Unions Competitiveness DA

Union victories directly trade off with market values and causes high wages.
Empirics of long panel of high-frequency data capture long-run effects. Lee and
Mas 12
Lee & Mas 12 (David S. Lee has a AB in Economics @ Harvard, Summa Cum Laude; MA in Econmics @ Princeton;

Ph.D. in Economics @ Princeton; serves as the Director of Industrial Relations @ Princeton University // Alexandre
Mas is a Economics Professor @ Princeton University, BA in Economics and Mathematics @ Macalester University,
Magna Cum Laude; MA and Ph.D. in economics @ Princeton University // Long-Run Impacts of Unions on Firms:
New Evidence from Financial Markets, 19611999 Published in the Oxford Quarterly Journal on Economics in 2012
http://qje.oxfordjournals.org/content/127/1/333.full)

We begin analyzing the stock market reaction to union victories using event-study
methodologies. The most distinctive feature of our datacrucial for our research
designis the long panel (up to 48 months before and after the election) of high-frequency
data on stock market returns for each firm. This feature allows us to use the preevent data to test the adequacy of the benchmarks used to predict the
counterfactual returns in the post-event period. The long panel also allows us
to examine returns several months beyond the event, so as to capture the
long-run expected effects of new unions, without having to rely heavily on the assumption that the
stock price immediately and instantaneously adjusts to capture the expected presence of the unions. 9 Our eventstudy analysis reveals substantial losses in market value following a union
election victoryabout a 10% decline in market value, equivalent to about
$40,500 per unionized worker. According to our calculations, if unionization represented
a one-to-one transfer from investors to workers through higher wages, this
magnitude would be in line with a union wage premium of 10%. Because the total
loss of market value represents the sum of transfers to workers and any
other productivity impacts of unionization this implies, for example, that if the true union
compensation premium were greater than 10%, there would be positive productivity effects of unions. The evidence
supporting our event-study estimates is compelling: we

find that these firms' average returns are

quite close to the benchmark returns every month leading up to the election,
but precisely at the time of the election, the actual and benchmark returns
diverge. The results for these firms are robust to a number of different specifications. In the sample of firms where we
know that the union is a small fraction of the workforce, we do not find a similar divergence of returns from the
benchmark.

Increased union power reduce competiveness- higher wages preclude growth.

Griswold 10
Griswold 10 (Daniel Griswold; bachelors in journalism from University of Wisconsin at Madison and masters in

Politics of the World Economy from the London School of Economics// He is the former director of the Herbert A.
Stiefel Center for Trade Policy Studies at the Cato Institute Unions, Protectionism, and U.S. Competitiveness Cato
Journal, Vol. 30, No. 1, Winter 2010, pg online @ http://www.cato.org/pubs/journal/cj30n1/cj30n1-10.pdf)

While globalization has affected labor unions in surprising ways, unions

have also had a measurable effect on the ability of firms to compete in the
global economy. The 1984 publication of What Do Unions Do?, by Freeman and Medoff, launched a growing
body of research into the effects of labor unions on the performance of unionized firms compared to nonunionized firms.
The evidence

indicates that unions and globalization are not a happy mix for
companies with unionized workforces. Freeman and Medoff noted in their landmark work that the
impact of unions on the workplace reveals itself in two faces, a monopoly face, which tends to reduce
the efficiency of the affected firm, and the collective voice/institutional

response face, which can raise productivity by encouraging worker loyalty

and reducing turnover. The monopoly face of unions can be seen in their
efforts to fix wages and benefits at levels above those of a competitive labor
market. A labor union is, among other things, a cartel or monopoly that attempts to
exert market power to extract a higher price for the labor it offers to a firm.
Like monopolies in product markets, the result can be a misallocation of resources. Higher
wages cut into firm profits, reducing investment and employment levels in
the affected industry. Unions can also impose restrictive work rules and
featherbedding that reduce productivity and stifle innovation. An emphasis
on seniority over merit in pay and promotion can reduce the incentive for
worker effort. One result can be the inability of management to respond in a
timely way to changing market conditions, putting the firm at a competitive
disadvantage. Strikes and other industrial action can damage a firms ability to retain
market share. On the positive side, as summarized in Bennett and Kaufman (2008: 3), unions can reduce worker
turnover and increase their sense of loyalty to the firm, thus reducing transaction costs to the firm for hiring and training.
The effect is consistent with the efficient-wage theory, which argues that paying workers an above-market wage can yield
benefits to the firm that more than offset higher payroll costs. The protection of a union can empower individual workers
to suggest workplace improvements, exercising the option for voice rather than exit. The organizing of a union can
shock management into organizing production more efficiently to maintain competitiveness. Unions

can
enhance the representation of older, more experienced workers rather than
allowing wages and benefits to be determined by more mobile, marginal
workers who tend to be younger and single. Freeman and Medoff came to the conclusion in
their influential book that the voice/representational face of organized labor tends to predominate the monopoly face, with
the result that unions on balance play a positive role in enhancing the output and competitiveness of unionized firms.
Twenty-five years later, however,

the evidence does not support their more optimistic

view of the impact of organized labor on the competitiveness of U.S.
companies in the global markets. The weight of evidence indicates that, for most firms in
most sectors, unionization leaves companies less able to compete successfully . The core
problem is that unions cause compensation to rise faster than productivity,
eroding profits while at the same time reducing the ability of firms to remain
price competitive. The result over time is that unionized firms have tended to lose
market share to nonunionized firms, in domestic as well as international
markets. After studying the effects of unions on firm performance, and surveying the literature, Hirsch (2008a:
154) concluded that unions will typically raise labor costs to a firm by 15 to 20
percent, while deliver- 20951_CATOpages.qxd 1/20/10 1:00 PM Page 1912222222292 Cato Journal ing
a negligible increase in productivity. Unions have, at most, small positive
(but variable) effects on productivity insufficient to offset the substantial
compensation gains, thus leading to lower profitability. Unionization is
associated with lower investment in physical and intangible capital and
slower growth, he wrote, concluding, The combination of a union tax and sluggish
governance is proving debilitating in economic environments that are highly
competitive and dynamic. The union tax has caused firms to
underperform in a number of areas. Studies cited by Hirsch (2008b: 212) find that the profits
of unionized firms are 10 to 20 percent lower than similar nonunion firms.
The typical unionized firm has 6 percent lower capital investment than an
equivalent nonunion firm, and a 15 percent lower share of spending on
research and development. The change in a firms capital investment in
response to union certification is equivalent to a 30 percentage point increase

in the corporate tax rate

(Hirsch 2008b: 211). Further evidence of the negative impact of unions on firms

organization of a union did not

have an immediate impact on the operating performance of the firm but was
instead reflected in the longer-term market value of the affected business.
They found that a successful election to unionize produced negative returns of 10 to 14
percent for about 15 months afterward. That translates into a decrease in
the market value of the affected business by at least $40,000 per worker eligible
to vote (in 1998 dollars). The authors describe the reduction in equity value as a
combination of transfer to workers as well as lost profit due to inefficiencies
caused by the union.
can be found in capital markets. Lee and Mas (2009: 5) found that the

Decline in competitiveness causes instabilityleads to extinction. Khalilzad 11

Khalilzad 11(Zalmay Khalilzad was the United States ambassador to Afghanistan, Iraq, and the United Nations during

the presidency of George W. Bush and the director of policy planning at the Defense Department from 1990 to 1992,
The Economy and National Security, 2/8/2k11, pg online
@ http://www.nationalreview.com/articles/259024/economy-and-national-security-zalmay-khalilzad?pg=3)
Today, economic

and fiscal trends pose the most severe long-term threat to the
United States position as global leader. While the United States suffers from
fiscal imbalances and low economic growth, the economies of rival powers are
developing rapidly. The continuation of these two trends could lead to a shift
from American primacy toward a multi-polar global system, leading in turn to
increased geopolitical rivalry and even war among the great powers. The
current recession is the result of a deep financial crisis, not a mere fluctuation in the
business cycle. Recovery is likely to be protracted. The crisis was preceded by the buildup over two decades of enormous
amounts of debt throughout the U.S. economy ultimately totaling almost 350 percent of GDP and the development of
credit-fueled asset bubbles, particularly in the housing sector. When the bubbles

burst, huge amounts

of wealth were destroyed, and unemployment rose to over 10 percent. The decline
of tax revenues and massive countercyclical spending put the U.S. government on an unsustainable fiscal path. Publicly

Without faster economic

growth and actions to reduce deficits, publicly held national debt is projected
to reach dangerous proportions. If interest rates were to rise significantly, annual
interest payments which already are larger than the defense budget would crowd out other
spending or require substantial tax increases that would undercut economic
growth. Even worse, if unanticipated events trigger what economists call a
sudden stop in credit markets for U.S. debt, the United States would be
unable to roll over its outstanding obligations, precipitating a sovereign-debt
crisis that would almost certainly compel a radical retrenchment of the United
States internationally. Such scenarios would reshape the international order. It was
the economic devastation of Britain and France during World War II, as well
as the rise of other powers, that led both countries to relinquish their
empires. In the late 1960s, British leaders concluded that they lacked the economic
capacity to maintain a presence east of Suez. Soviet economic weakness,
which crystallized under Gorbachev, contributed to their decisions to withdraw from
Afghanistan, abandon Communist regimes in Eastern Europe, and allow the Soviet Union to
fragment . If the U.S. debt problem goes critical, the United States would be
held national debt rose from 38 to over 60 percent of GDP in three years.

compelled to retrench, reducing its military spending and shedding international

commitments.

We face this domestic challenge while other major powers are experiencing rapid economic growth.

Even though countries such as China, India, and Brazil have profound political,

social, demographic, and economic problems,

their economies are growing faster than

ours, and this could alter the global distribution of power. These trends could
in the long term produce a multi-polar world. If U.S. policymakers fail to act and other powers
continue to grow, it is not a question of whether but when a new international order will emerge. The closing of
the gap between the United States and its rivals could intensify geopolitical
competition among major powers, increase incentives for local powers to
play major powers against one another, and undercut our will to preclude or
respond to international crises because of the higher risk of escalation. The
stakes are high. In modern history , the longest period of peace among the great powers
has been the era of U.S. leadership . By contrast, multi-polar systems have been
unstable, with their competitive dynamics resulting in frequent crises and
major wars among the great powers. Failures of multi-polar international systems produced both
world wars. American retrenchment could have devastating consequences.
Without an American security blanket, regional powers could rearm in an
attempt to balance against emerging threats. Under this scenario, there would be a
heightened possibility of arms races, miscalculation, or other crises spiraling
into all-out conflict. Alternatively, in seeking to accommodate the stronger powers, weaker powers may shift
their geopolitical posture away from the United States. Either way, hostile states would be emboldened
to make aggressive moves in their regions. As rival powers rise, Asia in particular is likely to
emerge as a zone of great-power competition. Beijings economic rise has enabled a dramatic military buildup focused on
acquisitions of naval, cruise, and ballistic missiles, long-range stealth aircraft, and anti-satellite capabilities. Chinas
strategic modernization is aimed, ultimately, at denying the United States access to the seas around China. Even as
cooperative economic ties in the region have grown, Chinas

expansive territorial claims and

roiled its relations
with South Korea, Japan, India, and Southeast Asian states. Still, the United States is
the most significant barrier facing Chinese hegemony and aggression. Given the risks, the United States must
focus on restoring its economic and fiscal condition while checking and
managing the rise of potential adversarial regional powers such as China.
provocative statements and actions following crises in Korea and incidents at sea have

While we face significant challenges, the U.S. economy still accounts for over 20 percent of the worlds GDP. American
institutions particularly those providing enforceable rule of law set it apart from all the rising powers. Social
cohesion underwrites political stability. U.S. demographic trends are healthier than those of any other developed country. A
culture of innovation, excellent institutions of higher education, and a vital sector of small and medium-sized enterprises
propel the U.S. economy in ways difficult to quantify. Historically, Americans have responded pragmatically, and
sometimes through trial and error, to work our way through the kind of crisis that we face today. The policy question is
how to enhance economic growth and employment while cutting discretionary spending in the near term and curbing the
growth of entitlement spending in the out years. Republican members of Congress have outlined a plan. Several think tanks
and commissions, including President Obamas debt commission, have done so as well. Some consensus exists on
measures to pare back the recent increases in domestic spending, restrain future growth in defense spending, and reform the
tax code (by reducing tax expenditures while lowering individual and corporate rates). These are promising options. The
key remaining question is whether the president and leaders of both parties on Capitol Hill have the will to act and the skill

It is
clearly within our capacity to put our economy on a better trajectory. In
to fashion bipartisan solutions. Whether we take the needed actions is a choice, however difficult it might be.

garnering political support for cutbacks, the president and members of Congress should point not only to the domestic
consequences of inaction but also to the geopolitical implications. As the United States gets its economic and fiscal
house in order, it should take steps to prevent a flare-up in Asia. The United States can do so by signaling that its domestic
challenges will not impede its intentions to check Chinese expansionism. This can be done in cost-efficient ways. While
Chinas economic rise enables its military modernization and international assertiveness, it also frightens rival powers. The
Obama administration has wisely moved to strengthen relations with allies and potential partners in the region but more
can be done. Some Chinese policies encourage other parties to join with the United States, and the U.S. should not let
these opportunities pass. Chinas

military assertiveness should enable security

cooperation with countries on Chinas periphery particularly Japan,
India, and Vietnam in ways that complicate Beijings strategic calculus.
Chinas mercantilist policies and currency manipulation which harm developing states

both in East Asia and elsewhere should

be used to fashion a coalition in favor of a more

balanced trade system. Since Beijings over-the-top reaction to the awarding of the Nobel Peace Prize to a
Chinese democracy activist alienated European leaders, highlighting human-rights questions would not only draw

Since the end of the Cold

War, a stable economic and financial condition at home has enabled America
to have an expansive role in the world. Today we can no longer take this for
granted. Unless we get our economic house in order, there is a risk that
domestic stagnation in combination with the rise of rival powers will
undermine our ability to deal with growing international problems. Regional
hegemons in Asia could seize the moment, leading the world toward a new,
dangerous era of multi-polarity.
supporters from nearby countries but also embolden reformers within China.

Econ Link Turns

Stronger unions sustain pro-wages actsthat devastates the economy
inflated wages, unemployment and skyrocketing costs. Baird 11
Baird 11 (Charles W. Baird, Professor of Economics, Emeritus, California State University, East Bay, Freeing Labor

Markets by Reforming Union Laws, June 2k11, Cato Institute, pg online

@ http://www.downsizinggovernment.org/labor/reforming-labor-union-laws)

This Davis-Bacon Act, passed at the beginning of the Great Depression, requires that companies
pay "prevailing wages" for work on federally funded or federally assisted
construction, such as highway projects. The rules apply to contractors and
subcontractors on all contracts in excess of $2,000. Prevailing wages generally means
higher, union-level wages . The effect of the law is to exclude nonunion firms and
nonunion workers from federal projects, which in turn increases taxpayer costs.
The unions that support the Davis-Bacon Act want the government to set
wages that are more favorable to their members than the marketplace would
produce. The "prevailing wage" set by the Department of Labor under the Act is the inflated
union wagenot a true market wage. After all, unions are insistent that they make
wages higher than market-determined wages .

Congress had two main purposes in passing Davis-

Bacon. First, policymakers

held the backwards economic idea that the

government should stop prices and wages from falling during the Great
Depression. Davis-Bacon was designed to keep wages artificially high. Yet
falling wages and prices were precisely what were needed for labor markets
to adjust to the collapse of real incomes and employment in the early 1930s.
(Both prices and wages fell from 1929 to 1933, but prices fell by more than wages. Thus the real cost of hiring
workers increased and pushed up unemployment). This economic fallacy about
high prices and wages misled both Herbert Hoover and Franklin D. Roosevelt, and it did much to deepen
and prolong the Great Depression. Second, Congress had a racist motivation for Davis-Bacon.
Congress wanted to keep black workers from competing for jobs that had hitherto been done by white unionized labor. The
racist motivation behind the legislation is plain when reading the Congressional Record of the debate in 1931. For example,
Rep. Clayton Allgood, in support of the bill, complained of "cheap colored labor" that "is in competition with white labor
throughout the country." These days, the law may still have racist effects if minority-owned firms are less able to pay
union-level wages. Economist James Sherk notes "Davis-Bacon's requirements make it extremely difficult for minority,

By excluding more-efficient
nonunion firms from federal work, Davis-Bacon pushes up the costs of all
federally financed projects. A careful study by economists at the Beacon Hill
Institute at Suffolk University found that the rules increase the cost of construction
projects by about 10 percent, which ultimately costs federal taxpayers about
$8.6 billion annually.8 The Davis-Bacon rules should be scrapped, because
they serve no interest other than protecting unionized construction workers
from open competition.
open-shop contractors to employ and train unskilled minority workers."7

Unions devastate the economy. DeMaria 02

DeMaria et al 02 (Alfred T. DeMaria is a Senior Partner @ Clifton, Budd & DeMaria; BA @ UVA and J.D. @ NYU

Law School, Labor Union Are Economic Drag Management Report for Nonunion Organizations, published in 2002
Ebsco)
Its certainly no news that unions

drive up the cost of doing business

study, however, indicates that unions are

also

for employers. A

new

economically detrimental to the whole

economy . The lengthy academic study by two distinguished professors of economics

at Ohio State University was co-sponsored by the National Legal and Policy Center, a

conservative think
tank that often studies unions. Entitled, Do Unions Help the Economy? The Economic Effects of Labor Unions
Revisited, the study sparked

an editorial in Investors Business Daily, stating that

the economists work breaks new ground. Surprisingly little has been written about the
effect of unionism on wages and unemployment, as well as on the overall
economy. The studys authors used economic models to determine that
over a 54-year period,d U.S. unions have dragged down real gross domestic
product by $3.5 trillion. This may seem an astoundingly large number; the
professors note, however, that while effects may be small in any individual
year, compounded over more than half a century, they are enormous.
Cumulating the lost income and output over the whole 54-year period gives
a result exceeding $50 trillion.