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10/01/2007

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Jake

Judge Posner states:

"The purpose of unions is simple: it is to increase unionized workers' incomes above the competitive level, where "income" includes not only wages and fringe benefits but also safety and other aspects of working conditions."

One might equally observe that the purpose of large, hierarchical industrial organizations is much the same, though with an opposite aim, namely, to persuade workers that they should accept incomes below the competitive level.

Jack

"The purpose of unions is simple: it is to increase unionized workers' incomes above the competitive level, where "income" includes not only wages and fringe benefits but also safety and other aspects of working conditions."

I'm surprised (sort of) at Posner writing such an overly simplistic and misleading summary of the "purpose" of unions. There is a well-known inherent flaw in capitalism in that "many disorganized sellers will be at disadvantage to, few, organized buyers" resulting in the price being driven below the costs of production. This is the case with generic commodities and low or semi-skilled labor and is the flaw that caused a LOT of problems at the turn of the century that gave rise to both farm price support programs and the labor movement.

One can pretty well spot the price taker class who is not at the bargaining table in the language we use, as "What are THEY paying......" vs "We sat down and worked out an employment contract".

Posner at least mentions safety and work condition rules and perhaps working people of today should be reminded of workmen "standing by" all day for a couple of hours of work before agreements were made of a min number of hours for an employee who was called in to work. Just recently Walmart proposed to return to those conditions of yesteryear by sending people home "during the slow hours". Great! for low pay the employee comes in "get's" a few hours, and then has a two or three hour "break" in which to drive back home or "stand by".

Posner mentions "above THE competitive level". But does not discuss how that "level" is set.

There is another inherent flaw in capitalism; that is that the machine won't run "properly" at full employment. The reason? when demand is "too" high for working people the rascals will use that demand for their services to bid up their wages. Thus, we have The Fed sitting there adjusting the valves so that unemployment is never zero, and there is always competition for even the lowest paid jobs. The resulting "competitive level" then is hardly set by the gods or even "the invisible hand" of Adam Smith.

Posner and Becker both seem a little too joyful in reporting on the weakness of today's union and labor movement. Also, not long ago they gave our deeply eroded min wage a drubbing, and again, left out that it too was implemented as a counter to the effect of wages being bid down to zero and, again? tanking the whole system.

Lastly, they touch on there being far fewer UAW members today. Well, there are benefits to industry for paying high wages; they have a higher incentive to find labor saving substitutes and "Detroit" now has more robots assembling cars than they have people which is a good thing and better for us all than having millions of very low paid workers being less productive.

Well, Prof Posner and Becker, after all the concern over min wage and union workers who might be paid over "the competitive" rates, perhaps a topic for next week might be that of the economic underpinnings that "explain" why CEO pay has soared 2000 percent to 500 times worker pay (up from 80 times in 1980) while those below median wage have seen virtually no increases and the min wage has lost 40% of its purchasing power? And whether Hail-Fellow Well Met old boyism plays the strong role that I suspect it does.

Paco

Jake's comment is well taken. But I would argue that the relation btw. "labor" and "management" should be modelled as a Prisoner's Dilemma -- that is, both sides want to reach some agreement on how to divide a pie -- ideally, they should reach some cooperative solution but in reality they will be tempted to defect, with each side attempting to apportion a larger size of the pie for themselves.

I myself sympathize with the plight of workers, but it is important to realize the importance of incentives -- if one side attempts to take too large a slice of the pie, there may be no pie left at the end of day -- this seems to be what has happened to unions in the private sector and to explain their gradual decline

David Drake

Jack said: "There is another inherent flaw in capitalism; that is that the machine won't run "properly" at full employment. The reason? when demand is "too" high for working people the rascals will use that demand for their services to bid up their wages."

There are explanations other than the alleged evils of "capitalism" or the "anti-worker" stance of the Fed:

There will never be "full employment" because people continually quit and are fired and because there is and will be a mismatch between the needs of employers and the skills and ambitions (both aspirationally and monetarily) of people looking for work. E.g., the need to "import" workers--often illicitly--into the U.S. to do jobs that those of us in the U.S. simply will not do, such as agricultural labor and domestic work.

To achieve "full employment," the government would have to require people to work for employers for whom they do not want to work or who pay poorly, and employers to hire and retain workers they do not want or need, or cannnot afford.

GeorgeNYC

What about the effects that unions can have on the informational deficiencies in bargaining between corporations and individual workers? If I desire to put my capital to work, the government has provided me with a well regulate marketplace that allows e to make an informed decision as to the proper use of my capital and the risks and potential rewards associated with that use. Recognizing that there are huge problems with the way disclosure is handled in the capital markets (and the possibility of fraud). Nevertheless, the avowed "goal" is that every trade should be public so that an appropriate market price can be determined.

However, if I want a job, I am faced with the need to negotiate with a huge and powerful corporation. yes, there are informal ways to find out salaried, but there are absolutely no formal ways. I would doubt that anyone would describe it as a "goal" of our system that there should be full disclosure as to the true value of my labors.

Your "monopoly" talk about unions is completely outdated. It seems clear to me that they are no more a "monopoly" than the sole industrial company in a small town is a "monopoly." They mean to create certain inelasticities in demand but using the term "monopoly" is actually a way to "demonize" unions.

One could simply see them as attempting to regain the informational edge away from the monopsonostic capital owners.

Bruce G Charlton

Here in the UK the proportion of public sector employees has significantly expanded over the past decade, and their wages have risen faster than the private sector.

UK unions (which mainly function in the public sector) therefore remain powerful - especially at blocking market-orientated reforms of the public sector or attempts to remove restrictive practices (for example in education, health care, or the postal service).

John

In the "union era" of yesteryear, it was popular to view labor and management as being on opposite sides competing for shares of a pie. This view treats corporate productivity as a constant and then permits workers to waste company resources trying to grab a larger share of those profits.

With the exception of Detroit (until now it seems) and the Airlines, modern industry appears to have escaped this conflicted relationship to their betterment. Kudos to the CEOs who figured out how to lead companies in that direction - enjoy your well earned salaries.

Scott Monroe

I agree with most of Mr. Posner's and Becker's arguments, but assert that they're down-playing the risks of unionization. While unions have driven whole U.S. industries off the economic cliff, unionization in the public sector causes huge and long-lasting inefficiencies. While unions can ultimately drive companies bankrupt, the most likely effect of unionization in the public sector is to drive up taxes and to drive down the quality of services.

One particularly harmful union I wish they had addressed is the teacher's union. They have single-handedly blocked the most important kinds of reform that the nation needs in education, all to the benefit of inefficient public education institutions and their public employees. The price to be paid for their meddling is sky-high costs of education with poor results, which will ultimately drive American competitiveness into the ground. Talk of vouchers, privitization, school choice and pay-for-performance are all tabboo in this union-dominated profession.

Mike

One reason for the decline in unions that I haven't seen addressed is that the NEED for unions has declined. Companies will try to match union wages/benefits in the same or similar industry to prevent their employees from voting for a union. Thus the THREAT of a union is actually more important than the union itself. Employees can obtain the benefit without being forced to pay dues. Unions were formed so as to collectively bargain with the employer, on behalf of all the employees; the good of the many over the good of the few. This has degenerated into protecting the individual worker at all costs, even when that might not be in the best interest of the many. I worked in labor relations with major corporations for over 30 years (including over a decade with a Big Three automaker), but I'm not anti-union. I believe that unions have lost their way; they've forgotten their purpose, and the result is that they simply don't appeal to workers like they used to. They're seen as irrelevant and an impediment by most younger people.

para_dimz

Mr. Posner wrote: "Not only are union cartels inefficient, but they penalize the least productive workers, workers not worth the union wage to employers."
Me thought it were the other way around. Then upon further consideration it becomes apparant that an assumption has had to be made and that is that the wage always favors the top end of the labor pool and not the bottom or some spot in the middle.
A comment on labors' disenchantment with free trade is in order. I wager we both want the exact same things, being changes in the tax and regulation enviornments. Indeed the point of view is different but the wants of the union and their free trade "opposites" are the same. Unions call it a level playing field. Free traders call it free trade. Same difference.

Aaron

Those poor poor workers who when faced with an organized buyer just can't figure out what wage to ask for...except that the labor market is very good at doing exactly that.

I see help wanted signs at sandwich shops which tell 8.25 / hour. I can look in the classified section. I can ask the factory "how much do you pay?" before I take the job.

And if truly workers were so dumb, why are most of them making more than the minimum wage? Those corporations must be idiots, too, not to just offer the minimum wage to workers who could never figure out they could make more.

GeorgeNYC

Yes. Small businesses generally post the wage but I am talking about large corporations that have more pricing power. Ask yourself if they have signs outside the GM plants? Your anecdotal evidence does not really hold up when we are talking about market issues. It is a lot easier for me to sell my stock and move my capital than to change jobs.

Shane

Union membership has declined because the unions are seen as being for the union rather than for the worker. The union which represents me called a strike in 2001. The strike lasted for 40 days. That was 40 days in which the union members and many of their sympathetic coworkers did not go into work and for which they received no pay. Which gave the union a huge amount of clout with which to wring large concessions from management. And what do you suppose was the huge concession? Wages for the workers? Increased health benefits? Better retirement? The union negotiators went for the right to take union dues from all employees eligible for union membership. Which is to say the union went for more money for the union. The union members and the employees got nothing, but after 40 days they couldn't really hold out much longer.

Don

George, selling your stock is quick and easy, moving your capital much less so. The capital is the auto plant, not the stock certificate.

Jacques NP


I think you meant to say "UAW," as the United Mine Workers aren't the issue here.

Kurmudge

1) Jack is obviously a union organizer;
2) Uh, GeorgeNYC, you notice that even if GM doesn't post wage signs outside the plant, they still get far more job applicants than they can use- it's called the "labor market". Just like the 400 people who were eager to apply at that terrible and repressive Wal-Mart the instant the doors were opened in Chicago.

My labor relations prof told us that we needed to learn and understand two things about unions, and armed with that knowledge, we would be ready for the economic world: a) a union is a political organization run by a politician; and b) a union is a business, and thus has the same goals as any other business- revenue growth, perks for management, power, etc.

Doug G

The unions decline began in 1865 in Appommattox - their last great victory.

Jack

David and all:

Jack said: "There is another inherent flaw in capitalism; that is that the machine won't run "properly" at full employment. The reason? when demand is "too" high for working people the rascals will use that demand for their services to bid up their wages."

There are explanations other than the alleged evils of "capitalism" or the "anti-worker" stance of the Fed:

Answer: My comment is a straight out plagiarism from most economic texts and I don't ascribe "evil" intent. It's simply that capitalism is an engine and a powerful one that provides many benefits, but like diesel or gas engines and electric motors it requires external controls that increase efficiency or prevent them from overheating or running out of control. It's not evil, it just is the case.

David sez
There will never be "full employment" because people continually quit and are fired and because there is and will be a mismatch between the needs of employers and the skills and ambitions (both aspirationally and monetarily) of people looking for work. E.g., the need to "import" workers--often illicitly--into the U.S. to do jobs that those of us in the U.S. simply will not do, such as agricultural labor and domestic work.

Answer: You bring up some good points, however, the term "full employment" includes an allowance for those in transition. Interestingly during the 90's boom the US operated at lower rates of unemployment, without generating inflation, than earlier economists (and Fed members) thought possible. There are many possible reasons, some of which you mention: ie we were not really at full employment because a variety of means allowed access to the nearly infinite supply of unemployed or underemployed of the world. In fact one of the other "anti-worker" valves in DC is that of the number of H1B visas to allow when companies lament that they can not find enough techies...... at a given salary and we have NO idea how much product is delivered by glass fiber or wireless.

The overall result has been flat wages for those of median income and below which may make the $30 of the UAW and other auto builders seem high by contrast. But is it high? Let's take a look:

Since 1960 the dollar has wasted away to being about a tenth of the value it was then. For example the 1960 Chev one could buy for under $3,000 is now just under $30,000. Likewise a UAW employee of the era would have earned about $120/week instead of today's $1,200. So nothing has changed, right?

But what about the productivity gains? US industry has probably averaged 3% productivity gains in those years and in the auto biz the gains are likely much higher; thus the many fewer workmen building many more cars and trucks as mentioned.

If productivity gains averaged even 5% in the highly mechanized auto field that would be a doubling of output with the same number of employees in 15 years. From 1985 to 2000 there would have been another doubling.

Thus, cars are assembled today using only a quarter of the man-hours that were used in 1960. I've seen today's figure of 30 man-hours to assemble a car and suspect that it IS less than a fourth of the man-hours of 1960 for a labor cost per car of $1200. Arguably, the company should be able to pay $4800 for assembly labor and still have the same labor/selling price ratio they had in 1960, though some of that sum would have to go to the investment in robots, computers and other tech that enhanced the worker's productivity.

Well the numbers are rough, but I'd bet not too far off (except for the health care mess) but the point is that labor costs are hardly "Detroit's" number one problem and the question is, not only for the auto industry but for the US as a whole.......... who got the productivity gains? Jack

Jack

Kurmudge, good handle!

1) Jack is obviously a union organizer;

......... Well, No. The role played by collective bargaining is covered in most economics texts and it puzzles me that Becker-Posner didn't mention it. Sometimes it seems "we" experience institutional forgetfulness or "those who know not our history are consigned to repeat it". We are today at similar ratios of haves to have nots as was the case before the Great Depression and when union membership and the New Deal put Humpty Dumpty back together again. Today, we seem, again, to have forgotten that supply w/o demand (and a buck to satisfy it) does not make a strong economy.

2) Uh, GeorgeNYC, you notice that even if GM doesn't post wage signs outside the plant, they still get far more job applicants than they can use- it's called the "labor market". Just like the 400 people who were eager to apply at that terrible and repressive Wal-Mart the instant the doors were opened in Chicago.

........ Bingo!! Our system is a lifeboat for 100 sailors but only if 5 take turns being in the water. Yes, it does always seem there are more job seekers than jobs....... while the Fed Chairman pontificates about "fighting inflation" and not "overheating the economy". Somehow, it appears that wage pressures at the bottom triggers great concern while those at the top are, somehow, not inflationary.


My labor relations prof told us that we needed to learn and understand two things about unions, and armed with that knowledge, we would be ready for the economic world: a) a union is a political organization run by a politician; and b) a union is a business, and thus has the same goals as any other business- revenue growth, perks for management, power, etc.

......... hmmmm, you didn't mention "perks" for non-management, yet the term "company" connotes a group who come together to combine labor, capital and expertise for the mutual benefit of all. But perhaps you expect that to be handled by the union. After all for them to grow revenues they do have to offer and attractively priced product.

Arnold

I am surprised that less mention was made of globalization as the culprit that has fed into the demise of unions. Just as GM has loosened its reliance on Delphi and turned it's parts procurement into a global process, so have most financially responsible corporations increasingly searched abroad for the most cost-effective solutions to their problems. Where an industry trends towards commoditization, that industry will be sourced to the lowest cost supplier. Thus, while we are bemoaning the trade imbalance with China and with Asia in general, we are also moving our manufacturing and our skilled services to both China and India. This is an inherent part of globalization, capitalism and free trade. However, as jobs and industries migrate overseas, the leverage of unions rapidly turns into last ditch efforts to maintain industrial presence where it is increasingly less non-competitive.

DanC

When the big three or the airlines or trucking had some monopoly power unions were able to extract some of those monopoly profits for their members. As the markets became more competitive the host companies could no longer support these monopoly wages.

In some cases unions can spur greater productivity. Wages are a function of the marginal productivity of labor and the cost of capital. If a union forces wages up, then the employer must increase the productivity of the workers or substitute capital.

If you must pay higher wages for farm workers, the employer will take steps to increase the productivity of the workers and find substitutes for labor. Of course the low productivity farm workers will be out of work.

Jack

Dan, I'm not sure that those industries had more monopoly powers at some other time, or that as a number of posters have suggested, the "monopoly power" is one of the perquisites for unionization. Coal miners? Retail clerks? Laborers? Carpenters? Cabaret and Hotel?

But in your second and third paragraphs you make the points that seem all but ignored today as the "wage race to the bottom" and devil-take-the-hindmost becomes almost our new religion. I'd agree that higher wages and unionization have spurred labor saving technology to the benefit of us all. Also, in those days when "a rising tide" did seem to lift all the boats, union negotiations brought some of the benefits of the increased productivity to the working folk. Today, it's perhaps a mixed bag, but the Walmart, for one is a clear example of a leap in productivity with virtually none shared by its labor force.

Interestly (and ha! counter to our theory.) farming has not had unions nor has it offered many high paying jobs, but has enjoyed one of the highest rates of increased productivity over the last century of other sectors. As you mention the "reward" for hard working farm hands is that of being laid off.

What do posters here think? Should working folk derive some direct benefit of increases in productivity? Or should those all accrue to upper management, owners and perhaps stockholders? A part of the UAW flap today relates to deals made years ago when unions agreed to increased use of robotics, but insisted on some cushioning of the layoffs from the downsizing.

A while back one of the airlines "downsized" and the arguably failed, CEO's golden chute more than set him up for life including membership in a very toney country club, while ticket agents who'd been with the company much longer than the CEO were dumped with two weeks of "severance pay". Does this seem the mark of a decent civilization? Jack

DanC

WalMart passes on the cost savings to customers.

We live in a society were the returns to skilled workers is very high.

Unions are a cartel that raise prices and reduce output from competitive levels. Society gets a lower standard of living as we pay more for less output.

Robotics have not worked well at GM. GM tried to replace people with robots because high wage union contracts blocked sensible more cost effective solutions.

Working people do gain from high productivity, the increased purchasing power of their paycheck and a higher standard of living.

Corey

"Working people do gain from high productivity, the increased purchasing power of their paycheck and a higher standard of living."

Quit lying. Productivity is up, but purchasing power and standard of living are DOWN. They have been going down since the 80s for "working people." Your personal experience of imperialist expansion is not universal.

"GM tried to replace people with robots because high wage union contracts blocked sensible more cost effective solutions."

Yeah, like child labor or firing all old people.

"WalMart passes on the cost savings to customers."

And the lead paint too. But guess what, the customers are (or used to be) also SUPPLIERS to companies like WalMart. The cost savings come from offshoring labor, monopsony supplier contracts, and the lower regulatory costs of operating in overseas "free trade" zones. So instead of running my own toy shop I get to be a wage slave while some 7 year old child in Bangladesh paints toys with lead paint for 5 cents an hour. Then WalMart puts a yellow smiling rollback face on it and I feel empowered by buying it for a dollar less than I could have made and sold it for if I still had my shop. Yay, how efficient. Well met you kings of technocracy.

Again, purchasing power and standard living are DOWN for nearly everyone. Lets be clear.

Richard

Workers would be more conservative in their strike actions if sonority did not exist. As it stands now a worker with many years with a company can be obstinate with a strike vote because he knows chances are even the company lays-off many workers, he won't be among them.

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