There is currently serious conflict in several states, including Wisconsin, Ohio, and Indiana over union bargaining rights for state employees. The claim of the Republican administration in each of these states is that union power needs to be curtailed in order to get the state budget under control.
I have some personal experience with labor unions, having actually been a one-time union member (I can't say "card-carrying," as I don't remember having been issued a membership card). When I was 19, I worked for a couple of summers for Winchester Canada, which had a unionized plant in Cobourg, Ontario. Winchester appears to still be in business, and of course they make firearms. An ancient Winchester product was what Chuck Connors used in "The Rifleman." When I was 8 years old my friends and I thought that Chuck Connors was very cool.
Working for Winchester was quite weird on many dimensions, including the fact that I had absolutely no interest in guns - a lack of interest that continues to this day. I am allergic to firarms. I see one and run the other way.
An interesting feature of working life at Winchester Canada was that the union was clearly stifling innovation. What I saw certainly conformed to the picture of unions that comes out of Parente and Prescott's "Barriers to Riches," which cites labor unions and trade barriers, among other things, as factors that lower TFP (total factor productivity) and the standard of living in a country. At the Winchester plant, every activity was governed by a set of workplace rules, written up in the union contract. Management and production workers thought of each other as adversaries. This was not a conducive environment for thinking up new ways of organizing production or designing new products. It seemed clear that you could take away the union, create more flexibility, increase productivity, pay everyone more, and bring about a Pareto improvement.
Sometimes I get into arguments with my family in restaurants about economic questions ("Dad, don't get so excited, people are looking."). I enjoy this, perhaps as much as, or more than, helping my sons solve math problems. When unions come up, I take the hardcore laissez faire route, just to be provocative. My youngest son will then tell me about what the union movement accomplished in terms of workplace safety. Maybe he has a point. We don't want to go too far in seeing externalities under every rock, but this certainly looks like one. Getting firms to invest efficiently in safety may require collective action. Maybe the government would not have taken appropriate action on workplace safety if not for the labor movement. In the Winchester plant, I was certainly pleased with whatever safety features were provided for me. My foreman liked to encourage safe practices by showing us his missing thumb, which had been lost while working on the same belt sander that I was required to operate.
One simple way to look at unions comes from Econ 101, where we just apply standard monopoly power arguments. Labor law gives workers the right to effectively act as a monopoly seller of labor. Result? The union drives up wages and extracts rent from the firm. But that argument goes only so far. As long as the firm faces competition, this has to discipline the union. Extract too much rent and you drive the firm out of business.
So what is going on in Wisconsin, Indiana, and Ohio? In general, union organization is not an easy thing in the United States, relative to what happens in other rich countries. Twenty two states, mainly in the south and in the middle of the country have right-to-work laws. In some states, state employees have much less power to form unions relative to what exists in the private sector. However, in Western Europe, unions tend to be relatively powerful. In Canada, labor law is much more conducive to union formation and power. For example, most (if not all) Canadian provinces do not allow the hiring of permanent replacement workers during a strike, and some will not permit the hiring of temporary replacement workers. Strikes of public service workers in Canada are infamous, from old-time disruption in the post office to more recent strikes involving garbage collectors and transit workers in Toronto. The difference in labor laws in Canada and the US is reflected in unionization rates. The US has a unionization rate of only 7% in the private sector, and 29% in the public sector. In Canada, the comparable statistics are 16% in the private sector and 71% in the public sector.
Now, if we believe Scott Walker, the Governor of Wisconsin, public spending in Canada should be wildly out of control. We know, of course, that government is doing much more redistribution in Canada than is the case generally in the United States. But in Canada actual expenditures of all levels of government on goods and services amounted to 21.2% of GDP in Canada in 2009, and 20.6% of GDP in the US. Not much difference there. Further, in spite of union power in the public sector, the Canadian federal government was able to turn around a deficit which had exceeded 5% of GDP in the mid-1990s. Before the recent recession, the Canadian federal government had been running surpluses for several years. We all know how that compares to recent US fiscal performance.
Is Scott Walker likely to save much money by picking on his public sector unions? That's very doubtful. He's certainly creating plenty of unproductive conflict. Is what he is doing politically smart? That's hard to tell. Picking a fight with unions in Madison, Wisconsin may not be the brightest idea. Anyone who has spent time in Madison (4 years for me) knows that there is a large reserve army of people who would enjoy nothing better than spending a couple of weeks camping out in the State Capitol building to bother a Republican Governor. This might play well in the rest of the state, however, where Madison is sometimes viewed as sin city.