path dependence, unions, and health care

Jonathan Cohn’s piece about auto workers in the New Republic talks about both the major gains that unions won, and the way that right-to-work laws closed off opportunities for further union organizing. Union efforts developed the modern American welfare state: because union wage and benefit gains altered the market for labor, other companies had to offer better wages and benefits, and Americans became accustomed to the idea that they would receive health and retirement benefits through their employers. But globalization (which allowed manufacturing to take place in other countries) and the decline of unions changed that situation.

As Ezra Klein points out, weakening unions leads to a collective action problem:

a dilemma in which the rational actions of individual actors make everyone worse off. What's smart for the one proves to be dumb for the many. Imagine, for instance, that you are a new business entering a field where the major players are decades old. Over time, they've bargained with their workers, raised their pay, offered good health benefits and retirement packages. The rational thing for you to do is undercut their labor costs. Then you can sell the good more cheaply and take away their market share.

Klein and Cohn both point out that countries which provide their welfare state benefits directly through the government don’t face this collective action problem. Every firm both receives benefits and pays taxes to support them, so there’s no empty market space in which a firm can evade costs that others bear. This is changing to some extent as manufacturing and services both go global, but since countries are sovereign entities that have substantial control over their borders (especially over legitimate cross-border transactions), they have far more options for mitigating the collective action problem than any individual firm.

What Klein and Cohn both ignore is how things got to be this way. Why does the US, unlike every other wealthy country, rely largely on private employers for its welfare state services? The answer is complicated, but one part of it is union co-optation. In most countries, unions pushed for national health insurance; in the US, unions made what looked like a temporary, tactical decision to push for an employer mandate to provide health insurance, and to negotiate individual agreements with employers that offered union workers health insurance. The Taft-Hartley act, which Cohn notes allowed right-to-work laws and made union organizing much more difficult, combined with the Employee Retirement Income Security Act to give unions substantial control over multi-state health and welfare funds. It didn't just limit organizing - indirectly, it limited activism.¹

Just as union ability to organize was declining, and as the percentage of workers who were unionized dropped, unions were handed control over health and welfare funds, which they viewed (correctly) as a major potential source of continued influence and as a potential recruiting tool. National health insurance, which would make the Taft-Hartley funds obsolete, would deprive unions of one of the best reasons for employees to join a union. In other countries, unions focused on winning guaranteed health benefits, vacation time, and retirement security through the political process, rather than through bargaining with a single employer at a time. In the US, partly because of the arrangement of institutional incentives but also for other reasons (which I think I used to know more about), unions negotiated an expansion of the private welfare state. It doesn’t look like such a good bargain now: we’re losing those benefits one employer at a time, and we never did get maternity leave. I have some hopes that the slow-motion collapse of private benefits will generate the political will for an expansion of public, guaranteed benefits, as seems to be happening with health care. We still need to remember, while we do it, that today’s temporary, tactical decision can radically change tomorrow’s incentives and possibilities.²

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1. I know about this stuff from reading Marie Gottschalk (in college, and again today): "It's the Health-Care Costs, Stupid!" and The Shadow Welfare State.
2. Shout-out to Paul Pierson!