Free to Choose Chapter 8: Who Protects the Worker

If someone asked you what improved the life of workers over the past two centuries – shorter hours, higher pay, safer conditions – what would you say? Most people would answer “labor unions” or “the government.” The Friedmans say both answers are wrong. And they have numbers to back it up.

This is post 13 in my Free to Choose retelling series.

What Actually Raised Workers’ Living Standards

Here is a fact that surprises most people. As late as 1900, only 3 percent of American workers belonged to a union. Even at the time this book was written, fewer than one in four workers was a union member. If unions were the main reason workers’ lives got better, how do you explain the enormous improvements that happened before unions were relevant?

Government intervention was also minimal before the New Deal. The federal government provided a legal framework – courts, property rights, contract enforcement – but it did not regulate wages, hours, or working conditions in any serious way until the 1930s.

So what did it? The free market. Competition among employers for workers. Investment in new machines and new methods that made each worker more productive. When a worker can produce more in an hour, that worker’s labor becomes more valuable, and employers compete to hire them by offering higher wages. No union contract needed. No government mandate required. Just the basic logic of supply and demand, operating over decades, steadily raising the standard of living for ordinary people.

Unions Are Not the Same as “Labor”

The Friedmans point out something that bothers them about how we talk. News reports say “labor opposes this bill” or “labor supports that policy.” But they mean labor unions, not workers in general. More than three out of four workers are not union members. And even union officials do not always act in the interest of their own members – let alone in the interest of all workers.

This confusion between “unions” and “workers” leads people to overestimate what unions actually do. Union actions make headlines. A strike shuts down an airline and it is on every news channel. But the quiet, invisible process by which most wages are determined – employers competing for workers, workers competing for jobs – gets no coverage at all.

The Friedmans trace unions back much further than the industrial revolution. They go all the way to ancient Greece, to the Hippocratic Oath. After Hippocrates died, the medical practitioners on the island of Cos faced fierce competition. So they created a code of conduct – named after their dead teacher to give it authority. Buried in the oath’s noble language about helping the sick were some practical restrictions: share medical knowledge only with your own students, and leave surgery to surgeons. In modern terms, a closed shop and a market-sharing agreement. The pattern has not changed in 2,500 years.

Who Really Benefits from Strong Unions

Here is where the chapter gets uncomfortable. The image of unions is that they protect the poor and vulnerable. The reality, Friedman says, is almost the opposite.

The most successful unions have always represented workers who were already highly skilled and highly paid. Airline pilots in 1976 earned around $50,000 a year for a three-day workweek – and their union pushed that even higher. The oldest craft unions – carpenters, plumbers, plasterers – covered workers whose skills would command good wages with or without a union. The American Medical Association, which Friedman calls one of the most successful unions in the country, kept physician pay high for decades by restricting how many people could become doctors.

The economics are straightforward. When a union raises wages above what the market would set, employers hire fewer of those workers. The workers who keep their jobs do well. But the workers who cannot get those jobs are pushed into other occupations, increasing the supply of workers there and driving those wages down.

Friedman estimated that about 10 to 15 percent of workers managed through unions to raise their wages 10 to 15 percent above what they would otherwise earn. The cost was borne by the remaining 85 to 90 percent of workers, whose wages fell about 4 percent below what they would otherwise have been. Higher wages for the already well-paid. Lower wages for everyone else.

And it cannot come from profits. Corporate profits after taxes amounted to about 6 percent of national income. Even if unions took every penny of profit, it would barely move wages – and it would destroy the investment that makes future wage growth possible.

Minimum Wage Laws – Good Intentions, Bad Outcomes

Union leaders are the biggest supporters of minimum wage increases. That seems strange at first – no union member works for minimum wage. But it makes sense once you see the strategy. A higher minimum wage makes low-skill workers more expensive, which reduces competition for the higher-paid union jobs.

The Friedmans put it bluntly: the minimum wage law requires employers to discriminate against people with low skills. Nobody describes it that way, but that is what it does. Take a teenager whose labor is worth $2.00 an hour. That teenager might happily work for that wage to gain experience and skills. But if the law says the minimum is $2.90, no employer will hire someone whose work is only worth $2.00 – unless the employer is willing to add 90 cents of charity per hour.

The numbers tell the story. In the early 1950s, when the minimum wage was low enough to be almost irrelevant, teenage unemployment was about 10 percent – and the rates for white and Black teenagers were roughly equal. Then the minimum wage was raised sharply. Teenage unemployment climbed for both groups. But something else happened. A gap opened between white and Black teenage unemployment that had not existed before. By the late 1970s, white teenage unemployment ran 15 to 20 percent. For Black teenagers, it was 35 to 45 percent.

Friedman called the minimum wage “one of the most, if not the most, antiblack laws on the statute books.” The government first provides poor schools that leave many young people – disproportionately Black – without the skills to command good wages. Then it makes it illegal for them to offer to work for less as a way to get training and experience. All in the name of helping the poor.

Occupational Licensing – The Modern Guild System

If you cannot enforce a high wage rate directly, there is another approach: restrict how many people can enter an occupation. Require a license. And make sure the licensing board is controlled by people already in that occupation.

Medicine is the clearest example. The AMA influenced which schools were “approved,” how many students each could admit, and what training was required. During the 1930s, even as highly trained doctors fled Nazi Germany and Austria, the number of foreign-trained physicians admitted to practice in America did not increase at all.

But it goes far beyond medicine. The Friedmans list some of the occupations that states have tried to license: auctioneers, well-diggers, pet groomers, electrologists, sex therapists, data processors, TV repairers. Hawaii licenses tattoo artists. New Hampshire licenses lightning-rod salesmen.

The justification is always the same – protecting consumers. But look at who shows up to lobby for these licensing laws. It is never consumers. It is always representatives of the occupation being licensed. Plumbers lobbying for plumber licensing. Cosmetologists lobbying for cosmetologist licensing. They may know better than anyone what consumers need protection from. But it takes a generous imagination to believe their primary motivation is concern for the public rather than protection from competition.

One effect of restrictive licensing is the creation of entirely new professions. When the AMA made it too hard to become a doctor, osteopathy and chiropractic emerged. And what did those new professions do? Immediately sought their own licensing requirements to restrict competition. The pattern repeats endlessly.

Government as Employer – Protecting Its Own

The government does protect one class of workers extremely well: its own employees.

Montgomery County, Maryland – a short drive from Washington, D.C. – had the highest average family income of any county in the country. One in four employed people there worked for the federal government. They had job security, salaries linked to the cost of living, and generous pensions also linked to the cost of living – on top of Social Security. Many qualified for both, becoming what people called “double dippers.”

Civil service rules had ballooned to fill 21 volumes, five feet thick on a shelf. Of one million federal workers eligible for merit raises in a given year, only 600 did not receive them. Almost nobody was fired. Less than 1 percent lost their jobs. In one case, it took nineteen months to fire a typist at the EPA who was consistently late for work. The steps required filled a twenty-one-foot-long sheet of paper.

Public sector unions make this worse. When a private sector union pushes wages up, the employer – who is spending their own money – pushes back. But when a public sector union negotiates with government officials, those officials are spending taxpayer money. The looser the connection between the people paying and the people negotiating, the more generous the deals become. That is why municipal unions are strongest in the biggest cities and why public employee unions have grown while private sector unions have declined.

New York City was brought to near-bankruptcy largely by rapid increases in municipal employee wages and generous early-retirement pensions. In states with big cities, public employee unions became the most powerful special interest group in the legislature.

The Real Protector – Competition

So who actually protects the worker? Not unions, which help some workers at the expense of others. Not the government, which protects its own employees while pricing the least skilled out of the job market entirely.

The real protection comes from competition. When many employers want your skills, your own employer must pay you what you are worth – or lose you to someone who will. You do not need a union contract for this. You do not need a government regulation. You need a functioning labor market where employers compete for workers and workers compete for jobs.

This is not perfect. The world has friction, ignorance, and unfairness. But compare the real market to the real government – not idealized versions of either – and competition does a better job of raising wages for the most people.

Key Takeaway

When unions win higher wages by restricting who can work, those gains come at the expense of other workers who find fewer opportunities. When government pays its own employees generously, taxpayers foot the bill. But when wages rise through a free market – through companies competing for the best workers, through investment and innovation that make workers more productive – those gains come at nobody’s expense. The whole pie gets bigger. There is more for the worker, but also more for the employer, the investor, the consumer, and even the tax collector. That, the Friedmans argue, is the secret behind two centuries of rising living standards. Not union power. Not government mandates. Competition and freedom.

Book: Free to Choose by Milton and Rose Friedman | ISBN: 978-0-15-633460-0

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