September 05, 2007

Union Dues as an Investment?

The Motley Fool recently tackled the following question: Union Dues: A Good Investment?

I have no choice but to completely deconstruct the answer:

Labor Day brings the end of summer, the beginning of school, and an annual reminder that "the folks who brought you the weekend" used to carry some serious clout. Unions' influence has since dwindled, and by last year only 12% of workers counted themselves card-carrying members.

The "answer" to this ostensibly objective question sets the stage with this first paragraph. Notice its negative tone. Yes, it is a fact union membership has declined but absent context and some background it does nothing to help directly answer the question on whether or not union dues are a good investment.

The author is implying that union influence has not dropped but dwindled and now only 12% of the workforce is unionized. Well if union membership has dropped down to 12% it must not be a good investment - that's what's implied and what readers take away from that first paragraph.

But what does that 12% signify and does the percentage of workers who belong to unions have anything to do with whether or not joining a union is a good idea for an individual worker or a group of workers seeking to unionize their firm?

First of all unions, even at the height of their growth in the United States only represented 35% of the workforce. Most people are surprised to hear that. It's been my experience that when asked even learned people guess the unionization rate was over 70% in the 1950's. Another thing to consider is that the workforce has grown. 12% of the 2007 workforce could actually be a higher number of union members than 35% of the 1955 workforce. On the other hand both these numbers would also take on a different meaning if we made it the percentage of possible unionized jobs (by law not all jobs and occupations are eligible for unionization, jobs not eligible have accounted for a large percentage of job growth in the last two decades).

The point I am making is that even if the 12% number did matter the way the author presents it doesn't really tell us much.

However, if you're on a manufacturing line, or you're a teacher, police officer, firefighter, or librarian, the odds remain pretty good that a union representative will come knocking at your door. If you're thinking about signing up, you may be wondering what those union dues buy.

The author mentions 4 public sector jobs and 1 private sector (manufacturing) leaving out the entire private service sector and the quasi-public health care sector. The implication is that unions are only for government workers or manufacturing.

It is of course always problematic to look at union dues, organization fees, church tithes and the like as a purchase but fair enough I'll roll with it.

Let's set politics aside for a moment in favor of economics.

Is the author admitting the political bias of the first two paragraphs?

After all, unions promise to make your standard of living better through increased wages and benefits. The first thing to know? It's no guarantee, especially when an entire industry faces challenges. Despite strong unions in the auto industry, thousands of jobs have been eliminated at GM (NYSE: GM), Ford (NYSE: F), and Chrysler. And unions haven't prevented slashed pensions at airlines like UAL's   (NYSE: UAUA) United Airlines and Delta Airlines (NYSE: DAL).

Ahhh - The no guarantee argument. Of course there are no guarantees in life and this goes back to what I just said regarding viewing union dues as a purchase. When you join a union you are not purchasing better wages and benefits rather you are providing financial support to an institution which facilitates you and your coworkers ability to have a voice on the job, collectively bargain with your employer and protect you and your coworkers in exercising these rights. Naturally, when workers have these rights it usually leads to better wages and working conditions.

I said usually.

Of course if a particular firm is in financial distress, or mismanaged a labor union isn't going to be able to maintain higher wages or even maintain the firm as a going concern. A labor union isn't some magical institution that is going to stop firms from going out of business or find hidden stacks of money to distribute among the workforce of a financially failing employer. But wait, does that mean workers in firms (or industries) that are going through a hard time or in financial distress better off if they dumped their unions?


By virtue of being a member of a labor union and having a labor contract prevents by law (and the power of collective action) the arbitrariness of the firm in taking unilateral action in slashing your pay, benefits and working conditions. With a labor contract your living standard is protected during its duration. This allows a worker to plan their financial life with some security. When a firm gets into trouble the cost saving measures the firm makes will have to be negotiated with the workforce. Again, even during a time of hardship like this workers have a say and sense of control over what cost saving measures will be instituted.

If my employer is going through a financial crisis I much rather sit down and negotiate  whether or not there will be a wage freeze, giveback, change in percentage of health care payments or how layoffs will happen (will there be right of recall etc). That's much better than showing up one day  and noticing a pay cut or something more horrible. There are also plenty of cases where the union examines a firm and helps them find cost savings that won't hurt the workforce, such win-win solutions are common.

So the question the article's author must answer is if a non-union workforce fares better when an industry or firm is in distress than a unionized workforce. I can bet the author doesn't want to touch that one as it is fairly obvious.

To find out whether your union dues will be money well spent, ask some questions:

  • How much are the dues? Are they calculated as a percentage of your pay or as a flat fee? If they're a percentage of your pay, find out whether any future pay raises will be counted fully or partially toward that calculation. Don't assume that your union dues can be deducted from your taxes. They can, but they must (when combined with other professional expenses and other miscellaneous items) exceed 2% of your adjust gross income before you can start deducting them.

Of course it is a fair question to find out what fees are associated with joining a union (or any organization for that matter) but what does this have to do with how well of an investment decision it is? Is the author suggesting the cheaper the union the better the investment? I have no problem with looking at union dues as an investment as an academic exercise but please don't treat the question like this. Does a cheaper stock mean the stock is a better investment?

How will your dues be spent? If your local or national representatives can't answer that question, it may be a sign that the union isn't acting as a good steward of your money.

Your local union representative is trained   in negotiating labor contracts, defending workers' rights on the job etc. Your local union representative can give you a breakdown of what union dues money is spent on as easily as your boss or supervisor can tell you what's in the company's 10-K report.  Does the author know anything about labor unions? The union representative isn't the Steward of your money, your union dues aren't an investment fund, the union representative is the steward of your  workplace and contract. If a member is concerned about the union's finances they can attend  union meetings  and get the union's financials for free from the government.

Find out whether the union stays active all the time, or whether it only gets organized when contract talks start. Ideally, you'd like your union to be paying attention to job matters even when they're not knee-deep in negotiations.

It is normal for unions to become more active when it is time to negotiate a contract. Just like above where the author put out that a union rep should be able to answer a question that in reality they would not know here to the author is taking advantage of something almost every union does, get more involved and active for contract negotiations, and making it seem like this is a bad thing. Yes, the union needs to pay attention, thats why there are rank and file stewards enforcing the contract on a day to day basis, but you cant expect or want the union to be doing major mobilizations on a daily or weekly basis. You do that when there is more on the line, like contract talks.

Talk to your shop steward to find out what kind of successes the union has had on behalf of workers, individually and as a group, in the past. What kind of resources does the union have to help you pursue a problem or a contract violation? If you can talk with an employee who has used the union grievance procedure to try to remedy a job wrong, that's even better.

Take a look at the contract, your salary, and your benefits and compare them to others in your industry. Are they better, or about the same? Even if they aren't ideal, has the union successfully staved off the erosion of benefits (like health and retirement perks) that has hit many workers?

Does the union actively defend the contract? If you work in a place where the culture means that employees don't claim the rights they have in the contract, you may find your dues don't come back to you in the form of the overtime pay or other apparent benefits.

These are fair.

If you ask all these questions and you aren't satisfied with the answers, you have one more reason to think about joining -- pay your dues and get to work changing the organization from the inside.

I don't understand this final paragraph. Well, I understand it but I am not sure what the author is trying to convey. If s/he is saying that even if a union seems bad it still may be worth joining just to change it and make it better. I'm all for that and did the same over 10 years ago when I was a union member. After all a union is an organization and an organization is only as strong as its members.

But the end of this article doesn't really wrap anything up and never answers whether or not unions are a good investment. Instead all it managed to do was create a few questions that focus on topics which won't help a worker decide on whether nor not joining a union is right for her/him.

September 5, 2007 in Paycheck Economics | Permalink | Comments (4) | TrackBack