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Comment Unions economically interesting, not a solution (Score 1) 715

The thing with unions is that, when protected by law in closed shop states, is that they become a monopoly on labor. As we know in other markets, a monopoly is able to extract rents and create deadweight losses in the economy. Classical economics looks at where unions are economically useful and dangerous, consider a few scenarios.

1. Highly specialized labor (single monopsony employer)... there is only one buyer for this labor... In this scenario, I have poor bargaining power. If my labor is worth $100/hour to the employer, I should be able to extract a wage of approximately $25/hour. However, if my skills are non transferrable, so if I leave my employer, I need a semi-skilled job at $12.50/hour, I have a poor bargaining position. The wage negotiation is between $12.50 (my BATNA - best alternative to a negotiated agreement) and $50, the value to the employer less fringe/overhead costs. In an open market, you'd expect the salaries to be around $25 (1/4 the gross value to the company), if labor is scarce with a bunch of employers (see a scenario like professional sports with free agency), the employee can extract more of the surplus, but if the employers are scarce (highly trained systems level Windows programmers), then I have difficulty extracting a good wage. In this scenario, which was the classical unionization scenario, unions help employees get fair compensation, because with only one buyer of labor, they have monopsony power, so union monopoly/employer monopsony can help the marketplace. Keep in mind, during the heavy unionization of Detroit and the growth of its benefits, we suspended the market economy in war time with all sorts of industrial boards to allow companies to collude during the Great Depression and WW II, so the automotive industry, steel industry, etc., were effectively a single employer.

So with unions, you fight over the surplus, without unions, the specialized employer is able to extract most of it... This scenario also played out in plenty of small "company towns" where a single mill, mine, factory, or plant was the primary employer in the town. Without employee protections, the employer was free to exploit the workers because there was

2. Scare labor, plentiful employers... Look at professional sports post free agency, pre salary caps. The supply of genuine game changing players is VERY small, there are only a handful of baseball pitchers and showy sluggers, basketball players (playmakers in any position dominate), quarterbacks, running backs, etc. that can dramatically influence a teams fortunes (success on the field, putting people in stands, selling merchandise). That's why the leagues attempt to skirt anti-trust by doing things as a league and claiming that their competition is other sports, and the players unions basically used their status as unions (with those anti-trust exemptions) to permit it. In the early days of free agency in baseball, you saw salaries for star players EXPLODE, while lots of players languished at or near the "league minimum," and most baseball teams lose money. The idea of salary caps in other sports was an attempt, in the name of "competitiveness and parity" to keep more of the profits for the owners... If there are only 5 amazing quarterbacks in the league, and teams had to pay fair market for them, they'd extract most of the profits from the team. Sports have some unique characteristics that make this arrangement reasonable... you aren't out to destroy your competition, just best them... the Yankees want to beat the Red Sox, they aren't trying to put them out of business to eliminate competition. But, the tighter the salary caps, the less the top players make, because it temper demand for them, but the most competitive the league is (to a point). The union is necessary if the league is allowed to collude to keep prices down, take out the collusion, and the "workers" would extract most of the profits from sports.

3. Common labor, scarce employers... Here the employer should be able to keep wages down... There is limited specialization (scenario 1), so it's not really exploitive, plenty of people can do the job, and the job doesn't pay much better than their alternative. This is the scenario of the grocery business that the unions are fighting to get governments to stop Walmart. In a competitive marketplace, labor is cheap, customers save money, and companies make profits. When you let the unions organize, they get excess wages for the employees, who certainly aren't encouraged to seek rarer, more valuable skills (if you could get $15/hour working as a cashier, it's VERY difficult to justify spending money on a college degree to enter more lucrative fields (except well paying ones like engineering or computers) economically. This only works by preventing competition, which is why the unions fight to keep Walmart out of markets... because they extract all the profits from the employer to the unskilled employees. This scenario ENCOURAGES oligopolies, because the union raises barriers to entry in the marketplace to keep the companies under control.

2. Competitive market... lots of employers, lots of workers... take a web development market... no shortage of small companies, no shortage of people doing the job. Unions could therefore create a monopoly of labor, using there exemptions from anti-trust laws to engage in lots of anti-competitive practices... boycotting vendors that dealt with non-union workforces, etc. It's great for the employees, in that they act as monopolists and extract rents, but horrible for the employers, there customers, and the economy. In addition, in the modern world, this uncompetitive scenario doesn't last long because you purchase your services in a right to work state (or if the Democrats eliminate those national), from a country via trade. The debasement of the dollar has shut down outsourcing as an economic danger over the past few years, but this could open it right up.

Keep in mind, this analysis ignores all the REALLY nasty stuff that can happen... keeping bad employees around, undermining the rest... the trashing of meritocracies... and pattern bargaining is the most evil... that's how the UAW destroyed the Big 3... Back when the Big 3 owned the US market (GM alone had over 50% market share), the union would pick a target... whoever would have the most to lose from a strike (manufacturers have huge fixed costs and lose a lot of money by being down) based upon who had successful products, new releases, etc., and shut them down with a strike... this let the other two grab market share from them since it's a classic oligopoly, which forced management's hand... because GM was required to pay X, but the competition was left alone... Once they got the deal, they forced the others to accept it as well, or they would be shut down one by one... With strike funds and other anti-competitive things... GM wouldn't be allowed to pay Ford's workers to not work so they could steal market share, but they can withhold UAW dues from GM workers' checks that goes into the strike fund to pay Ford's workers to not work... This anti-competitive behavior is why all the unionized industries have collapsed... Unions encourage a decrease in competition, because that makes it easier for them to control the industry, lets the industry collect monopoly rents for them to take from the owners with their anti competitive behavior, etc.

Look at the teamsters... they are a relatively effective union, get their members paid well, compete with non-union labor, and their mob days seem behind them. They are willing to work with the GOP when they are trying to create more trucking jobs, etc. There is a HUGE difference between them and the factory unions, that have just destroyed each of our industries, one by one, by rendering them uncompetitive.

Note, after bankruptcy, the steel industry jettisoned it's labor contracts and rebuilt itself as a modern, competitive industry. I hope that the auto industry eventually does as well. I really hope that we don't let these scoundrels into high tech... not against some form of unionization in tech, just terrified that it will look ANYTHING like the AFL-CIO players...

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