The Decline And [Possible] Reinvigoration Of Labor Unions

Here’s a truth (indeed an understatement) as worth stating on Labor Day as on any other day: labor unions represent a shrinking portion of the labor market in the U.S., and in much of the rest of the industrialized world.

This shrinkage has been underway for decades. In the 1950s, one in every three private sector employees in the U.S. was a member of a union. The corresponding union-density figure by 2011 was about one in fourteen.

Likewise, union density is declining through most of Europe, notwithstanding the social-democratic politics of much of that continent. According to a study published in the Monthly Labor Review in January 2006, union density had declined between 1970 and 2002-03 in the EU as a whole and in all but four relatively small European nations. Also, as the authors of the study added, “each decade became progressively worse from the perspective of union organizing” everywhere except Spain.

Don’t ‘Ditch’ Desi Arnaz
Some people talk about this decline as if it is karma. Unions are, in a certain view, inherently suspect operations that are now shrinking because of their own cosmic badness.

I disagree. As it happens, an oft-told tale about the origins of the television show I Love Lucy will suggest why unions aren’t as cosmically bad as their enemies suspect.

In the summer of 1951, CBS asked renowned lyricist Oscar Hammerstein to look at and comment on the pilot episode of that television show. His immediate reaction was, “Keep the redhead, ditch the Cuban.”

When told they were a married couple and that the network had to take them or leave them as a package, Hammerstein said CBS should stick with the in-home comedy, but should cut way back on the nightclub scenes where Desi sang. The contract was re-written in accord with this advice, and Desi Arnaz was told he would only sing when it was integral to the plot.

The point? The married couple functioned in this instance as a successful labor union. It is precisely the goal of a union, after all, to make various take-it-or-leave-it propositions. Further, the success of this union extended beyond getting Arnaz a job. This particular negotiation led to a wildly successful product and played a big part in defining television, a new industry with a considerable future. [By the way, as soon as the show had established itself as a breakaway hit, Arnaz figured out that none of the network execs were going to complain if he sang.]

The take-away for unions? You are on the side of history when you are on the side of a successful product or service. It isn’t difficult to imagine a revised unionism taking that point to heart and turning around the history of decline.

The take-away for traditional investors? Don’t fear unions. Be on the lookout for abuses, yes, but recognize that a strong union need not be your enemy.

Alpha Seekers Themselves
The takeaway for alpha seekers is more complicated. Industry in the U.S. is necessarily changing, and the nature of employer-employee relations is part of the broader change. A speculative position on any of many corporations’ instruments will require information on their position within this change: are they ahead of the curves or behind them? And where is the curve anyway?

A related consideration: unions have an increasingly important role as pension fund administrators – a role in which they join other sorts of institutional investors as a critical clientele for hedge funds. Can they leverage that into a means for the recovery of their broad social significance?

It is on the whole wiser to bet on the transformation of labor unions than it would be to bet on their disappearance.