7

Here's the definition of cartel from Wikipedia: "A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market."

A labor union is just that for a market of professional services (a labor market). Yet, cartels are "illegal under the antitrust laws of more than 140 countries" and unions are not just exempt, but often directly given a monopoly on a certain profession by the government (in the Netherlands and Germany, for example).

Why?

11
  • 10
    This might be better suited for Law.SE, it seems like more of a legal question than a political one.
    – F1Krazy
    May 3 '20 at 22:52
  • 10
    @F1Krazy I'd say it's still appropriate here, though. It's generally illegal for companies to collude together because laws say so. It's generally not illegal for individual workers to band (collude) together because laws allow them to. This question asks, "Why?" and that does come down to politics because those laws enact policies that are supported (or opposed) by politicians. So there appears to be a strong political element.
    – Just Me
    May 3 '20 at 23:42
  • 6
    @JustMe - Politicians do not "prosecute"; lawyers do; thus Law SE! Why are labor unions exempt from antitrust laws? is a political question.
    – Rick Smith
    May 4 '20 at 13:53
  • 8
    This shouldn't have been closed; it's not a legal question. The answer on Law.SE will simply be "because that's the way the legislation is written". OP is asking why the legislation has been written in that way, and that's quite clearly a political question in my opinion. Voting to reopen (first time ever I think).
    – Dan Scally
    May 4 '20 at 15:02
  • 3
    There's a lot of conflation in the question of dictionary definitions, legal definitions and personal definitions. May 4 '20 at 16:52
15

I should begin by pointing out that the concept of a 'labor market' does not have much traction outside of certain Rightist interpretations of economics. Most modern economists view the 'market' as an area of competition between companies or corporate entities for the attention of consumers. Labor presents itself as necessary corporate expenditure for production at scale, but — aside from certain high-value or high-skill employees — companies do not compete for labor as much as they compete to keep labor costs low. Low labor costs mean that a company can lower prices without sacrificing profit, which makes them more competitive in the primary consumer market. High labor expenditures make the company less competitive in the consumer market, which (from their perspective) hurts both the company and the labor force.

Part of this issue is that labor, unlike other market 'goods', cannot be separated from the product if offers. A company that produces a material good can dispose of it for whatever revenue it can generate, maximizing profits from successful products and minimizing loses from unsuccessful ones. A product that does not sell does not necessarily destroy a producer because the producer is separate from the product. By contrast, a laborer can only labor, and if his labor is unsuccessful or unrewarding he and his dependents suffer or die. A laborer is dependent on being able to sell his labor for his continued existence, in a way that a company is not.

With this in mind — and since the late 19th or early 20th century, when Marxist ideology started to gain traction of its own — there has been a growing perspective that companies and corporations have a controlling monopoly on the vital resource of employment. Any sense in which unions might be seen as an organized cartel is offset by the pervasive view that companies act as an implicit cartel to sell employment at minimum cost, and for the maximum amount of labor that can be extracted. This perception was exacerbated by the obvious abuses of the Industrial Era: horrific conditions in which there were no restrictions on shift length (short of exhaustion), no lower limits on age, no health protections or insurance against accidents or failures, and a wage-rate driven ever downward by a surfeit of workers and a need to compete with other producers. Unions and collective bargaining were (eventually) accepted as a non-governmental solution to this significant problem.

7
  • 12
    Should you begin that way? It's one thing to say that the idea of a labor market is incorrect, but that does not imply that it's accurate to present it as a fringe opinion held only by a handful of ideologically motivated researchers. Go the Wikipedia article that talks about labor economics, and you'll see that it talks extensively about labor markets. Check its sources, and you'll see many papers with "labor market" in the title. Even in a left-wing country like Venezuela, you can find tons of economics papers talking about the "mercado laboral".
    – Obie 2.0
    May 4 '20 at 20:20
  • 8
    It's not even terribly hard to find actual Marxist theorists who talk about the labor market. E.g. "Persistent Inequalities: Wage Disparity under Capitalist Competition" (Howard Botwinick). In short, it seems like you might be presenting your personal analysis as characteristic of a mainstream economic consensus.
    – Obie 2.0
    May 4 '20 at 20:32
  • 2
    @Obie2.0: Perhaps, though it is an accurate reflection of my own reading on the topic (which makes it an informed analysis, whether you like that distinction or not). But in any case, that first sentence was more of a segue into the discussion than a substantive element of my argument. If you think it's important I can remove it without sacrificing anything. May 5 '20 at 2:13
  • 2
    @Obie2.0 "Labor market" in a title doesn't necessarily mean they are positing and assuming that labor operates essentially identically and on even footing to production in capitalism. You can call something a "labor market" without thinking it's remotely equivalent to a market for consumer goods. After all, why would you specify labor market if it was equivalent to market? I think Ted's comment was more pointing out that the OP seemed to be drawing an implicit equivalence between them, and such an equivalence is, I'm fairly sure, a fringe opinion. May 5 '20 at 8:36
  • 7
    Of course labor is a market, in the classical meaning even. There's a price-dependent supply (increasing) and a price-dependent demand (decreasing). That gives a cross-over point and a market equilibrium. The shape of these curves may be influenced by non-market forces - unemployment benefits will decrease the supply curve at low wages for instance - but the existence of the curves themselves is generally undisputed.
    – MSalters
    May 8 '20 at 11:08
10

In some cases, they are. Take a look at the Wikipedia article on the Albany case. It quotes the judgement which compares the laws of various countries. France is a clear case where "the prohibition of cartels is applicable to collective agreements between management and labour".

Why is this not the norm? This report puts it succinctly:

while not entirely immune to the rules of competition law, it is widely acknowledged that collective agreements concluded in good faith, dealing with core labour subjects such as wages and working conditions are in principle legal and therefore fall outside the scope of competition law.

The report also mentions that:

competition law in some countries provides for a clear-cut exception that removes collective agreements from the sphere of competition law.

8

I think it's just a question of the laws target. Anti-trust laws are designed to protect consumers from deleterious cooperation by corporations. Regulating collective bargaining by Unions obviously doesn't fall under that purview. That doesn't mean Unions are not the target of regulation designed to limit the impact they can have on prices for consumers and so on. One could argue that certain arrangements Unions enter into (such as closed shops) are anti-competitive, and that states should regulate them to prevent that - they frequently do do that. For example, see The Employment Act 1990 in the UK

Refusal of employment on grounds related to union membership

    (1)It is unlawful to refuse a person employment—

        (a)because he is, or is not, a member of a trade union, or

        (b)because he is unwilling to accept a requirement—

            (i)to take steps to become or cease to be, or to remain or not to become, a member of a trade union, or

            (ii)to make payments or suffer deductions in the event of his not being a member of a trade union.

6

Why aren't labor unions prosecuted under antitrust law?

For a time, in the United States, they could be prosecuted.

Promoting Competition
The nation’s antitrust laws were promulgated for the purpose of encouraging competition. The granddaddy of them all was the Sherman Antitrust Act of 1890. Recognizing that market consolidation can result in higher prices for consumers, the law states that “every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations is hereby declared to be illegal.” The act also allowed for triple damages to be awarded to injured parties when violations were proven. The logic behind the law was that more competition is better for consumers.

Labor's Problem
Unions were formed to represent workers with one voice when negotiating wages, hours and other issues. Since employers had more bargaining power than individuals, the union movement was a step to balance the negotiating process more evenly -- to be a “countervailing power,” in the words of economist John Kenneth Galbraith. The act of banding together was a combination that could be prosecuted under the Sherman Act. Therefore, Congress passed a provision in the Clayton Act of 1914 to exempt organized labor from antitrust enforcement. While the law and subsequent legislation placed parameters around unions, the exemption allows for collective bargaining and the right to strike, two of the unions’ greatest bargaining chips. [Emboldening added.]
Why Are Labor Unions Exempt From Antitrust Laws?

The reason they aren't is because the law exempts labor unions from antitrust laws.

1
  • Nice find. Somehow this didn't get any upvotes insofar... I'm guessing it might be because most readers appear to have interpreted the Q to mean "why do laws allow unions" rather than "which laws exempt unions from anti-trust provisions".
    – Fizz
    Apr 9 at 18:04
6

Because antitrust legislation is the wrong tool for the job.

As a basic principle, the Western society allows people to join their forces to pursue their legitimate interests. This includes entities such as businesses, political parties, religious communities, and labor unions. (The Universal Declaration of Human Rights even mentions the right to form unions explicitly.)

Because freedom of association is a fundamental right, we do not want to restrict it unless the consequences to the society are too severe. And when we do restrict it, we want to make the laws specific enough to avoid weird interpretations that twist them well beyond their original intent. Antitrust laws arose when businesses abused their power to the detriment of the market and the society. When labor unions abused their power, other laws were written. Because unions are not businesses, it made sense to legislate this specific situation separately.

2

As discussed in some comments, the question is slightly unclear. One reading of it is that it's asking to list laws that exempt unions from anti-trust provisions. On another reading of it, the question is asking for an explanation why such [law] exemptions were made for unions. Below I try to answer the latter from the viewpoint of some economics theory.

It is a/the [US] right wing view to describe unions as a labor cartel. E.g. heritage.org says something like that:

Unions function as labor cartels, restricting the number of workers in a company or industry to drive up the remaining workers' wages.

So it's probably something like that that motivated the question.

The top-voted answer claims that labor market don't exist. That's an extremely Marxist viewpoint actually. (So I guess we've got a battle of the extreme viewpoints here.) A more reasonable/centrist point that is that perfect or free labor markets seldom exist, due monopsony-kind-of power that companies often have. For instance, we can read in an OECD paper:

The academic literature has focused on two broad classes of bargaining strategies. In the so-called “right-to-manage” model (Leontief, 1946), unions bargain exclusively over wages, leading to lower employment relative to the perfect competition benchmark. Union members, usually referred to as “insiders” in this literature, are viewed as gaining at the cost of “outsiders”, unemployed individuals or individuals in vulnerable jobs not covered by collective bargaining (Lindbeck and Snower, 1986). The cause of the presumed inefficiency is that employment is not accounted for in the negotiations. This could have the additional downside of reducing the resilience of the labour market against adverse macroeconomic shocks.

In practice, however, unions might not only be concerned about wages but also employment and macroeconomic resilience. This has motivated the “efficient bargaining” model (McDonald and Solow, 1981). Furthermore [...] the insider/outsider theory is not backed up by much empirical evidence.

The effect of collective bargaining depends also on the structure of the market and the degree of competition. With perfect competition in product and labour markets, raising wages above the market equilibrium wage induces unemployment. However, when product market competition is imperfect (i.e. when firms have some degree of monopoly or oligopoly power), higher wages may not induce greater unemployment but be simply the result of workers appropriating a greater share of the rents. Moreover, in imperfectly competitive labour markets, higher bargaining power and higher wage floors can increase employment. This would be the case in the presence of [labor market] monopsony power, which enables firms to offer wages below the market wage, for example because workers have limited opportunities to change their employer or would incur high costs if they did so.

So that's some more mainstream economics thinking reasons to allow labor unions. It's difficult to provide a nutshell answer to the "why" question across different jurisdictions though, as the localized reasons could be much more idiosyncratic.

But empirical data supports the idea that unions, especially of blue collar workers, increase rent sharing. (The right-wing view probably being, of course, that all the economic rent should go the firms/employers, albeit they don't phrase it this way.) Similar notes from the Economist:

When economists argue that unions impose economic costs, they typically assume that markets are competitive. Across much of the American economy that is not always the case. Sometimes one or a few big employers dominate local labour markets, and can thus impose below-market wages on vulnerable workers, a condition economists call “monopsony”. In recent testimony in a congressional hearing on antitrust issues, Kate Bahn of the Washington Centre for Equitable Growth, a think-tank, noted that though wages in manufacturing industries are close to the level one would expect in competitive markets, those in some others, like health care, are not. For workers frustrated by stagnant pay, a work stoppage may be the only way to determine if an employer is constrained by competitive markets or abusing its market power.

In the latter case, interventions by unions could prove economically useful. In a paper published last year, Mark Stelzner of Connecticut College and Mark Paul of the New College of Florida, argued that in the presence of monopsony power, collective bargaining can reduce the rents collected by dominant firms and increase economic efficiency.

If you want a more left-leaning answer than OECD or the Economist would provide (but still not as Marxist as the top-voted answer), some EPI article says:

“monopsony power” is often a confusing term to even the most savvy economic writers and researchers, and too often it is used only to describe markets that are concentrated (i.e., where there are relatively few employers). Market concentration can indeed suppress workers’ wages, but employer power exists even in markets with lots of employers. [...]

In competitive markets in economics textbooks, both employers and employees lack power. But in real-world labor markets, employers rarely lack for power, and our strong view is that policymakers should care more about balancing labor market power between employers and workers than about trying to create labor markets that are competitive in the textbook sense of the word. [...]

Policymakers must be committed to working on every available margin, including restoring genuine full employment as a macroeconomic policy priority; reforming labor law so that workers who want to form a union to collectively bargain to improve their wages and working conditions are able to do so; raising the minimum wage; and strengthening enforcement of labor standards and workplace civil rights laws. [...]

Some economists and policymakers might express unease at the view that the downsides of one deviation from “competitive” markets (either labor market frictions or market concentration or some other source of employer power) should be countered by introducing another market imperfection (e.g., unions or a binding minimum wage). But this unease is unwarranted. The “theory of the second best” clearly argues that once markets depart at all from perfect competition, efficiency may well be increased by further departures. For example, in the case of monopsony power in low-wage labor markets, legislated minimum wage increases can potentially move wages closer to efficient levels and increase employment.

So that would be the "moderate left" answer why unions are permissible.

Also, labor unions are sometimes a cartel with the participation of the employers as well (ahem Germany):

In countries where co-ordination works well, it tends to be strongly supported by employer associations since it moderated wage growth and trade unions since it ensured high levels of employment. To be effective, co-ordination requires strong and self-regulated social partners as well as effective mediation bodies.

If you want something even more to the left than that... here are some arguments from the Teamsters' heterodox economists: they basically think all anti-trust measures are utopian. And that labor cannot be a commodity for social & moral reasons. (It's more or less the argument from the top-voted answer.)

Unions are dubious about antitrust as applied to businesses. John Kenneth Galbraith's somewhat vulgar characterization: that antitrust policy is "Just a fart in a windstorm" is an apt characterization (Galbraith and Salinger, 1978, p. 40). The neoclassical economists liked antitrust because it matched with their ideal of perfect competition. However, antitrust is like a finger in a failing dike. Behind the dike are the massive flows of the historical economic process. In this process the large and powerful multinational corporations get larger and more powerful. In a sense, capitalism is a race to see who gets the monopoly. Competition has winners, and those winners tend to keep winning as they gain more power. Surely no one wins permanently, for new technologies buffet even the large and powerful. However, antitrust seems hopelessly utopian in the face of the powerful historical trend toward concentrated economic power. [...]

Textbook economics portrays competition as almost universally good. But to the union economist, competition can have some very perverse effects. Competing firms have a powerful incentive to find ways to shift costs on to society. Thus, in the absence of protective legislation, companies will choose not to bear the costs of cleaning up pollution caused by their production processes. Private enterprise creates similar social costs for labor (Kapp, 1975). [...]

What unions seek to do is remove wages, benefits, and working conditions from competition. We seek to make employers pay a full social cost wage. We do this because we know that if firms compete on the basis of low labor costs, workers will deteriorate or the community at large will pay the social costs. [...]

Frictions predominate in the labor "market" and attempts to remove those frictions can be quite harmful. For example, because we have ties to the community and family, we are much less mobile than commodities, and we are not necessarily fond of the idea that markets would be more efficient if we were more mobile. Labor is also highly perishable, and must be sold even when market conditions are unfavorable. For if I do not sell my labor today, it is lost, unlike nonperishable commodities that are more easily held off the market for a better price. Perhaps most importantly, labor is human beings. Humans are not inanimate or passive. We have wants and desires, complex motivations, and a need for meaning in our lives. Whereas it is quite acceptable to treat a commodity as a means to an end, it is generally thought to be immoral to treat a human being as a means to an end.

Polanyi labeled labor a "fictitious commodity." The capitalist utopians tried to convert labor into a commodity, even though it was not produced for sale and was really human beings. Workers did not wish to be commodities and reacted to protect themselves. Utopians view unions as an interference in the working of the market, for free markets cannot properly self-adjust with unions gumming up the gears of exchange. However, unions are an inevitable result of the capitalist process, because society must necessarily react against the market to protect itself. Unions are not the only such protection. Nature is also not a commodity, and the environmental movement is an attempt by society to protect nature from being subordinated to the market.

Antitrust is a utopian attempt to restore a perfect competition that never existed and cannot exist without destroying society. This should not be read to argue that all competition is bad. It is merely to argue that it needs to be restrained, that it needs to take place within a web of rules that assures the protection of human society. Applying antitrust to unions would not restore a system that cannot be restored. It would merely create a system in which business was able to dominate labor.


More jokingly, you can ask why allow people to create or participate in cartels known as political parties. After all, once in power, they can vote/legislate themselves somebody else's [tax] money. And if people are allowed to collude/cartel that way (ultimately promoting their economic and other interests), why shouldn't corporations get to vote too? (Or simply allow dollars to vote?)

The (final) point I'm trying to make here is that the legal fiction that "legal persons" = "natural persons" can only go so far... I'm saying this because it's fairly standard in economics-related laws (e.g. Mexico's) to define "Economic Agent [as] any natural or legal person [...]" and then stipulate that "Absolute monopolistic practices are considered illegal [...] amongst competing Economic Agents, which have as their purpose the effect of any of the following [...] To fix, raise, co-ordinate or manipulate the sale or purchase price of goods or services supplied or demanded in the markets;")

So if people band in a political party that wants to raise the minimum wage, that would be illegal according to a strict reading of such a law. (As pointed out by Rick Smith's answer, in the US the contradiction was noted and the Sherman Act was amended in 1914 to allow unions. Perhaps Mexico does have some similar overriding provision somewhere else in their legislation, I don't know for sure.)

0

Maybe this would be more suited for history.stackexchange. Here is the short version of why it is legal in Denmark.

In 1899 all sectors were paralysed by strikes.

Then there was made a law called: The September Compromise.

In that law employers were allowed to lead the work. (That was not an obvious at the time).

And employees were allowed to strike.

Most of the mindsets today, on how the labour market work, are based on the 1980s where Reagan and Thatcher convinced everybody of neoliberalism, but a lot of rules prior is what makes e.g. strikes legal in Denmark.

-1

I think the obvious answer to this question is that in most cases unions don't actually have that much clout. In most cases the most they can achieve after spending considerable amounts of time, energy and pressure is a measly few percents of salary increases. A select group of companies however, which together control a certain product or service can easily jack up the prices twofold, threefold or maybe in some cases tenfold.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .