Last week, the Supreme Court heard oral arguments for the case of Friedrichs v. California Teachers Association. The case is focused on the practice of agency fees, or what is also known as fair-share fees. This case goes back to Abood v. Detroit Board of Education (1977), which ruled that a teacher's union could extract fees from a nonmember for ostensibly less political activities such as "collective bargaining, grievance adjudication, and contract administration." That Supreme Court ruling, however, is being challenged. Rebecca Fredrichs, the plaintiff, filed the case because she led an effort to save teachers' jobs by pushing for pay cuts when the school budgets were tight. Instead of adjusting salaries so more teachers could stay on, the unions held to their highly entrenched seniority system and let many teachers go. As a result, Friedrichs is arguing that all public-sector unions are inherently political, and thusly a violation of the First Amendment. Based on oral arguments last week, it's not looking good for public sector unions.
Back in the Abood case, Justice Lewis Powell warned that public-sector collective bargaining is inherently political since when done in the public-sector [and thus more problematic than with private-sector unionism], it extends "to such matters of public policy as the educational philosophy that will inform the high school curriculum....[even with issues such as wages, hours, vacations, and pensions], decisions on such issues will have a direct impact on the level of public services, priorities within state and municipal budgets, creation of bonded indebtedness, and tax rates." Franklin D. Roosevelt also realized that public-sector collective bargaining would be problematic because it pits the unions against the taxpayer. Especially given that one of the characteristics of money is its fungibility, the argument that such fees amount to political speech is all the more pronounced. However, the Union is arguing that compulsory dues are supposed to solve the "free rider" problem. The case points to a greater rigidity of unions, which is that of exclusive representation. If unions can no longer require these "fair-share fees," then the idea of exclusive representation is challenged. Not only that, this represents a more existential question about customer service and whether nonmembers derive sufficient benefit from forced association with a union because in all honesty, if a union can effectively represent its workers, why the need for compulsory fees? Rather than emphasize the legal ramifications of such a ruling what I would like to focus on today is whether forcing compulsory dues, even for nonmembers, creates a net benefit or a net cost.
Unsurprisingly, a think-tank that is unabashedly pro-union as the Economic Policy Institute finds positive effects. However, I have to remain skeptical of such findings. As the Right-leaning Heritage Foundation pointed out a couple of months ago in its report on unions' compulsory dues, the function of unions, economically speaking, is more monopolistic in nature. Unions function as labor monopolies or cartels since they control labor supply in order to drive up wages for union workers. Unions have succeeded at acquiring higher wages and greater benefits for its members. However, it does come at a cost, mainly to everyone else because such wages and benefits are higher than they would have been in a competitive market. From an economic standpoint, labor unions constrict labor supply due to the basic law of demand, i.e., if unions successfully raise the price of labor, employers will subsequently buy less of it. As a result, the Competitive Enterprise Institute illustrates that compulsory unionism depresses wages in nonunion sectors and increases the natural rate of unemployment, thereby creating a societal deadweight loss. As I pointed out a couple years ago when analyzing the case of Harris v. Quinn, the inefficient allocation of resources as a result of compulsory unionism leads to greater unemployment and less profitable activities, the latter of which is bad for state governments dealing with budgetary issues. Even a 2002 World Bank report on collective bargaining found that high bargaining coverage tends to be associated with relatively poor economic performance (p. 120).
This briefly brings the discussion to policy alternatives, the most popular being that of right-to-work laws. Having discussed the idea of right-to-work laws back in 2014, I founded that right-to-work laws are marginally better than compulsory unionism. While I would have preferred complete work contract liberalization (i.e., each employee has a right to choose a bargaining agent), I concluded that right-to-work laws were still a second-best option.
The ruling of Friedrichs v. California Teachers Association could only apply to the California Teachers Association, or even be more broadly applied to the state of California or public-sector unions across the country. We won't know how the Court will rule until this summer, so any prediction is speculative. In the interim, we can say that this case is going to be impactful, and not simply because 91 percent of union donations go to the Democratic Party, thereby limiting what was once a significant source of campaign contributions. The case acts a call for greater worker freedom and reforming labor union laws. At least for teachers unions, a good remedy in lieu of collective bargaining would be education tax credits. The case also has the potential for unions to experience a paradigm shift. If unions cannot compel agency fees anymore, it will have to think of different ways of doing business. Otherwise, public-sector unions could very well be relegated to the dustbins of history.