The Trade Union Movement and Competition - the Labor Monopoly Question

The market power of a union may be roughly measured by its ability to raise the price of labor above the level attainable in the absence of the union. What, for reasons of simplicity is here called price, is better thought of as some sort of utility index of acceptable combinations of wage rates, hours worked and other "working conditions." What is here called labor is some group of working men in whose interest the union negotiates. For the present we are concerned with the determinants of market power leaving for later consideration the characteristics of the unit that exploits market power. Even if a union has complete control of the supply of labor, substantial influence over the number of job opportunities, and is in a position to determine the conditions of entry of new firms and the way existing firms take advantage of the elasticity of demand for the products they market, the power of the union is still limited. There may be close substitutes for the product in question produced by firms whose employees are outside the control of the union under consideration. Furthermore, there may be a wide discrepancy between the union's judgment of its market power and the fact. This happens all the time in product markets and there is no reason to believe that unions are immune from such mistakes. A union, for example, that hopes to strengthen its market position by denying employers access to superior technology may wake up to find that demand has shifted away from the products in which it has interest to others. No union is likely to have sufficient market power to be able to ignore competitive influences from areas outside its control.

It is obvious that in the process of acquiring and using market power union activities may impinge either on the labor market or the product market. But it is not at all clear where the labor market leaves off and the product market begins. Nor, assuming we know where the product market begins, is it at all easy to determine what types of labor intervention lessen competition in the product market and what do not. If union rules deny the use of spray guns to painting contractors is competition among these contractors thereby lessened? Presumably, if there is a large number of contractors in the market and they continue to act independently of each other, competition, as the term is explained in the textbooks, remains intact.

If the labor market embraces that group of economic activities a union may seek to influence in its attempt to increase its power to improve wages, hours, and working conditions, there is really no tenable distinction between labor markets and product markets. There is literally no entrepreneruial activity in the production and sale of goods that cannot conceivably be influenced by union activities to the advantage of union members. Certainly the attempt of the anti-trust division, preceding the decision in the Hutcheson case, to draw a distinction between "legitimate" union concern for improving wages, hours, and working conditions and "illegitimate" activities that interfered with business competition was ludicrously ineffective.

Any attempt to set out the limits of the market power of unions will have to consider union activities on both sides of the market; its success in controlling not only the supply of labor but the demand for labor. And any exploration of union activities on the demand side of the labor market will inevitably penetrate deeply into the functioning of product markets.

What Kind of Monopoly?

Having set out some of the factors that influence the degree of monopoly or market power that a union may possess, let us turn now to a consideration of the nature of the organization that presumably exploits this market power. An examination of business monopoly problems makes it clear that a given degree of market power, however measured, can be variously used depending, in part, on relationships among those who hold this power. Market power may be held by a single seller, a small group of sellers each of whom acts with regard to the reaction of others, a cartel, a trade association, and, no doubt, by other combinations. The market conditions external to the group may be similar but differences in relationships within the group can produce a wide variety of responses to these external conditions. Insofar as the theory of the firm has attempted explanations of business behavior in situations in which power is held by a group the members of which act independently or in some sort of collusion, it has done so by asking how firms attempting to maximize profits would act subject to various restraints imposed either by the probable reactions of other firms or by the regulations of a collusive agreement. But it has proved very difficult to specify restraints that have any claim to generality and the meaning of profit maximization under such circumstances itself becomes ambiguous. Consequently, examination of business behavior tends at this point to abandon theoretical models and to retreat into the institutional atmosphere of industry studies. The rock on which the more general analysis founders is the complexity of relations among a group possessing market power.

If we attempt to relate this experience to the study of labor monopoly, the first thing we need to recognize is that whatever else it may be, a trade union is not a seller of labor services. If a union controlling the supply of labor in a defined market were to act as a monopolistic seller of labor services, it would presumably, on the analogy of a monopolistic seller in a product market, attempt to take advantage of any differences in demand elasticities in different segments of the market via a policy of wage discrimination and, in other ways, so act as to maximize total receipts for services rendered. How to distribute these receipts among union members would rationally be determined on the basis of some calculation of incentives required to bring forth the necessary services. Obviously unions not only do not but cannot act as rational monopolistic sellers of labor services.