Unions are bad today even in theory.
A little history will come first. In the United States, unions were vital in improving working conditions in the 19th century, but like many of the innovations from that time period, they have become somewhat outdated (more on this later). The working conditions in factories during the American Industrial Revolution were far from ideal and the wages earned by the people might be described as exploitive. When groups of workers banded together and protested their employers for higher wages and better conditions, unions were established to coordinate such activities. In uniting, they were able to leverage their employers to improve their working conditions. By doing so, they were offered better wages and more stable jobs. The factory managers now had to deal with higher labor costs and thus lowered profits.
The middle class was emerging from the somewhat narrowing disparity in earnings. By exercising there collective bargaining powers, workers were able to negotiate the terms at which they were willing to work. By uniting, they used the leverage of their supply of labor against the demands of their time. In turn, they received higher wages and a comparatively better working environment. The wages for non-union members increased due to marketplace forces. Overall the working conditions of the emerging middle class improved. That is about where unions stop being a moderately good concept.
While labor unions used to be a barometer for defining the middle class, they have lost significant market share to more competitive forms of employment. While the private sector only has 7.6% of the workforce unionized, the public sector has about a 36.8% unionized workforce. This disparity is worth noting, because the private sector is typically more reflexive to changing market forces and is often far more efficient. The private sector is driven by the bottom line profits whereas the public sector is often far more politically driven.
There was a case of a politician negotiating with a California public sector labor union in which the union official told the politician that if he didn't give in to the union's demands that they would elect someone else that would. Considering most elections are held on weekdays during which the majority of the population is working, the unions typically have a marked advantage in the negotiations using their voter base. Unionized workers are almost guaranteed to vote on a particular matter because they have a vested interest and the average non-unionized worker is less likely to because they wouldn't likely be affected by the measure at hand.
Another point worth mentioning is that public sector unions, such as teachers and police, are given more support because their jobs are considered righteous and completely necessary. These groups have a complete monopoly on their product and only have token amounts of competition. How many privatized police forces exist in the US and operate independently of the government run police force?
While private schools exist, they lack the overly abundant funding that public schools do and consequently can't pay teachers nearly as much. On average, despite these disadvantages, private schools perform better than public schools. In fact, in order to succeed a private school has to prove that the price of tuition is substantially better than the public school for which the parents will still have to pay. Like FedEx, they are competing against the US government.
What does this have to do with the unions themselves? Quite a bit actually. The National Educators Association is one of the largest and most powerful unions in the country. The police unions also carry a big stick (one so big that in some cases, speaking out against the police in any way can result in criminal investigations/allegations against you).
The public sector unions are supported primarily through tax dollars and the wages and pensions they demand are a burden to everyone. As the public sector outpaces the private sector in terms of pay, an untenable situation develops. The generous pensions are becoming a severe liability in many cases forcing state governments to go into ever increasing debt. California has been having problems paying its people for the past few years and the current economic downturn has exacerbated the problems.
As we are seeing in Wisconsin right now, when a politician tries to change or limit the scope of how much the unions can demand of the state, the workers strike. Much like years ago when factory owners had to meet the demands of the union at the expense of operating costs, the government is buckling under the crushing weight of their debt while the employees seem not to care.
There was a bread factory in Brooklyn that was struggling during the economic downturn of 2008 that was faced with striking workers demanding higher wages. The factory owner, rather than meet the demands, closed the factory and moved, taking all of the jobs (at whatever wage) with it. When faced with the prospect of diminishing or non-existent profits, the factory owners decided that neither was acceptable and took their jobs with them. In this respect, the employer still retains power and ultimately the control of the jobs.
In the case of the local government, the only leverage the government has is legislation. When the unions aim to stifle any legislation that would cut its pay, the government may have to shut down to get out from under the oppression of the workers.