The misleadingly-named Employee Free Choice Act has also been called the "Kill American Jobs Act" for good reason. It is widely believed that EFCA will kill jobs by either causing small companies to close or larger companies to outsource more jobs.
THE ECONOMIC COSTS OF EFCA
One of the most alarming aspects of the under-reported and misleadingly-named Employee Free Choice Act is the amount of job losses that can be attributed to unionization.
However, the amount of job losses that will come about as a result of EFCA are just beginning to come to light.
The precise effect on unemployment will depend on the degree to which EFCA increases union density, but for every 3 percentage points gained in union membership through card checks and mandatory arbitration, the following year's unemployment rate is predicted to increase by 1 percentage point and job creation is predicted to fall by around 1.5 million jobs.
Thus, if EFCA passed today and resulted in an increase in unionization from the current rate of about 12% to 15%, then unionized workers would increase from 15.5 to 19.6 million while unemployment a year from now would rise by 1.5 million, to 10.4 million.
If EFCA were to increase the percentage of private sector union membership by between 5 and 10 percentage points, as some have suggested, my analysis indicates that unemployment would increase by 2.3 to 5.4 million in the following year and the unemployment rate would increase by 1.5 to 3.5 percentage points in the following year. [View abstract here.]
Employees who become unionized under EFCA will likely face the economic costs of unionization through forced union dues and fees, as well as potential loss through binding arbitrations and, at some point, employees and employers may face labor disputes in the form union strikes or employer lockouts. [For more information about labor disputes, click here.]
However, these costs may be minimal when compared to the possible job losses due to the economic costs of unionization.
UNIONIZATION ADDS ADDITIONAL COSTS
While some people view unions as having some benefit for employees, others realize that unions will often make many companies uncompetitive. Very few people know that unions add costs to an employer that are unrelated to wages and benefits. These are called "adminsitrative costs" and can be viewed like a "union tax" on a company. Often this "union tax" can run as high as 25%.
As employers become unionized they must, therefore, bear the added cost of unionization. Shouldering a "union tax" puts many employers at an economic disadvantage—especially in competitive markets, which is why so many unionized companies fail.
As a result of adding the costs of unionization to an employer, companies are often forced to cut back spending on other areas. Some employers will forego spending on capital expenditures like new equipment or research and development which places these companies at a disadvantage if their competitors are union-free.
An example of this today would be the heavily unionized U.S. auto industry, which has lost hundreds of thousands of jobs as auto companies like General Motors, Ford and Chrysler have shut down plants and laid off. Or, as other examples, the heavily unionized Steel and Textile industries, both of which have been all but eliminated by their largely non-union foreign and domestic competitors. [To learn more about the myth of union job security, click here.]
While today's union bosses like to blame "Corporate America" or the government for these job losses, the sad fact is unions are also to blame for the ills that have befallen workers in these industries. However, rather than accepting their share of the responsibility for the millions of job losses that have occurred in these industries, unions are now relying on the government bailout of EFCA to move ahead and unionize more companies and industries.
Since EFCA effectively removes employees' right to a secret-ballot election, as well as requires binding arbitration, the ultimate question will be whether or not Americans will realize the detrimental effects unionization has on the nation in time.
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