A widely held view in the labor movement is that concentrated markets with large firms are friendlier terrain for trade union power than decentralized markets with small employers. This viewpoint has some truth to it: Not only do concentrated market structures simplify bargaining and contract administration, but large firms in control of their external markets are more insulated from competitive pressures. Large firms are not forced to simply react to market forces, they exert governance power over their external markets. The resulting oligopoly rents are shareable with workers, and being insulated from market competition allows room for internal bureaucracies and union rules room to replace market discipline.
In my recent article, “Labor Unions and the Problem of Monopoly: Collective Bargaining and Market Governance, 1890 to the Present,” published as part of a special issue on antitrust in Politics & Society, I try to highlight alternatives to the capital-managed market governance of oligopolistic industry, by focusing on industries where unions, rather than employers alone, govern market competition. I argue that today, in an increasingly vertically disintegrated economy consisting of a wide range of fissured work arrangements like franchising, outsourcing, and subcontracting, the ability of unions to transcend intrafirm collective bargaining and influence wider market governance takes on a new importance. By taking a second look at the market governance role played by unions outside oligopolistic core industries, we can perhaps see the outlines of an alternative competitive order to either cutthroat small business competition or sclerotic big business oligopoly.
While atomistic markets and cutthroat competition do indeed create a hostile environment for high wages, the oligopoly method of stabilization that characterized the heyday of CIO pattern bargaining—decreasing the number of employers until there are few enough that they could soften and manage competition among themselves—is not the only method of managing competition in labor’s interests. In other industries it was unions, not employers, that took on the market governance role, not only bargaining over wages and work rules within each firm, but also guiding and coordinating the product markets in which those firms competed. Their efforts were even supported (if never wholeheartedly) by some corners of the antitrust movement, most notably by the lawyer and jurist Louis Brandeis, who argued for forms of coordination among small firms and unions as an alternative market stabilization mechanism to monopoly.
Moreover, these models of union market governance were not confined to skilled trades, where craft unions could leverage control over employers’ access to scarce skills to control markets and discipline employers. Unions of replaceable, non-craft workers in the mining, garment, and trucking industries not only governed labor markets, but extended their power into product markets as well. The United Mine Workers of America (UMW), Amalgamated Clothing Workers of America (ACW), International Ladies Garment Workers (ILGW), and Teamsters unions each used the decentralization of employers to position their unions as the regulating force in their industries. Employers ultimately found the unions’ role in channeling competition away from a contest fought through ruthless price- and wage-cutting almost as desirable as workers did. Largely blocked by antitrust laws from explicitly coordinating with each other, companies found they could outsource aspects of market governance to unions. In markets too decentralized to support the kind of informal pattern bargaining that characterized the negotiations between CIO unions and US Steel or GM, these unions instead negotiated formal “master agreements,” miniature sectoral bargaining schemes, that set a wage floor for all employers in a geographic market.
Of course, the major problem with these master agreements is they were voluntary, meaning they were not binding on non-union employers. Standards were thus always vulnerable to wage-cutting new entrants. However, tripartite labor-capital-government market governance briefly became a reality in a handful of industries under the National Recovery Administration industry codes during the First New Deal (1933-1935). While in big business industries capital dominated the writing of the codes, this was not the case in industries like dry cleaning, coal mining, and garment manufacturing. While Section 7(a) of National Industrial Recovery Act gave workers the right to join a union, its underappreciated cousin Section 7(b) provided a mechanism to extend collective bargaining agreements to non-union employers. In some cases, the union collective bargaining agreements were simply imported virtually wholesale into the industry codes. This put the full enforcement power of the federal government behind both the union contract and the pricing and fair competition features of the code, including over nonunion employers.
The collapse of the NRA ended this experiment with sectoral bargaining, but a diminished version survived a handful of regulated industries, where a more informal version of tripartite market governance survived. For example, the Teamsters Union built considerable power and dramatically raised wages by following the coal and garment unions’ playbook. By 1958 workers in the small business trucking industry moved into the range of the highest-paid manufacturing workers—redistributing rents from manufacturing firms to logistics workers through control of product market conditions. As with the NRA 7(b) codes, the Teamsters did not have to undertake market governance alone. They erected their market governance machinery on top of the government’s own regulatory structures under the Motor Carrier Act of 1935, using the regulated nature of the trucking industry—especially price stability—to workers’ advantage.
As we now know, even as the first big union-negotiated wage increases came through following the UAW’s 1950 “Treaty of Detroit,” the institutional foundations of high blue-collar wages in big industrial firms were already crumbling. In the long run, oligopoly undermined the foundations for high wages by empowering corporations as the sole governors of their markets, leaving unions the more limited role of bargaining over labor’s share of the rents. Indeed, corporations had no sooner signed on to the tacit rent-sharing of the postwar “accord” than they started looking for ways to get around it. A major strategy for undermining and sidestepping unions was shifting work outside the boundaries of the firm (and therefore the union contract) to temporary agencies, contractors, franchisees, and spun-off suppliers. Since labor laws and other regulations had been written for the archetype of the large, vertically integrated firm, the decline of vertical integration limited the ability of workers or the public to hold corporations responsible for economic activity under corporate control. In particular, the Taft-Hartley Act’s ban on secondary boycotts prevented strong unions from helping the weak by exercising power across the boundaries of the firm. Thus, while giant corporations maintained their market shares and oligopoly power in final product markets, they hired relatively fewer workers directly, outsourcing labor to subordinate third-party contractors. For example, in the 1960s, auto companies began outsourcing parts manufacturing to nonunion companies that they could dominate through their enormous buying power. Before the rise of two-tier contracts, outsourcing created a two-tier labor force, as the UAW was unable to extend its wage standards to these low-margin suppliers.
Labor-friendly academics, especially those with a Marxian bent, tend to focus more on the inside of the firm, where value is generated, than on the realm of circulation where it is realized. But of course market conditions influence and shape relations of production. For their part, unions looking to rebuild worker power today could hope for their biggest union employers to acquire their non-union competitions, and thus try to recreate the oligopolistic foundations of the postwar accord, or they could look for alternative ways to govern markets, including those that project union power over competitive conduct directly, rather than relying on capital to do it alone.
Despite their history of conflict, trade unionism and an appropriately reinvigorated antitrust policy could be complementary components of a more egalitarian political economy. On the labor law side, improved joint employer rules could help workers in fissured workplaces make claims on the firm that controls their working conditions. Removing the Taft-Hartley Act’s ban on secondary boycotts and sympathy strikes could similarly help workers exercise power across the formal boundaries of the firm, once again allowing strong unions to help the weak employed at economically subordinate enterprises. On the antitrust side, what is needed are policies to combat buyer power in supply chains suppressing wages at suppliers, and others making it harder for large corporations to fissure their workplaces through imposing restrictive vertical restraint contracts on contractors. Finally, wage boards and sectoral councils, like that proposed by California’s AB 257 in 2021 covering the fast food industry, could create codes of fair competition governing wages and competitive practices in specific industries. Antitrust and labor reformers can serve as complementary components of a progressive coalition to take power from corporations and govern corporations and markets in the public interest.
Brian Callacci is the Chief Economist at the Open Markets Institute.
This article is based on Brian Callacci, “Labor Unions and the Problem of Monopoly: Collective Bargaining and Market Governance, 1890 to the Present,” Politics & Society, published online July 16, 2023.
Image: “Hundreds of male and female Shirtwaist strikers march to City Hall. Placard says “Union Contract [illegible]”.” Courtesy of the The Kheel Center for Labor-Management Documentation and Archives in the ILR School at Cornell University, via Flickr.