The International Brotherhood of Bogeymen

I can't remember when I've read anything positive regarding organized labor. Lately, I've noticed a strong correlation between those who proclaim the inherent evil of labor unions and a marked lack of understanding of the subject. In particular, Mish Shedlock, author of MISH'S Global Economic Trend Analysis, cited a NY Times article about the United Steelworkers outrage over the use of imported, Indian steel in a Granite City, IL pipeline project. Granite City is home to US Steel's Granite City Works, which is an integrated steel plant employing 2000, that has been idle since December 2008. As a result, the local union members have staged vocal protests to draw attention to the situation. Shedlock is decidedly not a fan of organized labor and used the NY Times article as a platform to speak authoritatively on a subject that he doesn't seem to fathom:
Here's the deal. Like it or not, and union workers clearly don't, this is a global economy.
Companies cannot afford to pay high prices steel or they will not have any profits to share. Union wages and benefits are simply higher than the market can bear and there is no good solution other than what unions do not want to hear.

What Shedlock fails to mention is that the US steel industry is mostly idle due to a record decline in demand. The resulting collapse in steel prices was not followed by a corresponding collapse in raw material costs, with the exception of scrap. Thus, many integrated steel companies have chosen to pass on producing at a loss, leaving the market to low cost producers, like Nucor. At this point, you may be saying, "Hold on there, Little Lenin. Nucor is adamantly non-union." While this is true, Nucor's cost advantage is due to the fact that it uses scrap as a precursor, not iron ore. Truth be told, the primary expenses in the steel production are raw materials and energy, not labor. This is common knowledge amongst steel investors, but the concept seems to conveniently elude Shedlock. In fact, Shedlock goes on to declare unionization dead due to the uncompetively high wages required:
This is not just a steel issue. I am talking about flat panel TVs, steel, copper pipe, appliances, cars, electronics, underwear and damn near anything one can make. The days are gone where someone can be paid $40 an hour, $30 and hour, or even $20 an hour with enormous pension benefits at retirement.

In the US, the USWA negotiates using a pattern bargaining strategy, which amounts to a national master contract that is customized as needed at the lower levels. Thus, a US Steel contract will look very much like an AK Steel contract. Below are the basic pay rates from the current USWA/ArcelorMittal contract, effective 9/1/2008:

If we take Labor Grade 3 as the median, the 2008 base rate is $20.94/hour or $43,555/yr. To be fair, with production incentives, steelworkers will average 120% of their base yielding $52,266, which seems reasonable, considering the nature of the work. Pension liabilities will prove to be a significant profit drain in the future, but these are legacy costs. If the USWA disappeared tomorrow, the pension liabilities would still have validity. Typically, steel producers are replacing pension plans with defined contribution (401Ks), which don't resemble Shedlock's "enormous pension benefits" whatsoever.

For the record, let me state that I am not now, nor have I ever been, a union member. Nevertheless, I found the media's virtual criminalization of collective bargaining sufficiently suspicious to check it out for myself. The obvious question is, if unions are so unsustainable, how were they able to exist and the country thrive for 40 years? I haven't read that explanation, nor will I ever, I expect. It's my opinion that this economic crisis will provide fertile ground for companies to accelerate take-backs from their employees. In fact, we are already seeing this, in the form of 401(k) matching elimination and salary reductions. Wall Street and their legislative sycophants recognize the danger that unions could potentially represent to future profits, in the face of a massive middle class standard of living reduction, and have reacted accordingly. Ironically, major unions like the USWA and UAW don't seem to recognize their growth potential and choose to myopically focus on reducing take-backs in existing union shops. Regardless of your feelings about organized labor, I think that I've clearly demonstrated some of the hazards of outsourcing one's brain to pundits and experts.


  1. As you may guess, this is an area where we appear to part company. Viewed thru a market lens, unions inhibit buyers and sellers of labor from freely functioning. While those represented by the union may find their standard of living increase(for at least a while), standard of living of others is likely to decrease as a result (e.g., higher costs/prices, capital flight towards more attractive resource pools, fewer jobs for those willing to work for less).

    One plausible factor in the reduction of union influence has been increased global trade and capacity for capital to migrate elsewhere. Serves sort of like a relief valve for monopolistic pressure and inefficiency.

  2. Yes, I think we can agree to disagree. The subject is much more complex than any black or white answer. For example, I don't agree that Walmart should be organized, because it would necessarily be a weak union that would only have parasitic consequences for the members. Highly skilled and dangerous industries are another story, however.

    I attribute the reduction of union to many factors, with the foremost being globalization.