WASHINGTON, March 13, 2015 – Wisconsin recently became the 25th state to pass a right-to-work law, which essentially means companies can hire non-union workers and these workers cannot be forced to pay union dues.
President Obama strongly disagrees with this law. It conflicts with what appears to be his policy of creating high wages for the privileged few workers.
The privileged few union membership accounts for less than 11 percent of the U.S. workforce, with the private sector at about 7 percent and the public sector almost 35 percent. In states without right-to-work laws, these privileged few union members force all new employees in unionized industries to join the union. Even if an individual declines to join but still gets the job, he or she must pay union dues.
In state colleges, for example, if a professor is hired but declines to join the union, she must pay 85 percent of the annual dues as a non-member of the union. In right-to-work states, he or she would not be required to pay those dues.
The effect of right-to-work laws will be that business can pay less for labor and thereby hire more workers, so the number of jobs increases and the wages paid to labor falls. However, the wages now reflect the value of the output of the work, as it’s supposed to do in our system, as opposed to some perception of the needs of the worker, as is the case in centrally planned economies.
In non-right-to-work states, unions negotiate wages collectively, which results in much higher wages for the few union workers who get them. The problem is that business now has high costs and can’t compete in the open market, so the owner either cuts back on his expenses, raises prices or simply closes. All those options make fewer jobs available.
In the end, the privileged few do very well, usually earning much more than the value the market places on them. In right-to-work states, the wages reflect market conditions so that workers earns exactly what the value of their output is worth.
The president strongly favors the non-right-to-work states, insisting that he wants to “strengthen workers in the new economy.” That translates into supporting high wages for the privileged few union members. Is he concerned about any others?
This position is consistent with his position on the minimum wage, which he recently raised from $7.25 to $10.10 per hour on federal contracts. The president wants an even higher minimum wage and wants it to apply to all workers in the private and public sectors. This too results in higher wages for the privileged few.
Regardless of what many prominent economists have argued, the reality is that when wages rise without a proportionate increase in productivity, the number of jobs will decrease. It is not a theory or the results of a complex model building study, but rather it is simple logic: as the price of labor rises, the quantity demanded (number of jobs) falls. That’s the main reason unskilled workers seeking minimum wage jobs consistently have an unemployment rate in the 18 to 22 percent range.
Those who are privileged to have a minimum wage job paying more than the value of their output is worth will benefit from the higher minimum wage. Many want the minimum set at $15 per hour, or about $30,000 per year. At that level the privileged few would do well, but the unemployment rate for unskilled workers would likely reach more than 30 percent and could go higher.
The real negative effect of not having right-to-work laws and setting a high minimum wage is placed on the shoulders of the average consumer and taxpayer. The higher wages result in higher prices that the average consumer must pay to purchase the products made by these workers.
On the public side it gets worse.
Because more than one third of public employees are unionized, the cost of government at all levels has skyrocketed. On the local level our property taxes are rising significantly. On the state level our sales tax and income tax continue to increase. On the federal level our taxes rise and/or the federal government runs a budget deficit, which creates a huge $18 trillion public debt. The average American really gets hit hard.
The net result of the president’s position is that the hard-working, non-privileged majority overpays for the goods and services produced by the privileged few so that the privileged few can have abnormally high wages. Is that really fair? Is that really a good economic policy?