At this point in his career, it’s a safe bet that former Labor Secretary and UC at Berkley public policy professor Robert Reich has never met a union he hasn’t liked.Â Like Karl Marx and the muddled thinking which preceded him, Reich has spent his writing career playing the class warfare card while citing the 1950s as vindication for high union rates being responsible for a robust economy.Â The solution to all problems economic, according to Reich, is businesses not paying their employees enough.Â If only Walmart would pay their associates more than, say, $9.00 an hour, those employees would have more disposable income and will subsequently go on a spending spree; hence leading to a boom.Â Basically, evil capitalist pigs paying their employees a mere pittance for their hard work is what prolongs deep recessions. Sounds simple enough, right?
In a recent Slate column, Reich once again attempts to rationalize this logic while explaining that low skill manufacturing isn’t making a triumphant return to the United States anytime soon.
Suddenly, manufacturing is back â€“ at least on the election trail. But donâ€™t be fooled. The real issue isnâ€™t how to get manufacturing back. Itâ€™s how to get good jobs and good wages back. They arenâ€™t at all the same thing.
But American manufacturing wonâ€™t be coming back. Although 404,000 manufacturing jobs have been added since January 2010, that still leaves us with 5.5 million fewer factory jobs today than in July 2000 â€“ and 12 million fewer than in 1990. The long-term trend is fewer and fewer factory jobs.
Even if we didnâ€™t have to compete with lower-wage workers overseas, weâ€™d still have fewer factory jobs because the old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech.
Reich is correct about one thing: the underwear and t-shirt factories are not coming back to the U.S.Â And for that we should all say good riddance.Â Mechanization often means lower cost for inputs, increased productivity and supply, and leads to lower consumer prices.Â Lower prices leave more money in the wallets of all consumers which can then be devoted to other ends.Â Former manufacturing workers can find employment meeting the new demand structure that is a result of a jump in productivity.Â Fretting over this process misunderstands the role machinery plays in increasing the marginal productivity of labor.Â Mises explains:
The confusion starts with the misinterpretation of the statement that machinery is “substituted” for labor. What happens is that labor is rendered more efficient by the aid of machinery. The same input of labor leads to a greater quantity or a better quality of products. The employment of machinery itself does not directly result in a reduction of the number of hands employed in the production of the article A concerned. What brings about this secondary effect is the fact that â€” other things being equal â€” an increase in the available supply of A lowers the marginal utility of a unit of A as against that of the units of other articles and that therefore labor is withdrawn from the production of A and employed in the turning out of other articles.
Though Reich doesn’t explicitly condemn mechanization, he has the short sighted view of robotic operations being the direct cause of a decline in manufacturing employment.Â It shouldn’t be a surprise then that Reich, along with many big labor proponents, mistakenly attributes high wages with material abundance.
Bringing back American manufacturing isnâ€™t the real challenge, anyway. Itâ€™s creating good jobs for the majority of Americans who lack four-year college degrees.
Manufacturing used to supply lots of these kind of jobs, but that was only because factory workers were represented by unions powerful enough to get high wages.
Reich sees money as an end in itself rather than a means to acquire goods and services.Â This is his first mistake.Â Taking his rational to the extreme but logical conclusion, a declared minimum wage for all workers of $1,000 an hour should instantaneously lead to prosperity.Â After all, “good jobs and “good wages” are the overall goal, correct?Â But I doubt Reich would advocate for such a policy and recognizes the damage an incredibly high price floor would cause.Â At least I hope he does given his prominent role in commentating.
Where Reich ultimately falls short is believing that unions are solely responsible for higher-than-market-determined wage rates and that no negative consequences permeate from such.Â Wages in an uninhibited market are determined by the marginal productivity of labor of each worker.Â In order to maintain higher than normal wage levels, be recognized by employers, and prevent potential workers from being employed at a lower wage, unions rely on the force of government and threat of judicial lawsuit.Â Like all market intervention, unions are an inherently violent imposition into the peaceful transactions of individuals (the exception to this rule being trade unions which act as networking aides and are funded through the voluntary payments of their members.)Â From the utilitarian perspective, implicit compulsion may seem worth it if your goal is promoting an increased standard of living.Â Unionization would certainly seems beneficial for already employed workers.Â But the fact is that the financial benefits obtained through unionization and binding collective bargaining go to the union members only.Â Murray Rothbard shows how unions, rather than assisting the common man, are actually the enemy of all workers:
Consequently, at best, a union can achieve a higher, restrictionist wage rate for its members only at the expense of lowering the wage rates of all other workers in the economy. Production efforts in the economy are also distorted. But, in addition, the wider the scope of union activity and restrictionism in the economy, the more difficult it will be for workers to shift their locations and occupations to find nonunionized havens in which to work. And more and more the tendency will be for the displaced workers to remain permanently or quasi-permanently unemployed, eager to work but unable to find nonrestricted opportunities for employment. The greater the scope of unionism, the more a permanent mass of unemployment will tend to develop.
Higher-than-market wage levels are not the product of utopian fantasy but of government decree only.Â In order to maintain such rates, resources and capital must be devoted to those industries; leaving less for the rest of the economy.Â Forced collective bargaining is the anathema of rising living standards and only serves the interest of union members and its administration.Â A return of the unionization rates of the 1950s wouldn’t bring back to the conditions of the post war boom but would have the opposite effect.Â Reich either doesn’t understand this phenomena or ignores it all together.