The Union Threat

Jonathan Hoenig
I have tremendous respect for anyone who puts in an honest day's work — no matter if you are a brain surgeon, lawyer or a short-order cook.

But the reality of business is that, in modern times, the value of physical labor is low. A company's success exists not because of its ability to hire workers with the biggest muscles, but those who invent, leverage and exploit new technology. The assembly line “grunt work” is noble, but relatively low on the hierarchy of productivity. It's not a person's strength, but their smarts that count, and it's the tools and machines a worker uses that raise productivity and create wealth.

And although labor unions' intentions are good, they ultimately end up not improving a community's standard of living, but rather irreparably harming it. The notion that unions are responsible for creating prosperous living conditions for their members is a flat-out farce.

One of the main problems with unions is that they force unreasonably high wages that ultimately end up hindering a company's prospects. Every firm aims to attract the most talented and productive employees possible. But wages are not arbitrary, and when a union contract forces a company to pay an employee $70,000 for a job that another might accept for $40,000, the firm's overall level of productivity and competitiveness suffers accordingly.

Over time, paying higher-than-market-wages eventually drains the businesses' potential for growth and brings the whole ship down. A company that is less productive and competitive almost always ends up losing to more nimble competitors who don't have the “legacy” costs imposed by stiff union contracts. U.S. automakers such as Ford or GM offer the perfect example.

Because they are compelled to pay higher wages than the market would otherwise dictate, companies are also able to higher fewer workers. So the net result of the union's demands for rich salaries and benefits is unemployment — both for prospective new hires and the lucky few who are able to, for a time at least, become employed at abnormally high rates. Ever notice how mass layoffs always seem to happen at airlines, steelmakers — almost any industry that's heavily unionized?

In a free society, individuals certainly have the right to voluntarily unionize. There are elements of unionization, such as basic collective bargaining or group purchasing, that also produce benefits for members. And if a company's wages are legitimately low, the threat of a strike can compel them to be raised. But the notion that without unions, greedy employers would exploit the poor, unfortunate working class, is a crock.

Moreover, within many industries, union membership isn't voluntary, but required. Thanks to political pull or long-standing contracts, one doesn't have the option not to join. Because they hold such influence, the union bosses end up surrogate managers of the company. Is it any coincidence these industries are the ones that eventually end up in complete financial disarray?

Unions also do a disservice by lulling their members into a false sense of professional complacency. Because unionization prompts one to identify so closely with a particular vocation, it's easy to forget that one must always improve his skills in anticipation of how business might develop in the future. The truth is, just because you were a steelworker in 1976 doesn't mean you can succeed as a steelworker in 2006. Times change, business changes and unionized workers who don't develop new skill sets are usually the ones who are left behind, holding only an empty promise that the union will take care of them forever.

Finally, unions promote the false notion that, beyond salaries and promised benefits; workers are somehow “owed” something by the company. That's just not the case. While I respect him personally, the laborer generally has no impact on the company's long-term success. The real productivity and success comes from inventing the Model T — not merely assembling it. In representing their members, unions too frequently overlook this important fact.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC and is a markets columnist for He appears regularly on FNC's business program Cashin' In.