. F-M say,
“The new work suggests that in general productivity is higher in the presence
of unionism than in its absence” (p. 163). While F-M admit there are pro-
ductivity-reducing aspects of unionism, they claim that if management con-
ducts good industrial relations, productivity is likely to be higher under
unionism. To be sure, a few empirical studies find that productivity is higher


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266 « The Review of Austrian Economics

in union than nonunion firms, but F-M’s interpretation is wrong. Unions im-
pose higher than competitive labor prices on unionized firms and firms seek
maximum profit, so the marginal productivity of unionized labor among the
survivors must be greater than that of nonunion labor, provided that firms
eventually are able to employ inputs so that their marginal productivities
equal their prices. Effective unionization, then, necessarily diverts employ-
ment from high- to low-productivity uses. Statistical techniques cannot elim-
inate this effect of union behavior in the data, nor should this result be ap-
plauded as a positive effect on output per worker. These union—nonunion
productivity differentials are classic distortions in the allocation of scarce la-
bor and capital caused by monopoly prices (see Reynolds, 1986).

F-M ignore direct restrictions on output imposed by unions—call it feath-
erbedding, job security, or overstaffing. Examples are legion: tearing out fac-
tory wiring to rewire with union labor, standby orchestras, refusal to use
ready-mixed concrete, compelling the use of an expensive operating engineer
to run a construction elevator instead of a cheaper laborer, and so on. Most
businesspeople bitterly complain that union work rules cost them more than
union wages. While some Harvard professors and labor writers believe that
unions aid productivity, surveys find few businesspeople who share this opin-
ion (Reynolds, 1984, pp. 87-88). Neither F-M nor other pro-union scholars
ever cite clear, observable cases of union improvements in productivity; they
only cite econometric studies.

Perhaps the most telling objection to the F-M productivity claims is that
managers, investors, and employees in nonunion firms have every financial
incentive to discover and adopt any techniques that produce large gains in
production at low cost. If unions and unionized firms happen to stumble into
such productivity boosters, their advantage will not be kept by unionized
firms for very long. Logically there can bé no systematic union productivity
advantage for economists to detect.

Other statistical studies find that the growth of total factor (residual)
productivity is slower in industries with high proportions of union coverage.
Even F-M admit that “unionized industries have, indeed, had somewhat
slower growth of productivity than nonunion sectors, [but] the observed re-
lation is too weak statistically to support the claim that unionism reduces
dynamic efficiency” (p. 170). In truth, the union creed is: Here today, here
forever.

Chapter 12 covers the impact of unions on profits. F-M, like other econ-
omists, find negative effects on the return to capital. F-M, however, say that
this is OK because unions “reduce exceedingly high levels of profitability in
highly concentrated industries toward normal levels. . . . the union profit ef-
fect appears to take the form of a reduction of monopoly profits” (p. 186).
Very convenient: union coercion only harms “the financial well-being of or-
ganized enterprises or sectors” (p. 189). Of course, even if we believed that


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Book Reviews * 267

the Robin Hoods of the labor market operated F-M’ way—robbing only
allegedly well-heeled giants such as AT&T, United Airlines, and GM—Free-
man and Medoff ignore the consumers harmed by the further underproduc-
tion of “monopoly” output induced by union pricing, and the investors (in-
cluding the widows, orphans, and workers trying to avoid poverty in their
old age) who own shares of corporate giants. F-M blithely conclude that
“there is little normative content in the direction of the effect per se” (p. 189).
They fail to consider the inefficiency of concentrating overpriced labor on
successful enterprises and rewarding less-successful enterprises with under-
priced labor.

Chapter 12 is another instance of F-M’s delusion that organized labor’
enemy is capital—in this case, big business. Collaboration between big labor
and big business is more familiar in Washington than in disputes—be it the
shoe, auto, trucking, or steel industries—as both unions and companies seek
protection from the competition of (mostly) nonunion domestic and foreign
companies. The “enemy” of union labor is nonunion labor, not rapacious
capitalists.

In chapter 13, F-M try to whitewash union political activities, claiming
that although unions exploit existing regulations to obtain benefits for their
members (often at the expense of the general public), most legislative success
"comes in the form of “general labor and social legislation” (p. 200). George
Meany said it better: “Every piece of social welfare legislation in the last two
decades carries a union label” (cited in Reynolds, 1984, p. 212). F-M exag-
gerate the distinction between the narrow and broad agenda of the unions.
The AFL-CIO may claim that they lobby for, say, federally funded mass
transit to help the elderly, disabled, and minorities, but union finances and
membership ride on taxpayer subsidies to unionized municipal buses and
trains. Unions lose some legislative battles to be sure, but all interest groups
do.

Chapter 13 also misstates the political struggle as business versus labor.
For example, “Legislation that strengthens unions tilts the balance of collec-
tive bargaining toward labor, while legislation that weakens unions tilts the
balance toward business” (p. 201). But reductions in the legal privileges and
immunities of organized labor help consumers. Some businesses are helped,
others hurt. Consumers, not “business,” primarily suffer the losses from the
union-imposed wage taxes. Freeman and Medoff’s analysis and prescriptions
overlook the wisdom of Adam Smith: “Consumption is the sole end and
purpose of production; and the interest of the producer ought to be attended
to only so far as it may be necessary for promoting that of the consumer”
(Wealth of Nations, book IV, chapter 8).

Chapter 14 argues that unions are not the unresponsive, undemocratic,
corrupt, strike-happy organizations that some claim. While “blemishes” ex-
ist, they are minor and no more common than in the business world, F-M


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268 « The Review of Austrian Economics

reassure us. For example, F-M argue that strikes area trivial cost in terms of
labor hours lost to the economy, as many economists conclude. This is a
superficial analysis, however. Union wage distortions and other union im-
pediments to efficient production and employment rest on the strike threat.
The threat does more harm in paralyzing management than strikes do. Fur-
ther, F-M never define a strike. A strike is not simply a mass walkout by
incumbent workers to protest substandard conditions. Free people have al-
ways had the unqualified right to withdraw their labor. As Arthur Shenfield
describes the behavior of strikers: |

The jobs from which they have withdrawn performance belong to them, they
maintain. Their labour is present and available for those jobs, and woe be-
tide any other workers (“scabs”, “blacklegs”, etc.) who may seek to offer
their labour in place of that of the striker. Woe betide also any employer

who seeks to hire the labour of such “interlopers.” (p. 11)

The irony of What Do Unions Do? is that it concentrates almost exclu-
sively on the effects of unions, not the actual behavior of unions—the strikes,
organizing, boycotting, campaigning, compulsory membership and dues col-
lection, grieving, lobbying, pressuring, and political activism everywhere. The
book tells us little about what unions do (the rent-seeking process) and noth-
ing about the associated threats of disruption and violence that underlie the
union system. Nor is there anything about the full-time union bureaucracy
of some 35,000 people who live off $5 billion in annual dues collected from
workers’ wages, the annual compensation of $750,000 for Teamsters’ presi-
dent Jackie Presser, and so on. Ignored also is turnover among national union
officials, summed up by a George Bernard Shaw character in The Apple Cart:
“No king is as safe in office as a trade union official.”

Chapter 15 has an amusing title: “The Slow Strangulation of Private-
Sector Unions.” It suggests that unions are the innocent victims of coercion
rather than perpetrators of private coercion and beneficiaries of state privi-
lege. Everybody agrees that the numbers show a steady, sizable decline in the
share of the work force represented by unions. The question is why. F-M
claim 72 percent of the decline stems from change in economic structure.
They fail to mention that union pricing and belligerence change structure—
decimating the steel industry, northern heavy industry, meatpacking compa-
nies, and so on. In F-M’s account, unions are passive reactors to change,
however, not causes of change. It would be closer to the truth to say that
unions became powerful enough to destroy themselves.

What really disturbs F-M about the sunset days of unions is managerial
opposition to unionism. Hiring labor consultants, firing workers for union
activism, and other kinds of “unfair management practices” are hard to assess
as a factor in the demise of unions, but F-M believe they are important, ac-
counting for a quarter to a half of the union slippage. Yet, the private-sector


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Book Reviews * 269

decline since the early 1950s has been a straight line, more or less. F-M rec-
ommend more pro-union regulations, such as requiring elections within fif-
teen days of a union petition (before management can react effectively), to
offset managerial “law-breaking.”

Contrary to F-M, a lot of the responsibility clearly rests on unions and
. their image with employees. F-M implicitly assume that most workers would
join unions if it were not for intimidation by management. This is easily dis-
proved. There are many antiunion workers in the United States, some fiercely
so. They have religious, ideological, and financial reasons for being against
unions. Companies that are nonunion or trying to become nonunion want to
gain access to this part of the labor force and allow the more productive
employees to advance. Surveys show that only a third of nonunion employees
say they would vote union in an NLRB election. Unions continue to lose
NLRB elections and decertification votes.

F-M, however, blame management for the union slippage. It is strange to
see economists blaming managers in a normative sense. Even Freeman and
Medoff admit that unions reduce profits. Those of us who are consumers and
nonunion labor sellers might even cheer a little if more managers found their
backbones and resisted union aggression. As union—nonunion wage differ-
entials and work rules grew during the 1970s, causing many unionized com-
panies to become uneconomic in increasingly deregulated and global mar-
kets, perhaps more managers began to resist forced labor exchanges. F-M
indirectly recognize this factor because their last chapter urges unions to “use
their economic power more judiciously in the future” (p. 250).

Alfred North Whitehead said, “A great society is a society in which men
of business think greatly of their functions” (Jackman, p. 17). Suppose more
managers said, proudly:

Yes, we're trying to maximize the value of the company, the wealth of the
owners. We try to produce and sell our products for the highest profits ob-
tainable. We insist on our right to seek out the lowest prices for the skills we
want to employ, as well the lowest available prices for the other inputs we
use. We intend to run a harmonious ship, keep our labor costs competitive,
protect jobs in this company, defend the wealth of our shareholders, and
ultimately protect consumers. Efficient managers are the only line of defense
for consumers. Our behavior also adds to productive employment and out-
put in the economy, offers employment opportunities to the “outs,” and has
the long-run effect of diminishing economic inequality. Freeman and Medoff
may condemn us, but apparently they do not understand economics. (p. 17)

If these imaginary managers would add, “We also insist on the right of
workers to seek out the highest prices for their services, unimpeded by those
allegedly harmed by this market freedom” (e.g., highly paid union members),
the remedy for our labor maladies would be close at hand.


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270 « The Review of Austrian Economics

Notes

1. In an exchange with Melvin Reder, Freeman and Medoff (1985, p. 642) deny
that they are pro-union, claiming their stance is merely pro-empirical social science.”
Further, they aver that while they welcome “serious scientific investigation” concern-
ing their union hypotheses, they “do not welcome criticism or praise which has a
political, personal, or other nonscientific basis. itis a waste of everyone's time.” Reder
{(p- 640) notes that “to state that, inter alia, a book functions as a political-e -economic
tract is in no way to castigate it.”

2. In a similar vein, Reder (p. 641) writes,

The empirical findings reported by F&M on union-nonunion differences in wage - __
rates and other aspects of compensation are (partial) associations. To interpret such
findings as indicative of the effects of unionism, rather than of “other” forces cor- .
related with the incidence of unionism, requires that some account be taken of the
response of potentially unionizable workers to the (perceived) gains from being .
unionized.

3. Toner, for example, studied 244 workers in seven electronics companies in
Ireland and found “no support for the ‘voice’ theories of the Harvard School. Workers
in the non-union companies studied appeared to enjoy more ‘voice, better conditions,
and higher morale” (p. 200).

References '

Bauer, P.T. Rhetoric and Reality: The Economics of Development. Cambridge, Mass.:
Harvard University Press, 1984.

Freeman, Richard B., and James L. Medoff. “An Exchange: What Do Unions Do? by
Richard B. Freeman and James L. Medoft.” Industrial and Labor Relations Re-
view, 38 (July 1985): 642.

. What Do Unions Do? New York: Basic Books, 1984.

Hutt, W.H. The Strike-Threat System. New Rochelle, N.Y.: Arlington House, 1973.

Jackman, Michael. Macmillan Book of Economic Quotations. New York: Macmil-
lan, 1984.

Lewis, H. Gregg. Union Relative Wage Effects: A Survey. Chicago: University of Chi-
cago Press, 1985.

Mincer, Jacob. “Unions Effects: Wages, Turnover, and Job Training.” In Joseph D.
Reid, Jr. (ed.), New Approaches to Labor Unions, Supplement 2: Research in
Labor Economics, ed. Ronald G. Ehrenberg and Joseph Reed. Greenwich, Conn.:
JAI Press, 1983.

Mises, Ludwig von. Socialism. Indianapolis: Liberty Classics, 1981 [1922].

Reder, M.W. “An Exchange: What Do Unions Do? by Richard B. Freeman and James
L. Medoft.” Industrial and Labor Relations Review, 38 (July 1985): 640-42.

Review Symposium. “What Do Unions Do? by Richard B. Freeman and James L.
Medoff.” Industrial and Labor Relations Review, 38 (January 1985): 244-63.

Reynolds, Morgan O. Power and Privilege: Labor Unions in America. New York:
Universe, 1984.

. “Trade Unions in the Production Process Reconsidered.” Journal of Political
Economy, 94 (April 1986): 443-47. oo



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Book Reviews + 271

. “Union Violence: A Review Article.” Journal of Labor Research, 5 (summer
1984): 237-46.

Shenfield, Arthur. What Right to Strike? London: Institute of Economic Affairs, Hob-
art Paper 106, 1986.

Stigler, George J. “The Xistence of X-Efficiency.” American Economic Review, 66
(March 1976): 213-16.

Toner, Bill. “The Unionisation and Productivity Debate: An Employee Opinion Survey
in Ireland.” British Journal of Industrial Relations, 23 (July 1985): 179-202.