I have some very quick thoughts in reply to Erik Kain’s post at Forbes comparing unions and corporations. His point, in brief, is:

Corporations are legal entities, sanctioned by the state. Why should we be any less sanguine about unions than about corporations? Corporations pool capital and resources, unions pool labor. What’s the difference?

One important difference is that corporations are subject to anti-trust regulation. However, I think libertarians who are otherwise critical of anti-trust activity should be wary of invoking this too strongly. If the market is the best mechanism for ensuring firms do not behave anti-competitively, then why won’t that work for unions?

Another important difference is that, as Coase argued, there are costs to using a price mechanism to coordinate economic activity, and corporations exist as an alternative institution for when such transaction costs are high. One can conceivably frame the voice function of unions in this way as well, however I think that’s better characterized as public goods problem where the group collectively benefits and individuals have insufficient incentives to express worker preferences.

The other “face” of unions, other than the voice face, is the monopoly face. One the one hand economists generally recognize that this is a problem with unions, not a benefit. On the other hand, many non-economists who favor unions use this as an explicit justification unions. If you see anti-competitive behavior as an unintended downside of unions, then one can draw parallels to corporations. If, however, you see anti-competitive behavior as a reason that unions exist, then the comparison falls apart.

The most important difference between the two is that unions suffer from a much more problematic fundamental legal framework. Labor economists are much more likely to argue that the fundamental laws defining unions need reform than IO economists are to complain similarly about corporations.

So what are the complaints? Economists generally agree that worker voice is an important and useful function of unions, and yet unions are vastly diminished in the economy. The problem is that the laws regulating unions, in part due to the way they encourage antagonistic relations with management, have led to what is likely an undersupply of the fundamental purpose of unions: worker voice. As an institution they are failing to provide their primary benefit. On the other hand, the monopoly face of unions is also problematic and some economists argue incompatible with a dynamic economy, but labor laws discourage alternative forms of worker voice that are less prone to these anticompetitive effects.

This isn’t to say corporations are perfect, or that no unions provide net economic benefits. But to put things in overly reductive terms, many economists who are pro-union and many who are anti-union agree that the fundamental laws defining and regulating unions need reform. The same can not be said of corporations.

There is much more to be said about this issue and I don’t consider the above comprehensive overview, but rather a few aspects.

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