Fifty years ago today, President Harry Truman took the unprecedented step of seizing the steel industry in order to avert a nationwide strike by the powerful United Steel Workers of America. In doing so, he appointed his Secretary of Commerce to act as the administrator of the mills, and he designated all workers as employees of the federal government. Though the Supreme Court would rule this move unconstitutional a mere 20 days later, Truman’s action recognized the menacing effect that unions can have when they become too powerful.
Indeed, the modern steel industry remains an excellent example of the serious damage that overly powerful unions can cause. Since 1997, 32 American steel producers, including three of the top six firms, have declared bankruptcy. And it seems very likely that a large part of the crisis in the industry has been caused by the presence of a powerful union that insisted on real wage increases, that is, increases well in excess of a normal adjustment for inflation.
In the case of steel, decades of generous wage increases were granted to the unions in order to prevent work stoppages. This resulted in a wage greatly exceeding that which would have been determined in a free market of labor supply and demand. And this union wage premium has had devastating consequences.
Specifically, the high cost of union wages has put U.S. steel producers at a marked disadvantage in competition against foreign competitors. U.S. firms are forced to sell steel at higher prices than foreign steel makers, raising the cost of goods such as automobiles and aircraft and inflating prices for the consumer. Moreover, it has made U.S. producers vulnerable to cheaper imports: today, foreign countries provide nearly 30 percent of the steel used in America.
The result of this, in turn, is massive job destruction. An industry that employed over 600,000 workers 50 years ago now employs hardly 100,000. It seems likely that many of these steel mill jobs have been lost as a result of the cost disadvantage created by union wages in the United States, which are in some instances 50 percent higher than wages in competing countries.
This drop in employment has also rendered the steel industry unable to meet the enormous costs of its retirees’ pension plans. Retirees from the steel industry now outnumber active employees by a staggering margin of almost two to one. These costs are further contributing to bankruptcies around the country.
In short, the steel industry is collapsing under its own weight. Its higher prices bring inflation and make it vulnerable to foreign imports, which in turn take business and jobs away from the United States. And at the root of this cost disadvantage seems to be years of high wages paid to appease union demands.
This is not to say, of course, that industry unions have been without any historical merit. Certainly, early in the industry’s history, the steelworkers’ union made important and necessary gains in the quality of working conditions. These are not to be begrudged.
However, in a post-industrial democratic society such as ours, the need for a union to safeguard workers’ rights seems questionable at best. With numerous governmental agencies — including OSHA, the Occupational Safety and Health Administration — enforcing a safe working environment, the union seems to be an obsolete creature serving only to raise wages above efficient and competitive levels.
The steel industry is a powerful example of what can happen when unions are too strong. As we remember the fiftieth anniversary of Truman’s effort to prevent a union strike that would have had a terrible effect on the economy, it is fitting to question whether the labor union in the United States still serves a useful purpose.
William Edwards is a senior in Pierson College. His columns appear on alternate Mondays.