State of the Unions: Big Labor’s Decline Explained

Published October 1, 2007

Is the National Labor Relations Act (NLRA), the 1935 law designed to protect and invigorate the labor movement, responsible for the past 50 years of the movement’s decline?

Michael Wachter, the William B. Johnson Professor of Law and Economics and co-director of the Institute for Law and Economics at the University of Pennsylvania Law School, believes the answer is yes. He also says the decline of unions has gone hand-in-hand with the waning of what he calls a “corporatist” economy and the corresponding rise of the free economy.

Wachter’s theory flies in the face of the common belief that unions have dwindled because of better educated and more independent employees, a society more sensitive to employer abuses, management hostility to unions, and increased government protections.

Can’t Stand Competition

Wachter says unions depend on a corporatist economy in which competition and free markets are restricted. In a corporatist economy, price controls dictate the cost of commodities, eliminating corporate competition. Union wages eliminate wage competition and ensure corporations don’t obtain a cost advantage over one another and earn more profit. Antitrust laws are suspended to immunize those actions from lawsuits.

That very arrangement was implemented in 1933 by the National Industrial Recovery Act (NIRA). Soon afterward, though, the U.S. Supreme Court struck down the law as unconstitutional. Congress tried to salvage some of the policies by passing the National Labor Relations Act (NLRA) in 1935, but the NLRA implemented only one aspect of corporatism–labor protections.

Depending on Government

Without price controls to artificially increase prices and antitrust laws to protect the inflated prices, the free market gradually took over. Soon, business executives were caught between the above-market wage demands of unions, shareholders demanding a profit, and competing businesses, some of which did not pay union wages.

Over the past 50 years, in the private sector, shareholders and competition have won more often than not, gradually reducing union influence.

The public sector, by contrast, is the only noncompetitive sector in the U.S. economy and closely resembles the corporatist economies in which unions used to thrive. Accordingly, unions have become a powerful force in the public sector.

The only way the labor movement will reclaim its former glory in the private sector, according to Wachter, is through the passage of another unconstitutional NIRA-type law.

Ryan Bedford ([email protected]) is a labor analyst with the Evergreen Freedom Foundation in Olympia, Washington.

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