Even a brief look at this situation forces you to ask an important question: should labor unions be exempt from anti-trust and "monopoly" laws?
When I first read about the east coast and gulf coast dockworkers strike, which began Tuesday morning and which is the first in over 50 years, I was pretty stunned by what the union was asking for. "The union is demanding a 77% raise over six years, or the equivalent of a $5 increase per hour for each year of the contract. Under the union's proposal, workers would make $44 for the first year of the contract, $49 for the second and up to $69 in its final year," according to CBS.
While those hourly rates in their own right definitely jumped off the page (for perspective, as of August's jobs report, the average hourly rate for US employees was $35.21, so the longshoremen are making comfortably in excess of that), especially considering working on the dock is not a skilled trade, the 77% is what really caught my eye. 77% over 6 years amounts to a 10% wage increase each year, which is likely to be meaningfully higher than the raises almost everyone else in the US will see over that period (if they're able to keep their jobs at all). This is not 2021 or 2022 anymore. Because the economy is softer now, unemployment is going up, and the labor market is rebalancing. Maybe the strongest evidence for this is that employers are starting to feel comfortable enough to call their employees back to the office 5 days a week now, with the most notable example of this being Amazon, which announced this a few weeks ago. Things have changed.
The International Longshoremen's Association (ILA), the principal union involved here, claims this is justified because of all the inflation we've had over the past few years. But since October 2018, when the last contract went into effect, prices are up 24% (as measured by the Consumer Price Index, which we talk about every month on this blog). If you compare today's price levels to December of 2019 (you might do this because inflation didn't really pick up until the pandemic started), prices are up 21%. Even if you think these numbers are way off, you can double them and you still don't get anywhere near 77%. So 77% feels like it's pretty far above and beyond simply keeping up with inflation. This should give you a sense of the market power of this union.
Further evidence of this market power can be seen from what the companies themselves are offering. Notably, the union already turned down a 50% increase over the contract period, which the companies increased from their initial offer of 40% under pressure from the White House. 50% over 6 years already amounts to a 7% guaranteed annual increase (regardless of performance, we should keep in mind), which itself is likely to also be well in excess of what most Americans see over that period. Just last year the West Coast port workers got an increase of 32% over their own new 6 year deal. It's hard not to look at these facts, and when you incorporate the timing of all this, not conclude that there's either 1) some degree of election-year economic extortion happening, or 2) that this union is very, very powerful. ILA President Harold Daggett himself hasn't shied away from discussing his union's power. When asked about what might happen if President Biden used the Taft-Hartley Act to delay a strike and force workers to go back to the docks while negotiations continue, he boldly said, "I'll cripple you." Likely for both reasons 1 an 2 above, President Biden has so far neglected to intervene in the strike, instead pointing fingers are shipping companies and other parts of the supply chain for capitalizing on higher rates because of the strike (this is particularly rich considering container shipping rates are up exactly because of this strike, since the supply of container ships has been effectively reduced because so many are now sitting offshore with cargo and have nowhere they can go).
Not to be forgotten here is that these wage demands do not include other things like increases in pension contributions, healthcare, container royalty distributions (according to the contract, the workers get a sizeable cut of revenue from containers above a certain dollar threshold), and other items. The companies' latest offer was to triple employers' contributions to pension plans and improve healthcare benefits as well, all of which should be incorporated into the $150,000+ number we cited above.
This is important because once you incorporate extra shifts and other things, the average gross income for a longshoreman appears to be somewhere in the $150,000-170,000 range. Consider the below table from the 2019-20 Annual Report from the Waterfront Commission of New York Harbor, which importantly excludes container royalty bonus payments (not does it include the economic value from things like pension contributions). Over half of the longshoremen from the New York and New Jersey ports are making well in excess of $150k per year, and that was 4 years ago. Most people don't have a problem with collectively organized workers trying to bargain their way to better living standards. But when over half your workforce already makes almost 4x what the average American makes, and you're asking for massive raises, and you're in an economically critical industry, it's harder to sympathize with.
Daggett has also made the argument that many shipping companies made a lot of money during COVID during the supply chain crunch. While this was true, in 2021, Daggett fails to mention how awful the shipping market has been the last several years (the latest spike in rates coincides with the beginning of the Israel Hamas war beginning on October 6th). Regardless, this kind of logic is very slippery. If I go to a bar that starts charging $15 a pint because the bar across the street that normally charges $7 got flooded out, should the distributor or the manufacturer automatically be entitled to a cut of those "excess profits"? Unless there's some contract in place, then no, absolutely not. Not all parts of supply chains are created equal in that regard, even though they're all part of the same ecosystem. Usually the reason for different profit margins across a supply chain is directly correlated to the value add each leg of the chain provides.
Which brings me to my next point, which is automation. Many of these striking longshoremen have been holding up signs protesting against automation. Daggett has made this a key sticking point in negotiations as well, saying “we want absolute airtight language that there will be no automation or semi-automation”. If we applied this kind of anti-investment logic to the rest of America's companies and industries, just think of the advancements we'd be without today. The argument that automation and technology kills jobs is always very short-sighted and misguided. Sure, technology and automation might eliminate jobs near-term, but the dynamism of the US economy has always found new, creative ways for people to be put back to work. How do I know this? Because at no time in the nation's history have we ever had meaningful or even noticeable periods of unemployment driven by technology. Protracted periods of unemployment in American history are always driven by economic recessions.
But in the case of the port workers, when you're making $150k+ a year, who wouldn't do whatever they could to (legally) prevent a company from employing a machine to take their job? They're just protecting their self-interest, just like the Supreme Court told them to. For our purposes, part of the reason why a dockworker in theory wouldn't make as much money is because their jobs aren't as difficult (though we should be clear in saying this doesn't at all mean these people don't work hard) and can in fact be pretty easily replaced by machines, cranes or other "roll-on-roll-off" (RORO) automation. Normally in industries where this happens, it puts downward pressure on wages. In this case, however, the longshoremen make (really) good money in spite of this because they appear to have a very powerful union.
Given all this, I started to wonder: are labor unions subject to anti-trust or monopoly laws? What happens when a labor union is so powerful that the company essentially has no choice but to cede to the union's demands? And what happens when this happens in a "critical" industry to the US economy at large?
The answer, probably to no one's surprise, is that labor unions are not subject to anti-trust laws. The US Supreme Court, in United States v. Hutcheson (1941), solidified what's become known as the "statutory" (read: legal) exemption from anti-trust laws. This exemption exists so "long as a union acts in its self-interest and does not combine with non-labor groups." "Ultimately," the article above notes, "the purpose of this exemption seems to be to keep courts and the antitrust laws out of the details of collective bargaining and surrounding activity." So said differently, as long as a union doesn't collude, interfere or threaten retaliation towards non-labor groups, and as long as they are acting in their own self-interest, they're not subject to anti-trust law.
But this raises an important question: should they be? Why is it so impossible that the balance of power can't shift in the direction of a labor union too far for everyone's (including the company's) own good? Though we won't talk about them extensively in this post, government worker unions seem to be an even more acute example of this (teachers' unions, police unions, etc. would all fall under this category, not to mention other more general government workers). Government worker union membership is triple that of union membership in the general economy (10%), but the key difference there is there's not really honest "bargaining" happening there, simply because the government does not have a fiduciary duty to the taxpayer to keep costs down the way a management team of a corporation does for its shareholders. Government unions are simply not a fair fight in this regard because the interests are way out of balance. But enough about that. We'll tackle those examples another day.
The situation with the longshoremen becomes even more interesting when you learn a little more about Harold Daggett himself. According to the WSJ:
Daggett’s work at the union has sometimes attracted the attention of authorities, who have previously accused him of mob ties, claims he has denied. In 2005, he stood trial in Brooklyn on wire and mail fraud charges alongside another ILA official and an alleged mobster, accused of steering union benefits contracts to firms that paid kickbacks to organized crime.
Witnesses testified that Daggett was elevated through the ILA by the mob because he was an associate of the Genovese crime family. Daggett recounted in testimony being held at gunpoint by a mobster, according to media reports at the time. He said he was terrified of the crime families and went out of his way to avoid them.
The three defendants were acquitted. Lawrence Ricci, the defendant alleged to be a Genovese crime family member, went missing during the trial and was later found dead in the trunk of a car outside the Huck Finn Diner in Union, N.J.
Daggett would go on to become union president in 2011, which took his pay to the next level. According to Labor Department documents (this is also discussed in the CBS article linked to above), Harold Daggett "made $728,694 in 2023 as ILA president and an additional $173,040 as president emeritus of the mechanics local chapter at Port Newark in New Jersey." Additionally, his son, Dennis Daggett, made more than $700,000 in 2023 as well as ILA executive vice president and New Jersey local head. Oh, and go check out Harold's house. It's a sprawling 7,100 square foot mansion in New Jersey with a 5 car garage that has a Bentley convertible in it, among other things. This is exactly the kind of thing that has made most people roll their eyes at unions over the years, and decide to not participate in them despite their principles of improving worker pay (union membership in the economy at largest is half what it was in 1983). While they may say that's what they're about on paper, in reality they are political organizations that have enriched their leadership far more than their members.
Perhaps not surprisingly given Daggett's mob ties, it seems that things at the dock haven't changed all that much from the days of Malcolm Johnson's 24 part series On the Waterfront, written in 1948. Here are some of the most notable snippets from the 2019-20 Waterfront Commission report cited above (which again, was from two Democrat and Pro-Union governors, Andrew Cuomo of New York and Phil Murphy of New Jersey):
This Report extensively documents the corruption and entrenched organized crime influence that continues to thrive in the Port...Our message was clear: Port jobs should no longer be earmarked primarily for those with ties to the industry or organized crime.
So it seems that jobs are still set aside "primarily for those with ties to the industry or organized crime." The Commission then writes:
While the evils of the public loading racket have long since been eliminated, many of the other ills described above still exist, to some degree, on today’s waterfront. Over sixty years later, the ILA still exerts an inordinate degree of control over hiring in the Port. But now, instead of openly doing so through the antiquated shape-up system where an ILA-controlled dock boss selected men standing around him at the piers, the shape-up is memorialized in collectively bargained provisions that require employers to accept those that are sent to them by the ILA when they are in need of labor.
The companies therefore cannot even choose their own employees, and have to go to the ILA to fill vacant slots when they exist. Then there's this:
Today, every terminal within the Port still has special compensation packages given to certain ILA longshore workers, the majority of whom are white males connected to organized crime figures or union leadership. Based on the industry’s reported figures, the Commission has again identified over 590 individuals who collectively received over $147.6 million dollars last year in outsized salaries, or for hours they never worked.
That math works out to be over $250,000 per individual. Now this:
Individuals who lost their licenses or registrations through criminal convictions or misconduct still work on the waterfront in “non-covered” positions allowing them to continue receiving payment and exerting control. The Commission has been diligent in identifying and removing them. Organized crime still exacts a tax through overpriced or non-existent services in the cleaning, trash removal, snow removal or repair industries forced upon companies. The Commission has ongoing investigations in this area.
Loan sharks and bookmakers, with the approval of organized crime, continue to prey on the workforce. The Commission, along with its law enforcement partners, has made significant arrests in both areas and has a number of active investigations as well. Cargo theft, often more sophisticated than in the past, is still a real problem. Workers’ compensation fraud, narcotics importation, and the illegal use of drugs, especially prescription medications, have been added to the enforcement picture.
And arguably most concerning is this:
This year, the Commission conducted 330 background checks for deep sea longshore candidates referred by the industry, and issued 234 registrations (171 longshore and 63 checkers). Notably, over one-third of the ILA’s referrals did not advance to the registration stage because their presence at the Port would have constituted a danger to the public peace or safety, or because they lack the requisite good character and integrity.
Year after year, we have reported on the failed attempts of notorious organized crime figures to flood the Port workforce with mob-connected referrals. This year, 18% of the ILA’s deep sea longshore referrals did not make it into the workforce because of their prohibited organized crime ties.
Yikes.
So maybe, just maybe, when the head of a union has stood trial for federal crimes, has pretty clear ties to the mafia, still somehow makes almost $1M a year, can force the employer to accept well above market terms for what most would deem a critical industry (60% of the country's trade goes through the striking ports), can force (or collude with) other competitor ports to not accept re-routed ships, can prevent that business from investing in technology and equipment to improve its operations, AND can essentially tell the president of the United States to go fly a kite, maybe, just maybe, that union has too much power and should be allowed to be broken up, just like we'd do for a business with too much power. Maybe?
This will certainly not happen now in the middle of an election season (which is also why President Biden has to date decided not to use the Taft-Hartley Act to force the workers to continue working while negotiations continue), and it probably will never happen. The Biden Administration has been the most aggressive anti-trust administration maybe since Teddy Roosevelt's. But this has not extended to union activities. When it comes to unions, he's only worked to strengthen their power, which at least is partially due to former President Trump's success in luring them away from the democratic party in 2016. Maybe someday we'll have another look at this, and we can add a third condition to the two that already exist for union exemption from anti-trust laws: too much market power.
Fortunately for us, despite the union and the company seemingly being still far away on terms (a 50% raise over the next 6 years, which was the companies' most recent offer, isn't exactly that close to a 77% raise, after all), this strike will probably get resolved fairly quickly, as the White House is likely to continue to put pressure on both parties behind the scenes so as to not force President Biden to invoke the Taft-Hartley Act while at the same time to not further disrupt the economy during an election season. It only took a day for the companies to up their offer from 40% to 50%, but we'll see how quickly it takes for the companies to move again when the union didn't budget an inch after they upped their initial offer. The precedent of White House pressure on the companies will be set though, will probably just encourage this kind of behavior the next time a contract expires. Worst of all this is that the ports are good enough businesses with such little competition that they will likely simply pass on these higher costs to their customers, who in turn will likely pass them along to us as consumers. So un-fortunately for us then, while the strike may end sooner than it seems, we're likely to bear the brunt for a lot of this raise.
To be sure, not all unions have this kind of power. Yellow Corporation (formerly YRC Worldwide) was a unionized less-than-truckload carrier whose union essentially drove it into liquidation last summer. Both the company and its 30,000 employees' jobs evaporated into thin air. Compare that with another transportation company, UPS, whose union recently went on strike and garnered significant raises from the management team. Each situation is therefore different, with each company in a different bargaining position and each union in a different bargaining position as well. While allowing the two parties (company and union) to negotiate freely should be the general principle our law provides for, in cases where the balance of power is clearly very lopsided, and when the union has enough market power to truly affect the US economy, we probably need to re-think how we look at those kinds of situations. And that begins with their exemptions from anti-trust law.
Comments