Why Unions Should Align Their Demands With the National Interest in Spurring Advanced Traded-Sector Competitiveness
As neoliberalism has fallen out of favor, a new worker-centered capitalism has become vogue. It focuses not on consumer welfare—and certainly not on business welfare—but on worker welfare, particularly blue-collar workers. Recent union victories show this view is gaining traction.
A 2023 United Auto Workers strike led the Big Three U.S. automakers to grant workers at least 27 percent wage increases. The recent Writers Guild strike resulted in studios agreeing to limit the use of AI to automate creative work. And this week we may see the International Association of Machinists and Aerospace (IAMA) strike against Boeing for a 40 percent wage increase, a restoration of defined-benefit retirement plans, and a promise that all future expanded work be done in the Puget Sound area.
The question few are asking in all these cases is what the effect will be on the global competitiveness of these companies, and by extension the U.S. economy. It’s one thing for a teachers union to demand higher wages; the only result would be higher taxes. But in industries that are globally traded, overly aggressive union demands run the risk of putting firms at a competitive disadvantage—helping current union members in the short term, but hurting the firms, future workers, and the national economy in the long term as the firms become less competitive in global markets.
A chapter in our 2014 book Innovation Economics: The Race for Global Advantage examines the causes of the United Kingdom’s severe industrial decline from the 1960s to the early 1980s. Of the 20 causes scholars identified as most important, four relate to labor unions: a push for excessive compensation, opposition to new technologies, adversarial relations with management, and a focus on short-term gains. This is not to say that other factors, including business factors, did not play a role, too. It is only to say that the United Kingdom should be an object lesson for the United States when it comes to considering the role of unions in international competitiveness.
Workers certainly have rights to expect decent wages, benefits, and working conditions, but in the United Kingdom unions often failed to became stakeholders in companies’ long-term health. While unions can do little to turn shortsighted, timid industrial managers into farsighted, risk-taking leaders, they can and do thwart the latter’s efforts. And in the United Kingdom and the United States, unionized workers have done that all too often, seeking wages and benefit packages that firms ultimately have not been able support and still remain competitive. As British economic and labor historian Sidney Pollard wrote in The Wasting of the British Economy, “In many branches of industry the employees reached the view that since there was no natural growth, they should take as much as possible out of their firm.” But despite the fact that union demands often exceeded companies’ ability to pay and still be competitive, management often gave in, ignoring the competition on the horizon.
Unions have actively negotiated with firms in both nations to slow down the introduction of new technology that they have seen as a threat to labor even though the technology would have helped firms in their battle for international innovation advantage. As Nick Crafts wrote, “Bargaining practices in the United Kingdom tended in the 1970s to retard and dilute the gains from the introduction of new technology.” In the early part of the 2000s, for example, the United Auto Workers (UAW) special bargaining convention set an agenda that called for income protections, including from layoffs associated with new technology or productivity improvements. A few years later, many got laid off—not from productivity improvements, but from a lack of them.
Unions (and managers) in both nations have often seen industrial relations as zero-sum. Unions haven’t tried to increase the size of the pie and then ensure that workers get their fair share; instead, they have focused on getting a bigger shares of the existing pie, regardless of whether it was growing. British observer Peter Jenkins wrote, “[But] the approach so successful wherever it has been tried will not be allowed to be tried here. The trade unions will see to that. … Their commitment to competitive collective bargaining, their vested interests in declining industries and over-manned plant, and their inability to reform themselves or effectively lead their members are seemingly insuperable barriers to the adoption of a wealth-creating Social Democratic approach.” In the United States, industrial unions all too often have played the same role, believing it was their job to oppose managerial efforts to boost productivity and to innovate.
Finally, industrial unions in both nations have acted in ways that have jeopardized their own long-term interests for the same reasons corporate managers have: All their incentives have been to maximize short-term gains at the expense of long-term stability. Even if unions realized the harm they were doing to their firms, all too often they haven’t been able to stop themselves. As Pollard wrote:
What occurred in industry after industry in the U.K. was a Greek tragedy. … Somehow workers in some sectors have found themselves destroying their firm, fully aware of what they were doing, yet unable to stop. They found themselves answering strike calls … in the full awareness that … the result could only be ruin for all concerned.”
That description bears a striking resemblance to what has also occurred in many unionized U.S. industries. I asked a former UAW leader whether, if the UAW had known in the 1970s and 80s what it knows now about the decline of the Big Three, would it have done things differently? His response was “no.” While he acknowledged that UAW actions hurt Big Three’s global market share, he believed that union leadership could have acted no differently. If it did, he said, workers would have voted UAW leadership out and installed leaders who would “stand up for the interests of workers now.”
So, as policymakers consider organized labor’s efforts to do more for workers today, they should recognize that sometimes more now can be less later—especially in critical, traded-sector industries where firms must maintain a competitive advantage, not just to thrive but to survive. In those cases, unions’ demands may not always be in the interest of America, even if some workers are helped in the short-term.
This is particularly true given that fact that U.S. firms in many of these sectors have below-average profits and have been losing global market share to competitors in China and elsewhere. According to data from NYU’s Stern School of Business, the U.S. auto sector’s profits were about half the margins of the overall market in 2024. Even worse, Boeing has lost money every quarter since the beginning of 2000, and it is struggling not just against the EU’s state funded champion Airbus, but also against China’s state-owned and massively subsidized COMAC, maker of the C919 narrow-body airliner.
The reality is that the United States cannot afford to lose its domestic auto industry, nor its domestic aerospace industry. Boeing, in particular, has long been a huge source of export earnings and good, high-paying jobs—around 150,000 nationally, with around 10,000 suppliers spread across all 50 states. In fact, the Seattle Chamber of Commerce estimates that the average annual compensation in the aerospace industry in Washington (almost all of it is Boeing) is $214,000, hardly poverty wages.
By no means does this mean that business does not need to play its role. Most of all, firms in trade sectors need to open up their checkbooks and invest significantly more in capital expenditures in the United States, even if it lowers profits and holds down stock prices in the short term.
And to be clear, this is not an argument for union-busting or right-to-work policies. Indeed, as some scholars of industrial modernization have noted, agglomeration effects can be critical to competitiveness, and unions can play an important role in pressing firms not to reflexively move to low-cost locations. The U.S. auto industry has sought to escape unions in the industrial Midwest by moving plants to the South. In contrast, Japanese automakers like Nissan and Toyota have kept production in Japan, organizing themselves around robust, innovative regional automotive clusters. And they have gotten the better of U.S. automakers because of it. In that sense, what was good for U.S. auto companies in the short run was bad for them in the long-term. One demand the IAMA is making now is to keep more aerospace production in the Puget Sound region. While the union’s current wage and pension demands would be bad for Boeing and the nation’s competitiveness and national security, working to expand production in the Puget Sound region could be good for both.
Finally, in World War II, FDR was able to negotiate a no-strike pledge with the AFL and the CIO because they all agreed that winning the war against fascism had to be the top priority. We need to take a similar view today. Winning the advanced-industry competition against China and growing America’s significantly diminished capacity in advanced industries needs to be a top national priority—and unions need to help support that goal by exercising constraint.
