Last week, US Airways, the nation's seventh-largest airline, was forced to file for Chapter 11 bankruptcy protection for the second time in two years. While fuel prices are higher than they've been in the past, demand for air travel is up. So why is US Airways joining United Airlines in bankruptcy? Unions.
In the 19th and early 20th centuries, unions helped bring about shorter workdays, child labor laws, increased safety standards and benefits for workers. Today, however, they're known more for keeping wages so high that employers, unable to compete against cheaper labor overseas and nonunion businesses in America, are often forced to lay off workers and file for bankruptcy.
Two weeks ago, airline pilots at US Airways blocked a new contract offer from the airline's management from even coming to a union vote. The move forced the cash-strapped and debt-laden airline to file for bankruptcy protection. US Airways' stock price plummeted, and a bankruptcy court judge will likely force pilots and other workers to accept a contract with cuts even more extreme than the one they rejected.
The forced wage concessions can hardly be seen as a benefit for the airline, however, as the bankruptcy filing has led to concerns about the airline's ability to continue as a growing entity, and travel agents have shifted clients to other airlines amid fears that the carrier will be forced to discontinue service and liquidate its assets. The agents' fears may prove a self-fulfilling prophecy, leaving all of those poor, underpaid pilots "who average about $130,000 per year for working less than 20 hours per week" entirely unemployed.
Visitors to New York hoping to catch a Broadway show in March 2003 were surely disappointed to find 20 theaters shuttered. The reason? Union demands that most shows have at least 24 to 26 orchestra members. Never mind that many shows had no need for that many musicians and were forced to pay their union-negotiated rates while the musicians sat idle backstage. When theater producers balked at keeping the unnecessary musicians on the payroll while many shows weren't able to recoup their costs, musicians went on strike. The four-day strike cost the city's economy more than $8 million.
For all their strong-arming tactics, unions don't seem to be getting too far, as we're seeing in the airline sector as airline after airline is forced into bankruptcy because of sky-high labor costs.
Those companies that do survive hire fewer workers when wages are above their equilibrium level. Let's say there are 2,000 people willing to work for a company at $6 an hour. If the union forces wages to $10 per hour, the company will be willing to hire fewer workers, say 1,200. At $10 per hour, however, there may now be 3,000 people eager for the jobs, and many of the 2,000 people who would have been happy to work for $6 are instead jobless.
Faced with higher labor costs, the company will need to raise the prices of the goods they sell. Raise prices, and demand falls. With demand down, the company needs fewer workers to produce the company's goods.
Increasing wages also lead companies to substitute technology for workers. At the equilibrium point, it may be efficient for airlines to have employees manning ticket counters and banks to have rows of tellers waiting to help you withdraw money. Throw in the unions and their increased labor rates, and the airline customer service representatives and bank tellers will be standing in the unemployment lines, and you'll be cursing at automated ticket machines and ATMs.
It's time for someone to put a foot down against runaway union tactics that are hurting our economy. In 1981, former President Ronald Reagan fired 11,350 air traffic controllers who went on strike and failed to return to work. Reagan had the right idea, and we'd all benefit if companies and other government agencies followed his lead.
Brown is a graduate student in professional accounting and a business economics and government senior.
Be the first to comment on this article!