National Post (National Edition)
Unions in Trumpland
The latest episode of Donald Trump’s war on trade, which saw the U.S. withdraw from the TransPacific Partnership, delighted union leaders and Bernie Sanders. But while President Trump’s economic illiteracy had him joining unions and socialists in the ongoing abuse of consumers in this case, in most cases businessmen and powerful unions are, fortunately, not natural allies.
The most important example of that right now is right-to-work laws. Trump last year said in an interview with the South Carolina Radio Network that he loves right-towork legislation, since it frees workers from “paying the big fees to the unions” and “gives great flexibility to the companies.” Vice-President Mike Pence is also a big fan of rightto-work, which allows workers to opt out of union dues, calling it “a reform in favour of economic freedom.” Right-towork legislation has already spread to 27 states, and the Republican platform calls for a national version of the law.
If right-to-work expands into more states, the relative competitiveness of Canadian businesses — already in serious jeopardy as Trump prepares to slash American taxes and regulations — will only be harmed further. Canada’s labour relations laws are already tilted heavily in favour of unions, which helps explain why Canadian workers are more than twice as likely to be unionized as American workers (15 per cent of private sector workers are unionized in Canada versus 6.7 per cent in the U.S.).
It is easy to see how unions damage businesses and economic growth. A society prospers by increasing its productivity; unions serve the opposite purpose. They make it difficult for companies to dismiss unproductive employees while limiting the wage growth of highly productive workers with negotiated contracts that prioritize seniority over job performance. This discourages unionized workers from increasing their effort levels, expanding their skill sets, or investing in their own education to boost their productivity and income.
More importantly, unions tend to drive away business and investment, as empirical studies have shown. A recent study by BYU economist Brigham R. Frandsen found that companies were about 10 percentage points more likely to shut down within seven years of a vote to unionize compared to companies that rejected unionization. This result might not be entirely causal, but other research backs up the general thesis that unionization hurts firms’ profits and market values.
A study published in the Industrial and Labor Relations Review in the 1990s analyzed 18 industries over a period of 20 years in Canada. “In an industry moving from no unions to the mean level of unionization,” it found, “net investment and gross investment are predicted to fall by 66-74 per cent and 18-25 per cent, respectively.” Another American study around the same time, co-authored by Federal Reserve economist Bruce Fallick, found that the impact to a company of a vote in favour of union certification has “on average, about the same effect on investment in the year following the event as … a 33 percentage-point increase in the corporate tax.”
Conversely, right-to-work laws, by making labour markets more flexible and unions less powerful, increase investment and employment. A study co-authored by Ohio University economist Richard Vedder estimated that if states without right-to-work had adopted such a policy several decades earlier, “annual income levels would be perhaps $3,000 per person higher today, with the effect varying somewhat from state to state.”
Vedder noted that from 1977 to 2012, employment growth was more than twice as high in right-to-work states compared to states without right-to-work, in part because many workers chose to relocate to the right-towork states. And according to the Census Bureau, from 2010 to 2016, net domestic migration trends showed Americans moving to states with right-to-work and without state income taxes. Canadian businesses and workers might similarly “vote with their feet” unless Canada’s labour relations laws are made more competitive.
IF REPUBLICANS EXPAND RIGHT-TO-WORK INTO MORE STATES, CANADIAN COMPETITIVENESS WILL ONLY BE HARMED FURTHER.