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12/28/2008

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wd40

As an economist, I have a hard time explaining "featherbedding." Unions would not want to undertake wasteful featherbedding if the benefit to their members were less than the increased wages that they could negotiate in their absence. Perhaps one could devise a coherent model where the majority of union workers (or their leaders) prefer stupid work rules to higher wages and corporations prefer the stupid work rules to higher wages as well. If so, I would like to see it.

HH

wd40
my parents, both very junior union members far more productive than their seniors, were victimized by union work rules. Senior union members, who are often less productive, prefer work rules, as they limit who can do what and who gets fired first. Essentially, increased work rules mean higher job security for some, and those are the ones who are most likely to lose their jobs. These people would prefer lower wages + job security, rather than higher wages until they're inevitably let go for younger, more productive workers.

HH

wd40
my parents, both very junior union members far more productive than their seniors, were victimized by union work rules. Senior union members, who are often less productive, prefer work rules, as they limit who can do what and who gets fired first. Essentially, increased work rules mean higher job security for some, and those are the ones who are most likely to lose their jobs. These people would prefer lower wages + job security, rather than higher wages until they're inevitably let go for younger, more productive workers.

MentInestePak

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wd40

An optimal contract would not have built-in inefficiencies. Instead of the scenario outlined by HH, older workers could be given a higher base salary and thereby get higher pay even if they are less productive than newer workers. So even if older workers run the union, it is not clear why they would impose inefficient work rules on everyone. In the end it is not an adequate answer to say that some set of people benefit from featherbedding. One must also show that this same set of people would not gain at least as much from an efficiently designed contract [possibly including side payments to those gaining rents from their position of power).

Michael Webster

Richard, this is really a high class rant against collective action.

High class because of the apparent reliance on economic concepts, such as competitive wages, cartels, and agency problems.

But in the end it is a rant because of the reliance on a dubious source for your thesis of featherbedding, and no serious analysis of the beneficial tradeoffs necessary to achieve a sophisticated industrial dispute resolution device, one that no longer relies upon the courts.

The better view to take would have been to compare the union's dispute resolution services with the auto dealers mediation dispute services, as I am sure than a serious examination of the two would have showed exactly what was wrong with the UAW as industrial dispute settler.

Michael Webster

Richard, this is really a high class rant against collective action.

High class because of the apparent reliance on economic concepts, such as competitive wages, cartels, and agency problems.

But in the end it is a rant because of the reliance on a dubious source for your thesis of featherbedding, and no serious analysis of the beneficial tradeoffs necessary to achieve a sophisticated industrial dispute resolution device, one that no longer relies upon the courts.

The better view to take would have been to compare the union's dispute resolution services with the auto dealers mediation dispute services, as I am sure than a serious examination of the two would have showed exactly what was wrong with the UAW as industrial dispute settler.

Jack

Perhaps Posner is better in the courtroom than trying to run some one else's business.

After admitting that UAW workers share of the cost of a car is but 10% he goes on to make a big issue of what may be a 20% difference in pay between the union shops and those of the lower wage southern states most of whom paid heavily in tax breaks and other benefits to attract auto mfgs to their regions. Ah! so assuming that there are no advantages of union labor the "Big Three" may be suffering a $400 disadvantage in labor costs by comparison to the "transplants?"

I just "luvved" this pap too:

As is common in unionized firms, the United Auto Workers has successfully negotiated not only for wages and benefits for the workers they represent but also for rules governing what tasks the workers can and cannot perform, how many workers must be assigned to a particular task,

........... Indeed they have and one of the returns the company reaps is that of an excellent safety record and far fewer injury or wrongful death lawsuits.


the order in which workers are to be laid off (usually it is in reverse order of seniority, because older workers tend to be stronger supporters of unionization than younger ones because the latter have better alternative employment prospects and so don't worry as much about job security) in the event of a reduction in demand for the firm's products, methods of discipline, and so forth.

............ Ha! and does the aging judge think seniority ought to be ignored such that a sharp 40 year old attorney might bump him off the bench? And the "younger have better alternative employment??" How so? or does he mean they're young, naive and more willing to take whatever they can get? After all our great logician has just established that UAW wages are well above what could be garnered were there not union protection.

Jackk

Perhaps Posner is better in the courtroom than trying to run some one else's business.

After admitting that UAW workers share of the cost of a car is but 10% he goes on to make a big issue of what may be a 20% difference in pay between the union shops and those of the lower wage southern states most of whom paid heavily in tax breaks and other benefits to attract auto mfgs to their regions. Ah! so assuming that there are no advantages of union labor the "Big Three" may be suffering a $400 disadvantage in labor costs by comparison to the "transplants?"

I just "luvved" this pap too:

As is common in unionized firms, the United Auto Workers has successfully negotiated not only for wages and benefits for the workers they represent but also for rules governing what tasks the workers can and cannot perform, how many workers must be assigned to a particular task,

........... Indeed they have and one of the returns the company reaps is that of an excellent safety record and far fewer injury or wrongful death lawsuits.


the order in which workers are to be laid off (usually it is in reverse order of seniority, because older workers tend to be stronger supporters of unionization than younger ones because the latter have better alternative employment prospects and so don't worry as much about job security) in the event of a reduction in demand for the firm's products, methods of discipline, and so forth.

............ Ha! and does the aging judge think seniority ought to be ignored such that a sharp 40 year old attorney might bump him off the bench? And the "younger have better alternative employment??" How so? or does he mean they're young, naive and more willing to take whatever they can get? After all our great logician has just established that UAW wages are well above what could be garnered were there not union protection.

Jack

WD40 as you must know "featherbedding" and "stupid work rules" may be in the eyes of the sidewalk superintendent and in the case of assembly line work it might not be the case at all that older workers are less productive, but in any case, all too soon younger workers become older workers and what would you do? Throw them away?

Also once you zoom in close, you'll find that union work rules are based upon reason or as you intuit, they'd not have been fought for and won; indeed union guys are in favor of taking home the cash instead of impeding work flow.

"Featherbedding?" perhaps, after all as pointed out there are 30% fewer UAW guys than at an earlier time with more layoffs coming; truth is the industry is "suffering" from making too many productivity gains and vehicles that last many more miles in such a short time that natural attrition isn't fast enough for the necessary downsizing. This may be a "disease" that leaves 20% of our work force unemployed in years just ahead.

HH or his parents may not have attended enough union meetings to understand why they often resist turning up the speed of the assembly line but the answers are typically higher injury rates, stress problems and higher absentee rates. And again, it may be worth while to note that assembly is but 10% of the cost of the vehicle so there is little to be gained by cranking up the line speed another 10% for a theoretical gain of 1%.

Ryan

Posner suggests that the union did not accede to the demand that it cut wages and benefits in order for the automaker bailout. This is incorrect. They agreed to reduce wages over a one year period to the level of foreign competitors. They did not agree to do it immediately. A fair analysis would note this.

Richard

I agree with Judge Posner’s analysis. Another way of looking at the economic impact of unions is to consider the effect of setting wages according to supply and demand in a free labor market.

Under those conditions, market forces will result in a worker being compensated in line with his or her productivity. An employer cannot consistently in the long run pay compensation that is either above or below a worker’s productivity.

If wages are above productivity, the enterprise will go out of business after a while. On the other hand, if an employer offers wages below workers’ productivity level, those workers will leave. Another employer will have an economic incentive to hire those workers at a wage level higher than the other employer was offering.

As Posner points out, union leaders need to negotiate compensation that is higher than supply and demand would otherwise produce for the workers, in order to justify their existence. To the extent they succeed, that compensation will be higher than those workers’ productivity. In other words, to the extent they are successful, unions necessarily price themselves out of the market. And in the auto industry they are doing so, as evidenced by the data cited by Posner.

stella

I hear a lot about union jobs making American cars less competative. So why is it that Japanese cars are MORE expensive than domestic cars?

You would think with the wages being lower in non union shops, their cars would be cheaper but that isn't the case. A subcompact GM car costs less than an Asian subcompact.

stella

I hear a lot about union jobs making American cars less competitive. So why is it that Japanese cars are MORE expensive than domestic cars?

You would think with the wages being lower in non union shops, their cars would be cheaper but that isn't the case. A subcompact GM car costs less than an Asian subcompact.

UQDavid

Ãäå-òî ÿ óæå ïîõîæåå ÷èòàëà, ïðè÷¸ì ñëîâî â ñëîâî.

Dan

Privatize the profits and socialize the losses. Socialism for the rich, Capitalism for the rest. Blah blah blah blah blah.

Enough with the ivory tower BS definition of what the "goals" of unions are. Unionization was a political and economic phenomenon and should always be analyzed as such. Anything else is either disingenuous or suggests that U Chicago economics is the U.S. answer to fundamentalist madrassas in tribal Pakistan.

There is but one god, Milton Friedman, and Alan Greenspan is his prophet. Friedman akbar!!!

J Mann

Stella: Do you mean that Japanese cars cost more at the dealership, or that the cost to produce Japanese cars is higher. Japanese cars cost more at the dealership because, on average, consumers want them more. The question is how much the manufacturer is making (or losing) on each car they sell.

On the other hand, if you mean that it costs Honda more to make a Civic than it costs GM to make its closest equivalent, then you may have a good point, but I think that Honda's costs per car are significantly lower.

J Mann

WD40:

I haven't broken it down to economic jargon, but here is the story I would tell to explain featherbedding.

1) It reduces risk. The grievance procedure makes it difficult to fire employees, including unproductive employees. I might prefer to get paid slightly more to be more productive, but I don't want to take the risk that I might turn out to be an unproductive employee down the road.

On a related note, in an industry with *expanding* demand for union-produced goods, increased per capita productivity could lead to increased per capita compensation with no reduction in existing employment levels. In an industry with declining demand, an increase in per capita productivity would be likely to result in a decline in total employment. Unless a given worker was confident that the job losses wouldn't affect him/her, that worker might prefer the current situation to the risk of losing a job.

2) The job is sufficiently mind-numbing that employees really don't want to be more productive per hour, even if it would result in more income. (See the Rand Simberg piece that Judge Posner links for a good description of this).

3) Many of the featherbedding rules, like the job bank or the rules that prevent non-electicians from changing light bulbs, are designed to prevent management from "cheating" on the agreement by substituting foriegn or salaried labor for union labor.

4) As a cartel, the union needs to discourage "cheating" by its members. (See OPEC for a good example of this). Work rules that discourage undue productivity avoid a "race to the top" that would reduce total employment from current numbers. By contrast, the more the union can *lower* per capita productivity, the more jobs open up, which allow union bosses to collect appropriate rents for allowing people into the jobs and increase total dues, at least in the short run.

5) Finally, at some level, if Posner is right and the whole concept of a union that doesn't domninate its industry is self-defeating, then maybe the union voters are misinformed about the relative benefits to them of featherbedding versus additional salary.

Geoff

It seems to me that the UAW is making a Huge mistake regarding public perception...The Democratic Party is in control in the White House, Senate and house and in position to implement far reaching pro union agendas. The UAW by "killing" the Unionized Auto manufacturing business in America is likely to give Unionization a very bad name and hinder the very agenda they represent. Why not figure out a Way to preserve the very jobs and production they are choking right now by working with the Big Three to Preserve the production aka jobs of all. To kill the Golden Goose is never a profitable strategy. Eating feathers is not very satisfying and why be the reason America turns against unionisim.

UQLuis

Íó òåìà âîîáùå ðóëüíàÿ, äàâíî âîëíóþùàÿ ìàññû òàê ñêàçàòü!

wd40

Reply to J. Mann:

(1) Risk reduction can be accomplished in other ways than stupid work rules.
(2) it is possible that workers prefer lower wages over more mind-numbing work. Certainly, professors do. But then "featherbedding" is the wrong term as both management (through lower wages that compensate for any reduced productivity) and workers (through improved work conditions that compensate for lower wages) are better off. If unions are able to accomplish this, then unions make the industry more profitable, not less.
(3) If it is indeed true that inflexible work rules reduce management cheating, then again featherbedding is the wrong term as featherbedding implies that unions are being unreasonable.
(4) Cartels want to extract as much wealth as possible for their members (rather than maximizing the number of members). Union members would prefer higher wages over rules that bring little value to themselves (featherbedding) or more workers. When unions bring greater rewards through their bargaining power, they can charge higher union dues. So more membership is not the goal of the union, but rather higher wages for the existing members and higher salaries for the union bosses.
(5) Economists have a hard time accepting the idea that workers and union leaders don't understand the tradeoffs regarding their own jobs.
In a nutshell: the burden of proof is on those who argue against optimal (efficient) contracts.

Dan

@Stella: Japanese subcompacts cost more than American brand subcompacts because people are willing to pay more for them. Prices are set by what people are willing to pay.

Why? Because the word on the street for the last 25 years is that Japanese brands are BETTER than American brands. Better made, better gas mileage, better customer service, fewer mechanical problems -- better value. The fact that the Japanese companies can make a better product at lower cost means higher profits, and good for them.

The designers, engineers, and senior managers at Ford, Chrysler, and GM are not members of the UAW. The UAW does not decide which product lines to produce. The UAW does not decide to make gas-guzzling vehicles. The UAW members' job is to perform tasks on the production line to spec, period. The UAW did not run GMAC Finance into the ground.

Show us the balance sheet numbers, Judge Posner, that prove that union wages and benefits made it IMPOSSIBLE for the Big Three to be managed properly and compete effectively.

@wd40: optimal/efficient is in the eye of the beholder. Please get out of the ivory tower and get a real job. What is optimal/efficient outside of the UofC madrassa is whatever actual, real-life conditions permit. If the economics cannot properly account for labor unions, then economics needs to adapt. It is the height of arrogance for the "scientist" to demand that reality conform to theory.

The deeper reality, as everyone outside of UofC knows, is that the Chicago School (RIP) is a screen for a hateful classist ideology.

Dan

@Stella: Japanese subcompacts cost more than American brand subcompacts because people are willing to pay more for them. Prices are set by what people are willing to pay.

Why? Because the word on the street for the last 25 years is that Japanese brands are BETTER than American brands. Better made, better gas mileage, better customer service, fewer mechanical problems -- better value. The fact that the Japanese companies can make a better product at lower cost means higher profits, and good for them.

The designers, engineers, and senior managers at Ford, Chrysler, and GM are not members of the UAW. The UAW does not decide which product lines to produce. The UAW does not decide to make gas-guzzling vehicles. The UAW members' job is to perform tasks on the production line to spec, period. The UAW did not run GMAC Finance into the ground.

Show us the balance sheet numbers, Judge Posner, that prove that union wages and benefits made it IMPOSSIBLE for the Big Three to be managed properly and compete effectively.

@wd40: optimal/efficient is in the eye of the beholder. Please get out of the ivory tower and get a real job. What is optimal/efficient outside of the UofC madrassa is whatever actual, real-life conditions permit. If the economics cannot properly account for labor unions, then economics needs to adapt. It is the height of arrogance for the "scientist" to demand that reality conform to theory.

The deeper reality, as everyone outside of UofC knows, is that the Chicago School (RIP) is a screen for a hateful classist ideology.

J Mann

WD40: Thanks, that's a good explanation of your point.

Why is "featherbedding" a bad or inaccurate term? Featherbeds are good for the people in them, presumably - they're just not good if you want the person in the featherbed to be productive.

Posner's point, presumably, is that comparing $55/hr for GM labor to $45/hour for Honda labor because the GM worker cartel has also negotiated for itself an amount of leisure per hour that means a GM hour is not worth a Honda hour, even if purchased at the same cost.

If I use cartel tactics to negotiate a contract that literally grants workers the right to spend 30 minutes of each hour in a feather bed and 30 minutes at work, that may well be rational for the union, given workers' relative tastes for leisure and income. However, as Posner states, it is going to come at the expense of consumers, workers who would prefer to work harder, and, if non-union competition is permitted, at the expense of the unionized company itself.

(Sorry for not being clearer - I should take more time to write a shorter, more concise post, but I am lazy. I appreciate you sticking with me.)

As to my specific points:

(1) I thought the second paragraph to my point 1 (about maximizing employment when the unionized share of the industry is contracting faster than the natural rate of worker attrition) was nice. Did you like it?

(2) As I said, Posner's argument doesn't require featherbedding to be irrational from the union's perspective. He just argues that the total cost of featherbedding + wage increases comes at the expense of consumers, many of whom do not work in industries with the natural advantages to unions of large scale manufacturing, and and the expense of the unionized company overall when faced with nonunion competition.

As to point (4), I am going to stand behind it and label it "agency costs." The interests of the union membership are not exactly the same as the interests of its leadership.

RickKF

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