The Biden administration and most media outlets last week accepted at face value railroad unions’ claims that U.S. railroad companies impose harsh working conditions on their union employees. That claim of onerous working conditions sounded apocryphal.
Under the national collective bargaining agreement still in force, rail employees receive three weeks or more, up to five weeks, of paid vacation. “All rail employees also receive a combination of holidays and personal leave days of up to 14 days per employee.”
By my math, that adds up to a lot of paid time off to take care of medical and personal issues. In addition, under the Railroad Unemployment Insurance Act, rail employees who are sick and unable to work receive up to 26 weeks of partial income replacement, about 60%.
After listening to the rhetoric of the rail unions and Democratic politicians, I was surprised to learn that “more than 50% of train crews work less than 40 hours a week on average.” Still, the bottom line for most workers is compensation, cash, and benefits.
At Union Pacific Railroad, as of 2020, the typical train dispatcher who was a member of a union received cash compensation of just over $100,000. Under the proposed labor agreement, typical pay will increase by 24% retroactive to 2020, plus an $11,000 signing bonus. Moreover, union employees receive comprehensive healthcare benefits, with an average out-of-pocket cost of about $2,800. Top line: Union railroad workers are well paid, receive substantial benefits, and have generous amounts of vacation and personal time off days. The railroad companies not only pay their employees well, but they also arguably manage the world’s most efficient freight rail system — “decades ahead” of Europe’s rail freight system.
America’s freight railroads own and operate their rail systems with little or no government assistance. The freight rail system is capital intensive, six times more capital intensive than the average U.S. manufacturer. Perhaps, most importantly, in real inflation-adjusted terms, average freight rates are 44% lower today than 40 years ago. That makes the U.S. freight rail system an important comparative advantage in the global marketplace.
By contrast, the U.S. port system, especially the West Coast ports, is an economic disgrace. In fact, U.S. ports are among the world’s most inefficient parts of the global transportation grid. There are many reasons why West Coast ports are so inefficient, but the most fundamental cause is union power.
The International Longshore and Warehouse Union possesses monopoly power. It controls almost 100% of all longshore labor on the West Coast. Under the labor contracts between the port authorities and the ILWU, West Coast ports, unlike ports in Asia, do not operate 24/7. At Los Angeles’s Port of Long Beach, terminal gates are only open for 88 hours a week. In Asia, they’re open for 168 hours each week. The ILWU uses its cartel power to extract monopoly wages. As the Cato Institute outlined, “Union dockworkers make an average of $171,000 a year plus free healthcare. Clerks average $194,000, and foremen, or ‘walking bosses,’ $282,000.”
The rail and ports unions are cartels. They extract above-market economic returns for which society pays. Monopoly unions reduce employment in markets where they have power. Labor, which is turned away from a union monopoly, flows to nonunion sectors, lowering wages in those sectors. It is all a matter of supply and demand.
Biden is wrong to celebrate union power.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
