Construction Unions vs. Landowners: Should I Care?

A couple of folks have sent me this story out of Philadelphia about a labor dispute at a rare nonunion high-rise project. Conservative readers tend to be outraged by the tactics the unions are employing to try to make the use of nonunion labor a failure, but my conscience is not really shocked here. The interesting points here are about the economics.

For one, while a lot of progressive writers have developed a very idealized view of labor unions’ role in the economy, in practice an awful lot of what’s going on is rather banal insider-outsider games. The organized workers want a set of nonunionized workers to lose their jobs in order to be replaced by union workers. That is certainly an outcome they’re entitled to hope for. But as Doug Henwood has been writing lately, this kind of narrow focus on the interests of the unionized minority is hardly the same thing as broad, egalitarian politics.

But an interesting question is how this plays into the general “rent is too damn high” phenomenon. My instinct is to say that precisely because of policy problems in other arenas it doesn’t matter very much. If you had a landscale that was wide open to real-estate development and you had powerful unions extracting high wages, that would push up the cost of real estate. But if regulatory curbs on construction create a scarcity of buildings, then this creates some economic rents for someone to enjoy. The natural tendency is for the rents to go to incumbent landowners, but a strong labor union can then claw back some of that rent and direct it to the union members. I’m not sufficiently familiar with Philadelphia real estate to say if that’s the case there for sure or not, but it’s definitely the case with commercial projects here in DC. Union wages make the projects more expensive than they otherwise would be to undertake, but since the total amount of downtown real estate is subject to a quantitative limit imposed by Congress and the Zoning Commission, this doesn’t have a major impact on the outcome.

This sort of scenario is generally one of the best cases for American-style private-sector unions. Airline regulation created regulatory rents for the airlines, and strong labor unions ensured that some of the rents were shared with the workers. Weak competition in the wireless broadband and cable television industries creates rents for big incumbent cable and telecom firms, and where the Communications Workers of America have a strong presence those rents are shared with the workers. What you saw with the airlines is that when a change in public policy makes the rents go away, the unions can’t prevent their members from taking it on the chin. If there’s no surplus to expropriate, wishing doesn’t make it so.