Unions = Jobs

America needs stronger unions… This piquant idea recently occurred to a New York Times business writer as he contemplated the economic question of the day: Where are all the jobs? It’s the question on everyone’s minds. Most economic reports indicate that the economy—at least the corporate profit and Wall Street side of it—is recovering slowly. Profits are soaring and U.S. GDP is up, but job creation remains sluggish, at best.

So what do unions have to do with it? Before exploring that issue, let’s review why job creation—or it’s lack—is worrying people who are paid to worry about the economy. According to a recent National Journal article, "The Great Recession wiped out what amounts to every U.S. job created in the 21st Century. But even if the recession had never happened the United States would have entered 2010 with 15 million fewer jobs than economists say it should have."

The article adds that, while the period 2001-2008 witnessed "solid growth" in GDP and corporate profits and a low unemployment rate, job creation was far lower than at any time since World War II.

What happened?

There are theories, but no hard answers. "It’s the trillion dollar question," notes one Federal Reserve economist. Some economists blame the education system for not producing enough trained workers. Others theorize that part of the problem is structural; the economy has changed and there is a mismatch between workers’ skills and jobs. Most agree that corporations are responding to and profiting from a new, globalized economy, as expected. It is the other half of the economic equation—the theory that globalization would beget new, innovative industries that would create new jobs—that has yet to materialize. At least not at the scale that’s required; not in the United States.

I am particularly intrigued by the argument of some economists that a lack of domestic corporate investment is to blame. Instead of reinvesting in the U.S. economy, American companies have been distributing gains to shareholders or investing it in new ventures abroad or are just sitting on their money. Indeed, corporate investments in nonresidential plant and equipment are at their lowest rate in 40 years. That is, U.S. corporations are sitting on a piles and piles and piles of cash.

What can be done?

This is where New York Times business writer David Leonhardt had his interesting thought: Maybe what we need are stronger unions and the employee leverage that comes with them. He writes: "[T]he balance of power between employers and employees" has become too uneven to sustain healthy job growth.

Relative to the situation in most other countries—or in this country for most of the last century—American employers operate with few restraints. Unions have withered, at least in the private sector, and courts have grown friendlier to business. Many companies can now come much closer to setting the terms of their relationship with employees, letting them go when they become a drag on profits and relying on remaining workers or temporary ones when business picks up.

He’s got a point. The American labor movement is weak and getting weaker, with membership last year falling to a 70-year low . U.S. labor laws are abysmal by international standards. As the Times noted: "[U]nions are clearly playing on an uneven field. Companies pay minimal penalties for illegally trying to bar unions and have become expert at doing so, legally and otherwise."

How could a strengthened union movement help the economy? Traditionally, unions have used the collective bargaining process to ensure that workers receive a fair share of the profits that they help to produce. As Robert Reich has noted, this created a "virtuous circle": "Good pay meant more purchases, and more purchases meant more jobs," union and non-union.

Unions are also able to use their leverage to influence management investment decisions and improve productivity, quality, and innovation in the workplace, notes the Economic Policy Institute.

As the New York Times put it (albeit reluctantly): "For all their shortcomings, unions remain many workers’ best hope for some bargaining power." And, without them, the economy begins listing so far in the direction of management that good jobs begin to slide overboard.