Richard B. Freeman is a Professor of Economics at Harvard University and has been studying the role of labor unions in our economy for over forty years. His seminal publication, "What Do Unions Do?" (1984), concluded that unions are on balance beneficial for the economy and society, and remains one of the most widely cited books in this area of research. Luigi and Bethany sit down with Freeman to ask: What do unions do today? How have technology, global competition, and the open economy led to their decline? And as seen by recent unionization moves at Amazon, Starbucks, and elsewhere, how real are the nascent signs of a comeback? They debate whether unions, both public and private, are robust ways to protect workers' rights moving forward, or whether government should instead focus on securing safety net systems such as minimum wage and unemployment insurance.
Richard B. Freeman: When the unions are growing, it’s really in earthquakes. There’s just a lot of small tremors, and everybody’s trying to figure out, is that going to lead to a big earthquake that we’d better take protections?
Bethany: I’m Bethany McLean.
Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?
Luigi: And I’m Luigi Zingales.
Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.
Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.
Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?
Luigi: And, most importantly, what isn’t.
Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.
Bethany: So, a key topic today, particularly with unionization moves at Amazon . . .
Speaker 8: Workers at an Amazon warehouse in Staten Island will unionize, a first in the US in Amazon’s 27 years.
Bethany: At Starbucks . . .
Speaker 9: Starbucks workers in upstate New York have voted to unionize for the first time in the face of strong opposition from management, the latest sign that unions may be making a comeback.
Bethany: At hospital chain HCA, is unions. What happened to unions? What led to the decline of unions? What are the costs? How real are the nascent signs of a comeback?
To get some insight, we spoke with Richard Freeman, who is a professor of economics at Harvard University. He’s been thinking about unions for more than 40 years. His seminal book, What Do Unions Do?, was published first in 1984. It argued that, yes, there was a downside to unions, because if they were monopolies, they could raise wages above the competitive level. But he argued the benefits were much, much bigger, including for children of parents who are in a union.
More recently, his 2016 work found that the decline in union coverage accounts for 35 percent of the falling share of middle-class workers. So, who better to think about the role that unions have played, and may play, in economic life going forward than Professor Freeman?
Luigi: Richard, you have been a key figure in labor economics, and particularly the economics of unions, and four decades ago, you wrote an important book, What Do Unions Do? My question is, what did unions do, and what do they do today, and how have things changed in the last four decades?
Richard B. Freeman: They do sort of the same things they did, but for a smaller share of the workforce. The vast majority of Americans are not part of unions, and maybe one of the problems is they should be doing things differently.
Bethany: Talk a little bit about your newer research, which showed that the decline in union coverage accounts for 35 percent of the falling share of middle-class workers, and that the combination of that shrinking share of union workers and the reduction in the union equality effect explains almost half of the decline in middle-class workers. I found those numbers, I suppose, not surprising, but still staggering.
Richard B. Freeman: I would say the entire bottom half of the income distribution, that has gone down because the unions have basically disappeared. What’s interesting, a lot of economists always wanted to say, oh, this is all technological change, and it’s all about shifts, more educated workers as opposed to less educated. And the trade economists would say, oh, so the guys at the bottom can’t compete with comparable workers in developing countries with lower wages. They just need to get more education. They rarely looked at the institutional features of how the wages are set and how the jobs are being determined and making the whole society work for everybody.
Luigi: But to what extent is the decline due not only to regulation or the behavior of employers, but also the fact that there is much more competition coming from abroad? Many unions have been forced to make a choice, or many factories have been forced to make a choice, if you want to keep the jobs in the United States, there is not a lot of margin for compromise, and these are the conditions. And so, I don’t think there is a lot of room for unions to make a difference.
Richard B. Freeman: I think the open economy has had some effects, yes, that is correct. But if unions couldn’t make a difference, these companies wouldn’t be fighting so hard against them. They still can make a big difference. Many of the jobs and many of the nonunion workers are in domestic sectors. The Amazon workers. There’s no way they’re going to have the Amazon factories getting the goods onto the trucks . . . or wherever, the deliveries . . . having someone, I don’t know, in India do it. Indians can do some things, and that has some effect. The most stunning fact is that the vast majority of American people today favor unions. It’s the biggest fraction of people favoring unions over the last 30 to 40 years.
Bethany: Given what your research has shown about children who grow up in areas with high union membership earning more money as adults and having more mobility, can we fix this? Do we have a lost couple of generations as a result of the decline in union membership, and can we get back to where we could have been? Or is it, I hate to sound so pessimistic, but is it too late?
Richard B. Freeman: Yeah, we’ve done some very recent work which shows that if people are paid similar pay over a period of time, they actually will work better in the future. It’s kind of like you’ve got built into your utility function, perhaps, or your expectations, the sense of, OK, the world should be equal or relatively equal. And that goes on for a period in people’s lives. We certainly have a lot of young people today who want to be in unions. They see an advantage to acting collectively. The people in Starbucks who are unionizing, they’re not going to be 60-year-old Starbucks baristas. They’re going to be relatively young people.
So, I don’t think there’s anything that says we can’t turn that around, and sometimes I even think that the younger people, they don’t always know the weaknesses of unions, because they haven’t seen them, so they may be looking upon them as a savior beyond what they can do.
Luigi: But some of the strongest unions I know don’t appear so nice. Let’s start with the police union. The police union protects criminal policemen from prosecution. They control the electoral process for the mayor. It’s a disaster. So, how can you explain why the police union is so bad?
Richard B. Freeman: No, it’s not probably as bad as you’ve laid it out to be, but, yes, they are a tough union. And the first time I really met a whole bunch of police union officials, and I asked one of the guys, “What do you do?” And he said, “Our main thing is, when our members are accused of beating up civilians or something, we defend them.” And I thought, oh my god. And we tried for a number of years, at special meetings at Harvard with the police unions. We brought them for an annual meeting, and we tried very hard to shift their attitude. And I would say we failed.
But, I mean, every union is going to be primarily . . . and this is true of every democratic institution. It’s going to be responsible for its members. So, you might imagine that there should be different public-sector laws regulating, say, a government-owned union, and in the US, there really are, but it depends on which state you’re in and what the laws are, as to how they would behave.
Luigi: If I understand you correctly, you are saying that unions in the public sector are more likely to be bad because there is not really a strong countervailing power on the other hand. The taxpayers are diffused, and so they take advantage of the situation in an excessive way.
Richard B. Freeman: I would never have said public sector. I mean, you were talking police, who are a distinct brand of unions. Certainly, the schoolteachers are very different, and most public-sector unions—
Luigi: Well, wait. Are they? Because the impression is that they care more about the teachers than the students. Isn’t that that case?
Richard B. Freeman: Well, in the US, you may remember when the nonunion schoolteachers throughout the South went on strike about six, eight years ago, supported by the parents and supported by the principals, because the state legislatures were just not spending money. So, it was a clear unification. Similarly, take my own town, Brookline, there was a dispute between the city and the Brookline teachers’ union, and all over the city, you saw big signs on people’s lawns of, “Support the teachers.” “My kids love their teacher.” So, I don’t think you can . . . It depends on the union. It depends on what the goals of the union are.
Luigi: But think about, sorry, the teachers’ unions during COVID. They were protecting the teachers, but they were not teaching students. In private-sector schools, especially Catholic schools, children were going to school. In the public sector, they weren’t.
Richard B. Freeman: All institutions have their problems. So, if you want to say you would have preferred the teachers to have a different policy at that time, when people were scared of the disease, that’s legitimate. But their job is to defend their members. You could say the same thing in private unions. A private union that is harmful to the company that it’s working for is not doing a good job.
Bethany: Do you see any differences that are worth pointing out between public-sector and private-sector unions?
Richard B. Freeman: Well, yes. In the public sector, we have 30-plus percent people unionized. In the private sector, we have, I don’t know, 7 percent, 8 percent. The big difference is the employers’ behavior. Public-sector firms cannot go out and hire goons to beat up union members. They cannot break the law by firing people for . . . It’s against the law to fire somebody in the US for being a union supporter. Companies do that, and they have law firms that will defend them in court, and everybody who wants to form a union in the private sector knows they are endangered, that there’s a risk. So, I would say the biggest difference is that the public sector, representing all of us citizens and representing the rule of law, rarely does things bad against the unions. The private sector spends huge amounts of money and can do very rough stuff.
The unions, they’ll always try to help their members, and probably the public-sector unions are a bit more publicly oriented. I do think the schoolteachers in general are concerned about the whole education thing, the way a union that’s dealing with, I don’t know, with Amazon, they’re not going to worry so much about Amazon. They’ve got to worry about the well-being of their members, primarily.
Luigi: I think another huge difference between the private and the public-sector unions is the fact that the private sector is competing with other firms, while the public sector is not. And so, if I am a union demanding outrageous advantages, I’m going to be weeded out in the competition in the private sector. In the public sector, I can survive as long as the citizens are not going to vote, and we know that democracy is not as efficient. And so, they get away with a lot more than the private-sector unions.
Richard B. Freeman: Well, the evidence is contrary to that. The public-sector unions have much smaller wage differentials, comparing union workers to nonunion workers, than in the private sector. It’s totally . . . I mean, it’s overwhelmingly different.
Luigi: No, they get another form of differential, because the only thing that is observable to the voters are the wages. But they get, for example, enormous pension benefits, and in Illinois, we are bankrupt as a result of that. You’re getting protection for the policemen. You’re getting protection for the workers as a teacher. You’re getting not showing up at work when you really need to work, and so on, so forth.
Richard B. Freeman: No. This is just so off the beat, because you could be saying, oh, and the politicians, they’re not good guys like all the executives, because the politicians are worrying about citizens, and so on and so forth. The public sector will be different. Yes, that is correct. But the pay differentials in the public sector are smaller between union and nonunion, and in the public sector, most of the people get benefits that are publicly determined, and in the private sector, they have to win those benefits from companies. Voters aren’t telling the company things. The shareholders can tell them. So, the workers organize, and then they negotiate for those things.
The idea that, somehow or other, public-sector workers are this coddled thing in this country is so off-base. They do behave differently than private-sector people, and your competition point is absolutely correct. Public-sector people are less, I would say, innovative. Their whole job thing is, don’t cause problems. Don’t do something risky that will get the politicians in trouble, or so on. In the private sector, we applaud people who take risks. And, yes, you may take a risk, and you win, and that’s good, and the company prospers, et cetera. So, there’s a big difference in how they behave, and the unions sort of reflect the settings.
Luigi: We agree that the American Medical Association is a union, and it is an example of how bad they can be, because if we don’t have healthcare in this country, universal healthcare, we owe it to the American Medical Association that, from the beginning, has lobbied very heavily against universal healthcare, and they put restrictions on entry. There is a sector where the number of jobs, the number of doctors in America, is determined by the number of seats in the medical schools, and they’re fixed by the American Medical Association. So, it is the example of how bad unions can be in every dimension. It’s detrimental to all of us.
Richard B. Freeman: I would like to see them behave differently, as you would, and that is correct. And what would you want to do about it? Would you want to outlaw them?
Luigi: No. It would be to allow more entry in the sector, number one, and reduce the veto power that they have, because as I said, we would have had universal healthcare since Truman if it wasn’t for them.
Richard B. Freeman: I would love to have universal healthcare. I doubt that they are the sole reason we don’t have universal healthcare.
Luigi: When Truman proposed it, it was defeated by them. The biggest organization fighting against universal healthcare back then was the American Medical Association. And how come, even today, one of the issues in Nevada was whether the unions would support Bernie Sanders, because they are against universal healthcare, because they negotiated special healthcare for their members, and they don’t want to lose that privilege, and so they are against universal healthcare?
Bethany: It might have been only the AMA that had the power back in the day of Truman, but now there are so many powerful people vested in the healthcare system as it is, from the pharmaceutical industry to the insurance industry to the hospital industry, that I think laying the failure to achieve universal healthcare at the feet of the doctors is not accurate.
Richard B. Freeman: Yeah. If the country is not giving healthcare, universal healthcare, and every worker group has to negotiate with employers for it, then what you’ve got to do is have a sensible plan that says, if we go with the universal thing, the workers get something else. They can redo negotiations. They’ve spent . . . They’ve given up, let’s say, pay increases to get their healthcare, and so I would just say, that’s a complicated thing. I think any well-meaning group of people could resolve it. But you’re right. Yeah, the union will say, “Why should we be doing this? We spent all of our resources to get our guys healthcare, and now you’re going to give it away free. Let’s talk about how we adjust.”
Luigi: But maybe it is that I grew up in a country that, at the time, had very strong unions, and I remember continuous strikes, and particularly by the groups that had the biggest power to disrupt.
Richard B. Freeman: I mean, unions will use their power, and it’s up to the citizens and the government to decide what’s legal and what’s not. And if they’re carrying out a legal strike, that’s what we decided as citizens, that we allow workers to protect themselves. And from the American perspective now, unions have been a big bulwark for democratic practices, and they stand generally against strongmen and people like that. But I think we would have a much stronger democracy in the US if we had a larger fraction of people who were in trade unions.
Bethany: You had mentioned some of the renewed support for unions among young people in particular in the United States. And so, you do have these little nascent successes among unions, from Starbucks to Amazon to HCA. How optimistic are you about a strengthening of unions in this country, about a renewed union movement? Do you think it’s too soon to tell, or do you see these signs as green sprouts, if you will?
Richard B. Freeman: Yeah, you could call them green sprouts. When the unions are growing, it’s really in earthquakes. The unions in the US grew in sudden, giant spurts in the Depression and during World War II. In literally every other country, the history is, at one point, workers get really upset with what’s going on, somebody has a success, and then it just spreads. So, I would look at these things and say, are they going to spread, and what is the spreading phenomenon? What some people saw in the Amazon victory, oh my goodness, it’s going to spread. Amazon poured in a lot of resources to make sure it doesn’t spread. Starbucks also has put in more ways to stop it spreading. It’s just very hard to predict.
One of the things that’s difficult is, both in the Starbucks and the Amazon cases, and in part among the graduate-student union people, it comes from the bottom up. It comes from the workers. The American unions are sufficiently bureaucratized. It’s not clear they know how to connect to young people and how to help them form unions. I don’t expect to see a burst of unions, but nobody, no expert . . . I don’t call myself an expert, but no expert ever thought the unions were going to burst in the 1930s. It was in the middle of the Depression, people didn’t have jobs. The most famous economist was saying, “Unions? They’re dead.” Because this is the Great Depression. What are they going to strike against?
Sudden, sharp changes are hard to predict, or if we follow the earthquake analogy, there’s just a lot of small tremors, and everybody’s trying to figure out, is that going to lead to a big earthquake that we’d better take protections? We economists and labor experts have not been good at predicting them.
Luigi: So, Bethany, he insists and he sort of fights against the idea that unions are monopolies, but I think that unions are monopolies. Now, the question is whether, is it a useful monopoly, or is there an alternative way to protect workers that is less problematic? Because, as with every monopoly, power conferred to a limited number of people, especially in industries that are very highly blackmail-able, is really a major source of disruption. And having grown up and lived in Italy for a long time, I remember all the strikes of the railway workers at the right time, just before Christmas, or in the middle of summer, or in the most inconvenient situation possible, et cetera.
So, let’s start from the assumption that we need to protect workers more. What is the most effective way to do so? Is it a higher minimum salary, or is it a higher level of unionization?
Bethany: Well, you could ask the subsequent question, which is, can a higher minimum salary exist without a higher level of unionization, at least in the face of congressional ineptitude, which is a whole other subject of conversation? But, yeah, there clearly are practices that unions can engage in that we don’t like, that I think we can all agree are not societally beneficial. And so, how do you be prounion and allow the prounion stuff to take place, with as little of the bad stuff as possible? If we can all even agree on what the bad stuff is, which I think we could not in our conversation with Freeman. In other words, some of the examples that you brought up, whether police unions or teachers’ unions, where we all—or at least some of us—might say there are problems here. How do we get the good while getting rid of the bad? Because there clearly are aspects of unions that are susceptible to abuse.
It is really interesting. I had noticed this piece a while ago. A friend of mine had sent it to me, and it was about a study done by a professor named Martin Lettau, and it was how shareholders have gotten an increasingly bigger piece of the economic pie. And it found that economic growth accounted for just 23 percent of the stock market’s rise over the past 30 years, compared with 92 percent in the prior three decades, and the biggest driver has been a dramatic shift in wealth from workers to investors, which has accounted for 54 percent of the stock market’s increase since 1989.
And I found this really interesting in the light of Freeman’s work. A lot of things have happened to shift the economics from workers to the management class. And something, I think, does need to shift back, and the question is, per your question, which you asked really well: are unions the most effective way of doing this, or is there a better way of doing it? I have a hard time seeing anything better than unions.
There was another study done recently by Brookings, which looked at 22 top retail employers, and studied them in the wake of the Business Roundtable’s pledge for more inclusive stakeholder capitalism and looked at what happened in the pandemic. It found that despite, yes, some very small wage gains during the pandemic, very few of these companies even pay their employees a living wage. They literally can’t make enough money to get by, even if they’re working at these companies.
And, again, you look at data like that, and you think there’s something wrong. There’s no way that somebody who works full time should still not be able to make a living wage. No wonder we have a hugely disillusioned society. The study also pointed to a separate GAO study that showed, I think, in nine of the states where these companies were active, and it included Walmart and, I think, Best Buy, that their employees were among the biggest recipients of SNAP, the government food-aid program, because they’re not even making enough to feed their families. And you look at that and think, something has to change.
Luigi: First of all, I would make a gigantic distinction between public-sector unions and the private-sector unions. He was not willing to go there, but I think that I would make a gigantic distinction, because if you are a private-sector union, you are facing, on the product market side, some competition. The moment you don’t have competition, you can really abuse your power, and there is a very famous paper looking at what happened in the trucking industry, and when deregulation took place, there was a significant reduction in wages, because the unions were capturing a lot of the rents from restricted entry. So, I think that there is no doubt that when there is not competition on the product market, unions appropriate part of monopoly rents, and that’s not good for anybody, except them.
This is particularly egregious in sectors like schooling and security and police, where there are important elements that need to be considered besides the wages, in the sense that with the police, the abuses by the police are not only tolerated but defended by the unions. The unions are the first ones to actually make it difficult to question a policeman after an incident. They give the policeman 24 hours to recover before an interrogation, but they don’t give anybody else that right. Anyway, don’t get me started.
So, first of all, I would make a big distinction between public and private-sector unions. When it comes to private-sector unions, there are countries where this has worked very well, for example, in Sweden. I think that part of that is, these are extremely small countries that are very open to foreign competition, so the unions are very aware that they can’t push the limit too much, because otherwise the country would become uncompetitive.
I think that it’s much easier to help workers through a minimum wage, rather than with unions, without all the distortion that unions bring. Now, the working-conditions part is what leaves me sort of in question, because the minimum wage does not address the working conditions. However, if you have decent unemployment insurance, then people might not go to work for awful working conditions. So, as long as the workers are protected enough on the downside, I think competition will work. The moment when you don’t have that protection, I think this is when the abuses tend to take place.
Bethany: I totally agree with you about public and private-sector unions, but to your last point about the minimum wage not addressing working conditions and what we can do, I actually wanted to go back to trucking, because I’ve been doing some homework on that, thanks in part to one of our Stigler Center fellows, Rachel Premack, who went on to run a trucking newsletter, and she’s been helping me talk to a bunch of truckers for my book.
And what’s unquestionable is the toll that deregulation has on exerted on trucking and truckers, and pay is only one part of the problem. It’s the absolutely terrible conditions under which many of them work, which have been exacerbated during the pandemic. But many of them are classified as independent contractors by their companies, so if they’re waiting in line to pick up a load at a facility, they’re not paid for those hours of waiting. They’re only paid once they get the load and start driving. And that’s part of the reason why we’re having such inflation and shortages in this country, because truckers now, they can wait in line for 10 hours and not get a load.
And they are abused. One was telling me, Amazon and Walmart are known to be among the worst, where if you’re waiting in line, there are signs saying, no truckers allowed. You’re not allowed to use their facilities. You’re not allowed to get food there, even if you’ve been out driving for 10 hours and you’re stuck waiting in line for another six hours, trying to get your load. It’s really quite horrible.
But the larger societal cost of this . . . If you’re a total, whatever the free market is person, you might say, well, that’s just terrible for them. But the larger societal costs of this are that the turnover in the trucking industry runs close to 100 percent a year. So, these trucking schools are taking people, giving them a couple of weeks of training, putting them out on the road with another driver who may have six months of training. People quit constantly because the conditions are so terrible, which means you have all these fundamentally unsafe drivers out on our major highways. And that’s not good for any of us.
And so, I look at what deregulation in the trucking industry has wrought, both for the people and for the enterprise itself, and I think there’s something more than minimum wage that has to fix this. One of the guys I was talking to said that back in the days of the Teamsters, people would take their suits, or they would take their clothes to be dry cleaned, because they had so much pride in what they did as truckers. And you just, you don’t have that today. There’s been a real deterioration. And a lot of it is the pay, but the pay is inextricably wound up with how people are treated, which is just beyond terrible.
And so, I’m not sure that even legislation around pay and minimum wage goes far enough. Or, for example, another thing that a very powerful trucking union could do, that I didn’t realize . . . There aren’t enough places to park anymore. So, truckers don’t have any safe places to park at night so that they can sleep. There are so many trucks on the road that they’re all taken, and so truckers are forced into really unsafe conditions because there’s no place to park. And they just don’t seem to have enough power and clout for anybody in Washington to do anything about this and say, “They need a place to park.”
And so, there’s just all this stuff that I think goes beyond minimum wage itself, that goes to working conditions, that I’m not sure what can address that, other than a union. And a union of workers, not of the big companies, by the way. There is the American Trucking Association, but that’s for the trucking companies, not for the workers, and they are two different things.
Luigi: The problem, as you said, is that if these guys are independent contractors, they cannot unionize, because unionization of independent contractors is against the antitrust laws.
Bethany: Yeah. So, I think there needs to be some kind of full-scale reform. And I think it begs the question, well then, if not a union, if you can’t have a union because of these rules, do we need a new set of rules? Do we need something different? Because this, as it is, is not working. And I think it’s not working for any of us, and I think the pandemic actually shows that it’s not working for any of us. We may all have been oblivious to the terrible lives of truckers leading up to the pandemic, but now, when the time to get your goods has gone from 10 days to 40 days because of shortages of truckers, you’ve got a problem, right? The American Trucking Association is warning of a huge impending shortage of truckers. Well, no shit. Treat them better. Pay them better.
Luigi: Yeah. This is the part I don’t understand. What is the friction that prevents an increase in wages that would certainly attract more people to the profession?
Bethany: I think it’s the structure of independent contractors working for big trucking companies. I remember being so horrified by the Uber model of forcing these drivers to buy their own cars and then give over most of their earnings to Uber, and sometimes I think they were even leasing the cars through Uber. And it was sort of like the factory town of old, right? Where people had to live in the factory town and buy most of their goods from the factory store and barely made subsistence wages.
Uber got that from the trucking industry, which does the same thing. It employs these ostensibly independent contractors who have to buy their own trucks, but then aren’t allowed to drive them for anybody other than the company with whom they contract. And I think the trucking industry was able to set all of that up as part of the deregulation of the trucking industry, back at around the time when Freeman was writing his book, and most people thought, unions are to blame. Unions are to blame for everything.
A guy in The American Prospect wrote a really good piece, a guy named Harold Meyerson, and he said no one really believed, at that time, that workers were on the verge of becoming downwardly mobile. That wasn’t what people were worried about, and nobody took that into account, and I don’t think anybody’s looked at it and tried to fix it since then. And it comes back to a longstanding theme of this podcast, which is that government needs to set the appropriate rules that determine the playing field, and I think where they’re set now is not, in this case, in an appropriate place, and maybe the only power to counteract that is the power of the union.
Luigi: I still think that prices would do that better. If you have a combination of a higher minimum wage and decent unemployment insurance, then you’re not as afraid to quit or not to get this job, if the conditions are particularly bad. It’s only under intense pressure that you do that. What we have observed is because of the hollowing out of manufacturing jobs, especially in Middle America, a lot of people got stuck into accepting lower and lower quality jobs, and the standard started to ratchet down. We need some form of undoing of that. Now, what is the best mechanism?
As I said, I’m nervous about giving the monopoly power to some union leaders, because there is a big cost on the other side, so my preference would be, why don’t we start with a serious minimum wage, and explain that this is the reason for the minimum wage, because I don’t think it’s often explained in these terms. And the minimum wage, of course, has some costs, and maybe there should be some exemption if you have a student working with you for the summer. You’re clearly in a different situation than if you are a permanent worker, and so you can have a lower wage when you work as a student during the summer.
But as a full-time worker, I think that having a lower bound is useful to push up the entire system, because there’s also a pressure to increase productivity, because at some point, if you can’t pay enough people and make enough profits, maybe you shouldn’t be in business.
Bethany: So, one other thing I wanted to address, that you and Richard actually briefly touched on, and I don’t think I weighed in, was this idea, particularly in Chicago, but other places, too. It certainly was a factor in Detroit’s bankruptcy. But the way in which unions have extracted ever-higher benefits out of cities, in ways that cities have absolutely no way to pay, and the way in which that’s contributing to the fiscal instability of many of our cities.
And I absolutely think that’s true, but as I’ve thought about that, and as I’ve thought about it in the past, I don’t think unions are to blame for that. I think they’re doing exactly what they should do. I think there’s only one set of people that are to blame for that incredibly destructive force in American society, and that’s politicians. And if politicians were treated like corporate CEOs, they would all be in jail, because they’ve basically made financial promises going down the road that they know are unsustainable and that they can’t pay, and if you had any CEO lying to their shareholders like that, they’d be sent to jail for boosting their stock prices by lying about future prospects, and that’s essentially what many politicians have done. They’ve played a game of knowing the public doesn’t really understand. Maybe they don’t understand, either. But signing off on things that are clearly economically unsustainable, under the view that it’s not going to be my problem by the time this bill comes home to roost. And I think politicians big and small across the country bear all the blame for that.
Luigi: I think that you’re right. The primary culprits are the politicians. However, there is this problem that in the public sector, when you have a monopoly, like the teachers’ unions or the police union, and you are fighting against the other side that does not have a very strong motivation, you have an easier life. And Richard is right that they are not overpaid or particularly generously paid. First of all, you have to adjust for conditions, et cetera. But this is where it’s easy for them to extract stuff that is not highly visible.
And their principals, the ones who appoint them, are the public at large. They’re very dispersed. It’s very hard for them to monitor them, and if you are a manager, first of all, you have better accounting systems, so this stuff reflects immediately to your profits, and the shareholders get upset. But if you are a mayor, you kind of can hide this somewhere in your balance sheet, and nobody sees it, and then you can get away with that. It’s a combination of strong pressure on one end, and weaker monitoring on the other. Who to blame most is a bit of a tag, but it’s a combination of these two forces.
Bethany: Yeah, I don’t disagree with that, but I don’t see anything wrong with unions pushing to get as much as they can for their members. What I see that’s wrong with it is politicians giving in to that because, for the reasons you articulated, their constituents aren’t going to really understand what’s happening, and that everybody thinks the costs are going to be somebody else’s to pay down the road. And maybe the way to make all of this work is that you need a specially elected person in every city whose job it is to be guarding the welfare of our young people, and saying, no, this is not free. This is all going to come at an incredibly unsustainable cost someday down the road.
Luigi: You’re right. This might be a good idea, to have a bondsman of young people in city council. But if you are, I think, coherent in your defending the weaker side, I think in big companies, the weaker side is the labor side. In the public sector, the weaker side is the taxpayer. So, that’s where having the unions in the private sector makes some sense, especially if you don’t have alternatives like a high minimum wage, but in the public sector, I think it might be too much, because at the end of the day, if you don’t pay your teachers well, and you don’t have good schools, the citizens will punish you pretty quickly, because that’s something they see, observe and do very effectively.
On the other hand, if you stuff future liabilities, that’s something that citizens don’t see very fast. The protection of teachers, the protection of policemen . . . If a policeman goes and says, “We’re not protected enough, we need more protection, because otherwise we don’t get the city in order,” they get a lot of votes. I think that that’s the least of the problem, in my view. The problem is that they are too powerful, because the police union de facto controls the election of the mayors. And, ironically, this is particularly true in blue cities. All the blue cities have these allegedly left-leaning mayors that are completely in the pocket of the police union.
Bethany: I agree with most of what you just said, with one little caveat, which is about school systems, because I think that feedback loop is broken as well. In other words, in an ideal world, yes, if the schools aren’t good, you would expect taxpayers to revolt and say, “We’re not going to pay our taxes unless you make the schools for our children good.” In reality, what happens in an increasingly economically unequal society is that those who are wealthy pull their children out and send them to private schools because they can afford to do so, and then everybody wrings their hands about the terrible state of schools, but the people who are least equipped to do anything about it are the ones who have to send their children to those schools. So, if it weren’t for the safety hatch of private schools, I would agree maybe that mechanism would work, but I think it does not in modern American society.
Luigi: We should introduce school vouchers, so that everybody can leave, eh?
Bethany: Right, right. Well, I think what we basically ended up with in this discussion is that we had a really interesting discussion with Richard, and we appreciate his insight, but man, we have a lot more questions.
Luigi: Indeed, indeed.