Reich's Call for Unionization is 'a 1930s Solution to a 2009 Problem,’ Economists Say

February 18, 2009 - 10:40 PM
Increased unionization would lead to higher wages and a better economy, the former Clinton labor secretary argues. But others say it's a call to return to failed economic policies of the 1930's -- policies that prolonged the Depression, not cured it.

Robert Reich, a professor at Goldman School of Public Policy is a former Secretary of Labor (AP photo)

(CNSNews.com) - A former Clinton-era Cabinet member is taking part in a union-backed media offensive that is pushing for increased unionization by having Congress pass the Employee Free Choice Act.
 
It’s an argument, however, that some economists say comes straight out of the failed policies of the past – the 1930s Depression era, to be exact.
 
Robert Reich, Clinton’s secretary of labor, told reporters Wednesday that the way to get the economy back on track is to boost the purchasing power of the middle class. One major way to do that, he said, is to “expand the percentage of working Americans in unions.”
 
“Unionization is not just good for workers in unions, unionization is very, very important for the economy overall, and would create broad benefits for the United States,” the former Harvard-turned-Berkeley public policy professor said.
 
“With median wages rising slowly or actually dropping, consumers simply don’t have enough money to buy all the goods and services that the economy provides,” Reich said.
 
“If they can’t borrow any more and have to rely on their sinking wages, the entire economy is in trouble, because there’s just simply not enough demand out there,” he added.
 
But if workers did have unions, Reich theorized, they would have a wage and benefit premium.
 
“If they did have higher wages and benefits, they would have purchasing power they need to buy more of the goods and services that this economy produces. That would strengthen the economy overall,” he said.
 
Reich is working hand-in-hand with a coalition of labor unions and the Center for American Progress Action Fund to call for increased unionization as a means of “saving the economy.”
 
As part of that, Reich endorsed the Employee Free Choice Act, also known as the "Card Check" bill, which would allow union organizers to get employees of a company to create a union simply by signing union cards -- in lieu of workplace secret-ballot elections.
 
Barbara Comstock of the Workforce Fairness Institute, meanwhile, isn’t buying Reich’s analysis.

“By his logic, Michigan -- the most unionized state in the country -- would be the most prosperous state in the country and the auto industry would be the economic model that the rest of the country should follow,” Comstock told CNSNews.com. 
 
Nothing could be further from the truth, she said. 

“On a day when the auto companies are asking for tens of billions of dollars more, and Michigan, according to the figures, is one of the least prosperous states with one of the highest unemployment rates in the country, that argument makes no economic sense,” she added.
 
Comstock’s group is working to oppose the card check legislation. She said across the country, even prior to the recession, heavily unionized states were losing jobs, and right-to-work states were gaining.
 
“That’s where the jobs were going – and were growing,” Comstock told CNSNews.com.
 
“Secretary Reich and others, such as the Center for American Progress Action Fund are looking back to the 1930s for their economic model,” Comstock said. “We don’t need to look back to the 1930s, we need to look at the realities that exist today.”
 
More than 70 percent of the growth of the economy comes from small businesses, she pointed out -- businesses with too few employees to be unionized.
 
Economist and economic historian Robert Higgs, meanwhile, said Reich’s idea of promoting unionization “would be disastrous.”
 
“Demands are collapsing for almost every type of good,” Higgs said, “and that means that demands for labor are falling. When labor demands are falling, if you succeed in pushing up wage rates through unionization, then you guarantee that there will be even less employment than you would have had. This would be a recipe for greatly increasing the amount of unemployment.”
 
Higgs, senior fellow in political economy for The Independent Institute, said that increased unionization in the 1930s actually helped to keep us in the Great Depression longer.
 
“The National Labor Relations Act, often called the Wagner Act, passed in 1935, was the biggest boost to unionization in American history,” Higgs said. “Membership in unions grew very, very rapidly in the late 1930s, and even during World War II.”
 
A Johns Hopkins-trained economist who has served on the faculties of the University of Washington and the Economics University of Prague, Higgs is an expert on the economics and history of the Depression.
 
Higg said increased unionization did two things – it led to labor-market turmoil, and it increased real wages. Each, in turn, played a role in extending the Depression.
 
“While unionization was growing very rapidly in the 30s, a tremendous amount of turmoil, and even violence, occurred in many places, as unions attempted to get themselves accepted as bargaining agents for the workers,” Higgs said. “That labor market turmoil had a great deal to do with making investors nervous in the late 1930s, and a major factor in their reluctance to commit money.”
 
Ironically, he said, the argument that increasing wages will help the economy isn’t true now -- and wasn't true during the Depression. Real wages, in fact, went up during the 1930s.  
 
“One of the odd things about the Great Depression was that real wages – that is, wages adjusted for changes in prices – tended to rise almost throughout the Depression, because of government policies and other government action before the Wagner Act,” Higgs said.
 
“The National Industrial Recovery Act, which also promoted unionization and was specifically aimed at raising wages, succeeded in doing so,” he said.
 
But Higgs said rising wages did nothing to help the high unemployment of the ‘30s -- the real economic "killer" of the era.
 
“One reason there was so much unemployment is because wages were rising rather than falling,” Higgs said. “In the early 30s, demand was collapsing everywhere. Demand rose somewhat after 1933, but not enough to soak up the unemployed, by any means. There were high levels of unemployment into the early 1940s.”
 
Higher wages led to higher unemployment, he said – because consumer demand for goods and services didn’t increase and neither did prices of goods. Many businesses that were forced to pay more for labor, were also forced to lay off workers, he added.
 
Higgs, meanwhile, pointed out that the economy in 2009 isn’t the same as the economy in the 1930s. 
 
“There are lots of similarities, but I don’t want to suggest that what we’re in right now is in some broad sense, like the Great Depression -- that would be hyperbole,” Higgs said. “Conditions now are not nearly as bad as they were in the Depression. But they can become worse, and they appear to be getting worse right now.”
 
But one thing is clear, Higgs said -- attempts to impose 1930s-era solutions to 2009 problems "could prove disastrous."