Friday, August 7, 2015

The Interests of Labor Versus the Interests of Laborers

NOTE: I was working on a new essay when I realized none of my old works on unions had been reproduced here. Thus I am copying over these essays from my archive of "Random Notes".

I have recently been reading some works written by writers with a moderately left-leaning bias,specifically the mid-20th century pro-labor, moderately liberal position which was ubiquitous among intellectuals of a non-socialist bent at that time. In reading such writing, one thing struck me quite often, and that was the tendency to confuse what was in the interests of union labor, or even only in the interest of the union leadership, with what was in the interest of all workers. It was hardly the only mistake common to such viewpoints*, but it was the one which was most noticeable.

I suppose some may ask why I would bother writing about the inherent conflict between the interests of unions, or even union leadership, and the interests of workers in general. After all, I have covered the subject, in one way or another in "Pro-Labor Cannibalism, A Look At The Union Food Chain", "The Harm of Closed Shops and Collective Bargaining",  "Fairness and the Free Market", "In Praise of Contracts", "Planning For Imperfection", "Greed Versus Evil " and many more. And, even had I not, unions are definitely in decline. They may have been granted a new lease on life by the Obama administration, but even a strongly pro-Union administration cannot hide the fact that unions are still in decline. Which does make it seem rather pointless to cover unions and the problems of labor legislation. Or it would, were it not that such observations have applications far beyond simple unions, revealing flaws in many other laws, many of which remain popular among politicians, making it much more relevant than it first seems.

I suppose the very first thing we need to point out is something everyone knows, yet few ever point out. Union laws are a good deal for those in unions, or rather subset of those in unions, but they are not beneficial to labor in general, or the populace as a whole. Nor is the solution to this to unionize everyone, as some suggest, as universal unionization would have dreadful consequences, but we shall look at that in a moment. First, let us look at why union laws, such as mandatory collective bargaining and closed shops, hurt the public.

Well, the first problem, the one most recognize, is that union collective bargaining and closed shops raise wages, but by raising wages above market, they create chronic unemployment, or underemployment. Either they limit the number of workers to a number smaller than would be employed at the market wage, or else they keep the same number of workers working fewer hours**. In the few cases where unions attempt to resist reduction of workforce, or of working hours, the eventual consequence is the eventual failure of the industry in question, either driving it overseas or, if unionization is not universal in the nation, driving it to non-union shops.

However, there are a number of other consequences many do not recognize, and ones that are more severe, and effect more people. For example, as I mentioned in "Fear of Trade", "Jobs, Jobs, Jobs, and More Jobs", "Pro Hoc, Ergo Propter Hoc" and elsewhere, all workers are also consumers, and unionization tends to result in higher costs for goods produced by unions. Not only because the price of labor is elevated, making it more costly to produce the same amount as a non-union shop, but also because the reduced profits brought about by unionization tend to reduce reinvestment in either research or new capital equipment and plant, causing prices to slowly rise over time, or, though it is hard to see this, price to fail to fall when they otherwise would. As all workers are also consumers, this means that all workers suffer higher costs, while only some workers get the benefits of higher wages. And, even among those workers, the higher wages may not offset the higher costs, depending upon how widespread unionization is, and in which industries it exists.

Unionization also harms non-union workers in another way. Because union wages force a reduction in workers from the number the market would demand, there is created a chronic unemployment, a pool of unemployed labor, which tends to depress the wages offered in non-union jobs. In addition, because unions make entry into unionized jobs more difficult, and the pool of unemployed make it harder to find entry level positions outside of unions, unionization harms especially those who are seeking to enter the job market for the first time, as well as those who possess limited skills or experience. Ironically, this is most pronounced in those manual fields, skilled and unskilled, that unions are supposed to represent and protect. White collar labor, being less sensitive to this pool of unemployed, tends to suffer much less.

The preceding should help to answer a question we raised earlier, why universal unionization would not work. If we attempt to raise all wages, in real terms, the result will be nothing but widespread unemployment, coupled with a general reduction in production which would drive costs up tremendously, resulting in widespread poverty. It is simply not possible to raise all wages because of Say's Law. Though concealed by money, goods still trade against goods, and unions might raise wages, but not productivity. Thus a given worker still produces a fixed amount of goods, and if raising wages results in less employment, he will still produce the same amount of goods, but will be trading against a reduced pool of other products, as a result, he will end up actually receiving less, not more.

Of course, there is one way to raise all wages if we were to universally unionize, the way Keynes once proposed. By divorcing money from gold, or any other objective standard, we can increase the money supply many time over, allowing us to raise monetary wages, without increasing real wages. However, this will have negative effects unrelated to unionization ("Inflation and Uncertainty", "Bad Economics Part 7", "Bad Economics Part 8", "What Is Money? ", "What Is A Dollar?", "The Gold Question, Not "Why?" But "When?"", "Monetary Issues Made Simple Part I", "Monetary Issues Made Simple Part II" and "Stupid Quote of the Day (January 7, 2012)"), and likely will not even work. unions have long been aware of inflation, and have incorporated escalator clauses, cost of living adjustments, indexing and other means into their contracts to make sure real wages, not nominal wages, rise. So, as in the many past attempts to do just this, what we will get will be all the ills of inflation mixed with the ills of unionization, and nothing more.

It only remains to explain why these observations seem worthwhile to discuss, given the relatively weak position of contemporary unions. But that is rather easy to answer. Just as many confuse the needs of the labor movement with the needs of labor, it is easy to confuse the needs of lifelong welfare recipients with those all all of the poor, or the needs of specific vocal groups with the wants or needs of "workers" or "the middle class". Not only is such confusion easy to find, it also often has the same outcome as union laws do, resulting in a few small groups receiving some small benefit, while the majority sees none, or even suffers.

Welfare is a good example, as the convoluted rules, anti-work mentality and a host of other problems make it quite beneficial to a small group which knows how to "game" the system to receive the maximum benefit, while many who actually need help get little or none, and everyone, rich or poor, suffers the economic woes created by financing a permanent class of unemployed. And yet, these laws which benefit only a minority, and often harm the poor, are touted as being for the benefit of the very poor they often harm. ("In The Most Favorable Light", "With Good Intentions", "In The Most Favorable Light",  "We Have Won the "War on Poverty"", "How Democrats Keep the Poor Poor").

Which is why I bothered writing any of this. Neither union laws nor welfare exhaust the situations where this problem occurs. There are any number of circumstances where well meaning people support laws they think will benefit a group and instead end up harming many of those they wanted to help. ("When Help Hurts", "Tyranny Without Tyrants", "Anti-Business Businesses")


* An interesting error in The Collapse of the Third Republic concerns the author's constant mention of how French labor was largely excluded from the political system, and the tendency to blame that for low wages and a lack of "pro-labor laws", such as restrictions on working hours. The truth is, France was not backwards because of a lack of labor laws, or an excess of free market, but rather because of the long standing system of patronage, subsidies, monopolies and other government granted privileges to certain well connected families. As we see in the late 20th and early 21st century, strong labor laws in France hardly solved the nation's ills. What was needed was, not labor laws or strong unions, but an actual free market, which France has never experienced.

** Longshoremen are a good example of this, where work is spread out among workers in an attempt to keep everyone earning.



Doubtless some will say that welfare laws and union regulations were not intended to benefit the supposed recipients, but instead had alternate political motives, which they fulfilled. And that is likely true for some individuals. However, among the liberal rank and file, and even among many moderates, there are any number of people who have no such hidden motives, and really believe in these programs. And it is for the benefit of those people that I write these essays, hoping that one might, as I did back in my misdirected youth, recognize the flaws in their reasoning and take a second look at their political beliefs.

Originally published in Random Notes on  2012/05/16.

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