Asymmetrical Information - Megan McArdle

04.18.13

Obamacare May Put Some Unions Out of Business

The subsidies will undercut their biggest selling point

Yesterday I asked whether Big Labor was turning on Obamacare, after the Roofer's union called for its repeal.  This morning I got to talk to an expert who pointed out that the roofers are in a particularly unattractive position.  Roofing companies are mostly small shops, which makes them hard to organize.  And it just got much harder, because now open-shop roofing companies are essentially getting subsidized health insurance for their employees.

Under Obamacare, small firms don't have to provide insurance to their employees.  That probably describes most of the non-union roofing firms in the country.  Meanwhile, non-union roofers are going to be eligible for heavily subsidized insurance on the exchanges.  Union workers get the health insurance, but no subsidy.  This will mean one of two things:

1.  Union workers will get paid less than non-union workers, as wages are diverted to cover the union health plan.

2.  Union firms will have higher costs than non-union firms, as they cover the extra cost of an unsubsidized union health plan.  

Either way is bad news: it will be difficult to recruit new workers, and/or difficult to find work for the people in the union.  No wonder the union is freaking out.  

But while their situation may be particularly bad, it's hardly unique.  There are a lot of unions whose workers are increasingly in competition with small, open-shop firms.  And it seems that Obamacare may threaten their continued existence.  It's also probably the final nail in the coffin of the oft-expressed hope that folks like the SEIU will find a way to expand unionization in the service industry.  Benefits are one of the major ways that unions recruit and retain members.  And there's no way that they can compete for low-wage workers with the heavy subsidies the government is offering.  

It would be ironic indeed if many of the private sector unions who supported Obamacare (with the promise that these problems would later be fixed) had actually signed their own death warrant.  But it seems this may be what has happened.  There's no money in the budget for the government to extend subsidies to the union plans, or exempt them from the various coverage expansions and taxes.  And there's no money in the union coffers to compete with the government subsidies that have already been enacted.