Friday, 16 November 2012 11:20

No More Twinkies: Unions and the Death of Hostess

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Today is a dark day for U.S. manufacturing, as the storied corporation Hostess Brands, Inc. announced that it was closing shop and liquidating, selling off its brands, facilities, and equipment. It is a sad ending to a company that had been in operation since 1930 and had weathered the Great Depression and the Great Recession. The closing will eliminate a staggering 18,500 jobs.

Those jobs could have been saved had those workers — or more specifically their unions — agreed to wage concessions. But they didn't, wrongly believing that Hostess’ threats of closure were idle.

No one in his right mind would have found the warnings idle, considering that the company had already declared bankruptcy in January of this year — but the cocksure leaders of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) did, and continued to demand that workers strike at over two-dozen of the company’s 33 plants.

That was labor suicide — the straw that broke the camel’s back. There was no way that a company already $860 million in debt could weather the storm.

BCTGM’s killing of Hostess wasn’t limited to the strike. The union’s demands had plagued Hostess for years, forcing — through the legalized monopolization of labor supply — wages that the market wouldn’t bear. The striking line workers were paid healthy salaries, $16 to $18 per hour. In a low-profit, low-selling-price business such as baked goods (things that are basically commodities), those wages aren’t sustainable, especially considering that baking and distribution involve a lot of manpower.

According to the Bureau of Labor Statistics, the mean hourly wage for the designation of “bakeries and tortilla manufacturers” was $12.57 in 2011. Supposing that Hostess’ median wage was $17, they were paying 35 percent more than the national average. 

Hostess was looking for wage concessions of only eight percent. Even after the cuts, Hostess still would have been paying their workers handsomely, 24 percent more than the industry norm. Mind you, this one-year cut would have been followed by guaranteed wage increases of three percent in each of the three years that followed, capped off by one percent in the fourth year. So, the pain would have been only temporary and cancelled out in just three years.

But, BCTGM gambled and it didn’t pay off. Rather than keeping over 18,000 people gainfully employed in a bad economy, where the U6 employment rate is approaching 15 percent, they opted to put every one of them out on the streets, where their $680/week becomes $0/week until unemployment benefits kick in at $400/week, putting a drain on taxpayers who are already paying for unprecedented numbers of unemployed for unprecedented lengths of time. Once those benefits fade away, it’s very likely those workers will remain unemployed, as very few communities support a manufacturing base that can overcome the closure of bakeries as large as Hostess’. So, the union basically sent their workers to the bread lines — an ironic metaphor for food producers.

This fiasco speaks volumes of the ills of unions, which will cut off their nose to spite their face. It’s just one in a long line of union-led disasters of the past few years, which range from the General Motors collapse (GM couldn’t support overly generous wages and pension benefits) to the states themselves (which are leaning on taxpayers even more to fund their weakened pension plans for public-sector workers).

People just won’t learn. Union bosses don’t have an inkling of the basics of economics, and neither do their members, most of whom have been brainwashed by union propaganda and have developed an overt entitlement mindset. They force upon their employers wages and benefits that can’t be sustained in the long run. They fail to see that doing so makes their products unaffordable in an increasingly competitive global economy and thus destines their firm for destruction, which will ultimately harm their job, their retirement benefits, and the pensioners who retired before them.

That mob mentality also hides the simple fact that labor is an economic transaction based on the individual, not the collective. It’s a simple trade in which a worker should willingly enter into agreement with an employer and vice versa. Work is an employer's exchange of competitive monetary and benefit compensation for the use of the worker's physical and mental services. As with any free-market economic activity, either party can prevent ongoing transactions, whether such termination is based on dissatisfaction with what the exchange garners or on the influence of supply and demand in the micro- and macro-markets.

Basically, the act of employment is really no different from making a purchase at the local grocery store: You don’t need a consumer cooperative to buy Twinkies, and you don’t need a labor cooperative to make Twinkies.

It’s a lack of focus on that simple premise that made that iconic product and its producer extinct, as well as the jobs of those who made them.

The unions were looking for a victory, despite the odds stacked against them. They didn’t get one. They lost miserably. Sadly, so did Hostess. The economy, the taxpayers, and, above all, the workers, are worse off for that ridiculous gamesmanship by BCTGM.

When will it ever end? It makes one wonder which of America’s great companies might be the next to die.      

6 comments

  • Comment Link REMant Monday, 19 November 2012 16:04 posted by REMant

    There are a lot of Twinkie clones unfortunately, something the Hostess bakers should have thought about. Their Nature's Pride bread line tho was better than Pepperidge Farm or Arnold's. I don't think unions really to blame, however, for America's manufacturing woes, which I attribute to the monetary policies that increase wealth disparity by inflating asset prices, to which manufacturers responded by making more expensive items with greater margins - for instance Cadillacs instead of Chevies. Workers do need to be able to afford what they make in the last analysis, as Smith pointed out many years ago. Besides the healthcare mandate, the problem with the USPS was that the Congress allowed firms like UPS and FedEx to skim the more profitable parts of their business, while forcing them to deliver junk mail below cost, and, of course, the advent of electronic mail.

  • Comment Link Gordon Freeman Sunday, 18 November 2012 10:12 posted by Gordon Freeman

    At the last wage negotiation meeting I went against the union and said directly that I was against all wage increases because there were no justification for them.

    What the stupid ignorant fools dont understand is that if the department becomes cost ineffecient then the company will either outsouce it to another part of the country or worse they will outsource it too Sweden. I will rather have my job which I love and lower wages than go on wellfare.

    I hate union as I hate all collective organization that bases themselves on intimidation and corruption. As Calvin Coolidge said "Duty is personal, not collective".

  • Comment Link Joseph Smith Saturday, 17 November 2012 12:47 posted by Joseph Smith

    Here's a nice story. I used to work for now defunked PanAm airlines. One day our union rep asked us to walk out on a specific day and conduct a strike. A fellow employee asked the rep if he can guarantee our jobs if we go on strike. PanAm had filed bankruptcy sometime earlier and was bleeding money by the minute. The reponse from the union rep was telling, "WE DON'T GUARANTEE ANYTHING." Then the employee who asked the question said, "Then why are you asking us to walk out?!?" The day we were supposed to walk out came and went without anyone standing up and doing what the union told them to do. The union at the time were the Teamsters. When a company is going out of business their is nothing anyone can do to stop it. Unions just aggravate the problem. There is always talk about company CEO's who make big money. I say by the same token one should look at the salaries of these CEO's of these unions. From last I read Trumka, leader of the Teamsters, makes a nice fat 6 figure income every year. Let's be fair. Let's ask the union presidents and Administrators to suffer just like their union brothers and take a slice in pay. If it is fair to put such a burden on the company and employees it is also fair to put such burdens on these unions.

  • Comment Link Brian B Friday, 16 November 2012 18:36 posted by Brian B

    Just to clarify the USPS issue. In the 2006 Postal Reform Act, the USPS was required by Congress to pay for future retiree's health benefits 50 years into the future. It is the Congressional mandate that is causing the USPS to falter. If it wasn't for that mandate, the USPS would not be losing money by the billions every quarter. The union wants to end that mandate.

  • Comment Link Helge Skjeveland Friday, 16 November 2012 15:24 posted by Helge Skjeveland

    Maybe the workers'll get even MORE pay on unemployment, ’til it runs out. Maybe the pay wasn’t that good, but look at the US Postal Service! the Postal union's lobbying made it so that the USPS had to pay for pensions up front, and now it's insolvent and going to Congress, hat in hand, asking to be bailed out by the very same corrupt institution that put them where they are, thanks to thuggish unions. Yes, some companies exploit workers, but so do some unions. Workers are in the middle in that case. There are fair unions and employers, but what we see in the case of the Hostess and USPS workers are symptomatic of the worst of unionism.

  • Comment Link Chris Friday, 16 November 2012 13:01 posted by Chris

    It is unfortunate that a lot of people are losing their jobs, but to blame this entirely on the unions is absurd and irresponsible. In a situation where labor workers are increasingly at the mercy of their employers, unions are more important than ever.

    And why are we attacking workers that were only making in the mid 30K per year range? I'm sorry, but anybody who actually has to live on those wages knows that you can't afford to take a paycut and actually pay your bills and provide for your family the way they should be provided for. When did we decide that workers in this country shouldn't be able to make a living wage.

    Why doesn't anybody ever ask why executives, who are doubtlessly making many times more money than their workers, and probably have enough money in savings to live comfortably for months or years, should take a pay cut for the good of the company? I'm sure that didn't happen, but they knew it was an option, and they let the company sink just the same. Probably because they knew they would be taken care of no matter what.

    Whomever has to take the paycut, it's ultimately just a form of socialism. Either the workers have to pay for the survival of the company, or the executives do.

    If the survival of "great" American companies means that laborers who live check to check have to take paycuts while the executives continue making fantastic salaries, then we need to reevaluate our values in this country.

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