Why small independent businesses should be pro union

The traditional hostility of small independent businesses (SIBs) to unions has never made much sense to me. In short, it seems to be an irrational ideological hostility. Why irrational? Glad you asked.

The fact is that most SIBs will never be targeted for unionization. Operations with less than twenty employees that are not part of a larger chain or franchise have very little to fear from unions. As far as organizing goes such establishments are a waste of union resources. Organizing and servicing are not costless activities and if unions are to have any chance of recouping those costs through dues the establishments must be much larger in order to warrant the attention of organizers.

But if this basic economic logic explains why SIBs have little to fear from unions it does not say why they should be pro union and not just ambivalent. However, if one takes into account the world of big box stores and franchises, which have cost advantages, and hence pricing power, over most SIBs then one begins to see why SIBs ought to be pro union. In so far as unionization leads to increased wages over non-unionized labour, then, *ceteris paribus*, large establishments will have less pricing power that they can use to squeeze their SIB counterparts.

Every time Walmart moves into a new community SIBs tremble at the prospect. As well they should. It is very hard to go toe to toe in pricing war with such a behemoth. However, were stores like Walmart, Canadian Tire, and Home Depot to be unionized then they would have much less pricing power and this would mean less price competition for their SIB counterparts. Ipso facto, the anti union stance of many SIBs is an irrational ideological belief.

**Of course all things are not equal and in many cases unionization increases productivity thereby off-setting the cost of higher wages.

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7 thoughts on “Why small independent businesses should be pro union

  1. You are saying that a small business should be pro-union for its competitors since it will make their competitors less competitive. Two points on that:

    1. Not exactly an inspiring argument in favour of unions, is it?

    2. Even though most small businesses will never get large, most of them dream of getting large. Thus they do fear unions, even if they are deluding themselves.

  2. Yah to be sure. And the fact is that the impact of union on labour costs is actually quite debateable. In many cases unions lower turnover and premote loyalty to their company so productivity tends to compensate employers for higher wages. But in the service sector I am not sure there are all that many productivity gains to be had. On the other hand, should unionization decrease turnover, no doubt companies will save on training and see some productivity increases. However either way SIBs need not fear unions.

    As to your second point, like I said, it is an irrational position.

  3. A big cost of unions is not necessarily the wages, but the inflexibility. Union contacts are generally stuffed full of rules outlining who can do what and when. In many shops, for example, managers can not do any union labour except under extreme circumstances. And dealing with underperforming employees often becomes much more complicated (and more ineffective) than what the law requires for a ununionized shop.

    I think many companies fear the inefficiencies that these rules can create.

  4. The problem with this argument is that, outside of the public sector, unionization is highest in the highest productivity sectors. For your argument to be true there should be an inverse relationship between unionization and productivity.

    Now it is true that modern management techniques can also produce such efficiencies but then the company has to pay for large HRM departments which unions partly play at no cost to the company.

    But the real issue is that in competitive sectors the presence of unions causes a redistribution from owners to workers, and not as is commonly thought from consumers to workers.

  5. Ultimately all costs are born by the consumers. Ultimately there is no else BUT the consumer to pay the costs.

    Let’s take the food services industry in Canada, a highly non-unionized sector. Historically profit margins have been around 4-5% of revenue in Canada (obviously the profit margins for any one company may be dramatically different).

    Now to increase salaries in this industry, we have two choices: decrease profit margins or increase prices. But at 4-5%, how much room do we have to decrease profit margins? Even if we forego profits altogether (not a good idea), workers could achieve at best a 10% pay increase. If you wanted to make a significant salary increase – 25% for instance – it can only come from raising prices.

    Profit margins for the economy as a whole may be higher, but generally range from 5% to 7%. Not a lot room there for salary increases.

  6. “Ultimately all costs are born by the consumers. Ultimately there is no else BUT the consumer to pay the costs.”

    Rabbit your statement is a common confusion.

    Scenario A

    Total income produced in economy =$100

    The prevailing distribution of income: 40% to capital, 60% to labour.

    60$ of income to labour, 40$ of income to capital

    Existing distribution of assets: 80% concentrated in the top 20%, 20% of assets owned by the bottom 80%. Ff that 40$ in income to capital 32$ goes to the top 20% of population (owners) 8$ goes to bottom 80% (workers)

    Labours’ total income $68, capital owning class’ total income 32$.

    Scenario B

    Total income produced in economy =$100

    The prevailing distribution of income: 30% to capital, 70% to labour.

    70$ of income to labour, 30$ of income to capital

    Existing distribution of assets: 80% concentrated in the top 20%, 20% of assets owned by the bottom 80%. Of that 30$ in income to capital 24$ goes to the top 20% of population (owners) 6$ goes to bottom 80% (workers)

    Labours’ total income $76, capital owning class’ total income 24$.

    Conclusion

    Were the price level and productivity to remain the same, an increase in workers share of total income would mean a higher income for labour and a lower income for capital. Workers would be 8$ better off in scenario B.

  7. Unions were very necessary 30-40 years ago….in this day and age, they simply don’t fit in to the necessities of flexibale scheduling and multi tiered manufacturing processes….they hamper a companies ability to “bob and weave” in order to accommodate demand and delivery.They can and do attempt to run your business and dictate owner renumeration. Look at the current auto sector…the big three are hurting bad while non unionized imports are flurishing…why?….the import workers have not become complacent. Formula= union wants increases or threatens strike….company gives in…company covers the increased costs buy increasing price of product….comsumers stop paying increased costs and move to competitor…north american makers and suppliers start to close up shop or down size. In the case of Hersheys in Smiths Falls…the Union can’t understand why they are moving to Mexico…..simply, the Union over the years have raised the cost of doing business here and the union stand mouth breathing and don’t get it. Ya….lets embrace unionization.

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