The National Labor Relations Board is the Supreme Soviet of organized labor. Created by FDR to impose unions on the American workforce, its abolishment is long overdue. Instead, it is currently attempting to impose union membership on the very sector of the labor force that has appeal primarily because of its freedom from union influence.
This sector is the temp industry which, as a percentage of the workforce, doubled in size in the 1990s. In fact, it is not well known that the largest private employer in the U.S. is no longer General Motors, a title it relinquished in the early 1990s. The largest employer, hands down, is a Milwaukee-based temp agency that is called Manpower.
It's likely that either you have worked for Manpower or know someone who has. The increasing significance of temporary workers in our economy is directly related to the rise of workplace regulations and union shops, which represent costly intrusions to the workplace that hamper business productivity while expanding the state. The temp industry is a major reason why the economy has grown so much in the 1990s.
This intervention into the workplace means that employers have fewer options at their disposal when market conditions suggest a change in the make-up of its labor pool is in order. It rewards them for using capital-intensive production techniques when labor-intensive production might have been just as feasible. The loss in labor flexibility means that employers are less able to take advantage of profit opportunities that arise when market conditions call for increased production of goods. The loss in flexibility also means that employers are less able to scale back their workforces when reduced production is called for as well.
Such a situation benefits large firms because it increases the cost to smaller competitors. Indeed, it reduces the degree of competition and entrepreneurial activity in general because the regulatory framework is biased toward the big, established firms that can afford to comply with the costs.
That is why understanding temp agencies is crucial to understanding the economic growth of the 1990s, a decade that began with massive regulatory legislation during the Bush Administration, especially in the form of the Civil Rights Act of 1990 and the Americans with Disabilities Act. Employers were able to opt out of complying with these pieces of regulation, to the extent that they affected the size and composition of their labor pools, by hiring temp workers. Firms that needed to reduce production simply give the temp workers back to firms like Manpower. These workers' labor resources are then employed at other firms that demand it, improving economic efficiency and labor flexibility.
These employers didn’t have to worry about potential lawsuits if the worker proved to be a poor one and needed to be dismissed. After all, the employee was actually employed by the temp agency, so if he didn’t work out, he could be dismissed by the firm, for whatever reason. Imagine that!
The unions, and their cronies at the NLRB, have been doing more than imagining this phenomenon. They witness it, up close and personal, often in their own workplaces. And they don’t like it.
The ability to fire non-productive workers at will may be a boom to firms competing in global markets, and it may be a boom to consumers who have access to more products at lower prices, but it is a bust to union workers. The existence of mobile, low-cost labor gaining access to the unionized segment of the labor force threatens the very future of organized labor.
The proper way to think of organized labor is as a labor cartel. In fact, it was amusing to read about unionized truckers protesting OPEC when gas prices surged as a result of its temporary success in reducing world oil production. Cartels can be effective only when they are successful at reducing output and restricting entry—-which is impossible to achieve in the long run under free market conditions. Those union workers benefited from the same industrial organization as did OPEC’s member countries, except that while one group’s product was oil, the other’s was labor.
The primary difference between the two is that when OPEC forces an increase in world oil prices, it causes entrepreneurs to shift their resources toward oil production. As a result, its cartel cannot remain effective, so long as government policy doesn’t impede the process. This is known as the Law of Supply in economics, which states that rising prices signal to producers which resources should be employed.
When unions force an increase in wage rates by controlling the labor supply, they also attract nonunion labor resources to the unionized industry, because a wage is simply the price of labor services. Under normal conditions, this response would force nominal wages and prices down, but normal conditions are not optimal for the unions’ survival. Fueled largely by union soft money donations, the government intervenes in this process, introducing much legal and physical force that is necessary whenever voluntary exchange is restricted.
Temp agencies represent the most recent attempt by employers and employees to circumvent this situation, which has troubled the NLRB commissars. So last week, predictably, the NLRB voted to remove restrictions on unionizing temp workers, a move that, if successful, would remove the benefits from using these workers in the first place. Their appeal as a legal way around interventions in the workplace would be lost. Former NLRB board member John Raudabaugh admitted as much when he said, "I think this will cause people to reassess whether they’re going to use temporary help."
Talk about an understatement. Actually, the NLRB’s decision, which could be overruled by an executive order from the president, reflects a growing trend by the non-productive to impose the very institutional arrangements that impair their performance on the productive. After all, isn’t this a primary purpose of the World Trade Organization—-to insure that regulations are equally imposed and adhered to by all member countries? In a nutshell, this is all the NLRB is trying to do. It is trying to remove the advantage that temp labor has over union labor.
It won’t work. Employers will dismiss most temp workers who join the union forthwith, giving them little incentive to join the union shops. This, no doubt, will produce even more regulation in the future, requiring employers to prove that union-joining temp workers were dismissed for reasons other than their union membership. The added regulations make for an administrative law judge’s dream.
If only the NLRB was a part of the temp sector and not the government sector, we could give it back to temp firms like Manpower.
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Christopher Westley teaches economics at Jacksonville State Univesity. Send him MAIL.