Die Vereinigte Dienstleistungsgewerkschaft, or stronger unions for America?

by on October 30, 2006 at 6:52 am in Economics | Permalink

Ezra Klein writes:

So what makes us [the United States]

different.  In a word, power.  Or the distribution of it. Europe has strong unions
and active governments; countervailing powers that wrest a portion of
the pie for their constituencies.  We don’t.

Many intelligent Democrat bloggers are converging upon this meme.

A few years ago five separate German trade unions, drawing heavily from service industries, merged to form the very large Vereinigte Dienstleistungsgewerkschaft.

Here is a propagandistic article about Die Vereinigte Dienstleistungsgewerkschaft.

It is hard for me to believe that the American hi-tech sector would create more prosperity — and I mean for the middle class, never mind the rich — if it had a Vereinigte Dienstleistungsgewerkschaft.

Here is an article about the current and forthcoming death of German trade unions.  Germany is now moving toward a two-tier labor market; guess which tier the new jobs are being created in?  I have never known a Vereinigte Dienstleistungsgewerkschaft to support the "creative destruction" which is the lifeblood of capitalist innovation.  Unions are better suited for a relatively static set of manufacturing tasks, precisely the jobs which are disappearing from Germany and also from the United States.  Read this too; German unionization is down to about one out of every five jobs.  Unions are declining more generally throughout the OECD.

Here is how German unions have responded to the Airbus crisis; it is not pretty.  Here is a German complaining about German unions.

German unions were an instrumental part of postwar recovery and democratization.  And I do not doubt the standard evidence that, in partial equilibrium terms, there is a union wage premium of about ten to fifteen percent (though, interestingly, such a premium cannot be found for Sweden, France, or Germany; union defenders claim that the collective bargaining benefits spill over into all sectors.  Maybe.). 

But today?  I do not see the appeal of a Vereinigte Dienstleistungsgewerkschaft, most of all for the relatively dynamic United States.  It would bring a one-time boost in some wages and a long run decline in growth and job creation.  That is not a good deal.  And if I imagine the counterfactual world in which I am a Democrat, I would not feel any differently about this question.

1 Bill Stepp October 30, 2006 at 7:46 am

Unions in Europe aren’t nearly as strong as they were thirty years ago,
especially in France and England. The special report on France in this
week’s Economist notes their relative weakness there.

2 Dan Karreman October 30, 2006 at 9:14 am

So why isn’t the US economy creating more prosperity for the middle class? The data I’ve seen suggest that almost all of present economic growth go straight to the very rich, or even the super rich. Median wages are stagnant, and the upper middle class doesn’t seem to get any traction wage-wise either. What’s your explanation, Tyler, and if you recognize it as a legitimite problem, how would you solve it?

3 economistatwork October 30, 2006 at 10:15 am

Dan,

You might as well ask why you don’t see much growth in wages for first year corporate managers. Maybe first year managers are worth the same as they have always been worth. Median wages have only crept up slowly over the years, they have never changed by a huge amount within a 5 or 10 year period. However, at what point in life are many people able to achieve a higher standard of living? What is real dollar mobility for those without a college education? How many people that start in the bottom income quintile of society in their twenties reach the top income quintile of society by the time they retire (or the fourth)? Those are more interesting questions, given the very impressive wages earned in the top quile in this country. And the answers are very impressive too. 95% reach a higher quintile within 15 years and 30% reach the top quintile.

4 Jed Harris October 30, 2006 at 11:48 am

So as economists are fond of asking “Unions are a bad choice compared with what?”

Tyler doesn’t disagree with the point that distribution is significantly influenced by bargaining power. Let’s stipulate that workers’ share of the pie depends on their bargaining power. In turn I will stipulate that unions reduce social fluidity, and thus long term economic improvement.

But if unions are the best option for aggregating worker power, you can’t reasonably ask workers (or their political representatives) to give them up. Appeals to altruism aren’t good economic arguments.

Then what is the right mechanism? So here’s my challenge, Tyler (and anyone else who’s inclined to play): Design a social mechanism that can aggregate the bargaining power of workers while maintaining a high level of social fluidity.

Note that this would strictly dominate unions, since it would (by hypothesis) do as well for workers, and employers would prefer it.

Two further condition:
– The proposed mechanism must be incrementally implementable, so that we can get it started in favorable niches and grow it to universality.
– It must be “self funding” so that it politically and economically supports its own implementation. No altruistic interventions by higher powers.

I think if such a mechanism gets traction, these debates would evaporate and we could work on something more exciting. If not, unions are perhaps the best available option (though I don’t expect that would stop Tyler complaining). So help us out here.

5 mickslam October 30, 2006 at 3:05 pm

“You might as well ask why you don’t see much growth in wages for first year corporate managers. Maybe first year managers are worth the same as they have always been worth”

this doesn’t address the issue that for most of this century, these first year managers wages increased, relative to inflation. Only in the last few decades has there been an extended period of flat wages.

Mark is closer to an answer to this point. But this doesn’t let anyone off the hook. If we’ve added billions of workers, we’ve also added millions of talented professionals, perhaps tens of millions. Why are wages/incomes for these groups so different? I can see returns for starting a business aimed at mass markets increasing dramatically. What I can’t justify is the returns for top managers.

6 Noah Yetter October 30, 2006 at 3:33 pm

Jed, you assume that “aggregating worker power” is a good thing. Why is that?

I, for one, see no possible gains in subsuming myself into a collective.

7 David Andersen October 30, 2006 at 4:26 pm

“I am always curious about what people who complain about unions recommend. Should we pass a law that bans them and put anyone who would collectively bargain in jail?”

No, but we could abolish the laws that give unions the power to force workers into membership and representation. What’s wrong with it being voluntary all the way around?

8 Neal October 30, 2006 at 6:38 pm

I don’t mean to be too glib, but I’ve got to ask… did you intentionally put the phrase “Vereinigte Dienstleistungsgewerkschaft” in every single time where you might have used pronouns or a referrent instead because it’s fun to use a six syllable word that makes the German for Speed Limit feel it’s length threatened?

9 Jed Harris October 30, 2006 at 10:36 pm

Noah Yetter opines “I, for one, see no possible gains in subsuming myself into a collective.”

As Tyler tacitly admits, many workers, at least in the short term, can increase their share of economic growth through strong unions. This gives them a rational economic reason to organize unions — which they do, historically, even in the face of mortal danger.

You may not be one of those workers, or you may prefer benefits of not participating. That doesn’t affect the economic and social significance of unions one way or the other.

Tyler’s point (with which I largely agree) is that unions impose undesirable limitations on social fluidity. So I claim the question Tyler needs to address is what alternatives can we make available, for those whose best option now is a union?

10 David Andersen October 31, 2006 at 12:26 am

“So I claim the question Tyler needs to address is what alternatives can we make available, for those whose best option now is a union?”

I don’t think short-term solutions exist. People need to become better educated, more productive, and more versatile. In short, people need to become more valuable to each other. That’s a long-term process and I think it includes a cultural/philisophical component that emphasizes we are personally responsible for our own well-being (to the extent possible).

11 Russell Nelson October 31, 2006 at 3:48 am

Mike, if you want to see the unemployment caused by minimum wage laws, just raise the minimum to a high enough level. Okay, so people aren’t that stupid and don’t do that. But that doesn’t mean that unemployment is eliminated; just that it’s not visible. What of the people whose work is so poor that they cannot get a job that demands a minimum of production to match the minimum of wage? Is it acceptable to you that the least among us should suffer so that the next-to-least may prosper? Personally, I consider the minimum wage to be a racist and immoral law, and people who support it to be racist and immoral people. Hey, if you don’t want to be judged as a bad person, don’t consistently do bad things.

12 John Thacker October 31, 2006 at 9:28 am

Professor Cowen–

Not only are the unions agreeing to effective wage cuts, but according to this Financial Times column (reg. required),

“According to the European Commission’s latest report on the eurozone, the wage share in GDP has fallen from just under 62 per cent in 1991 to about 57 per cent in 2005, mostly due to wage pressures inside Germany. In the US, it has remained comfortably above 60 per cent throughout this period.”

So the wage share of GDP has DECLINED in Germany recently, mostly because the unions have accepted arguments that they needed lower wages to be competitive. What was the point again?

13 David Wright November 1, 2006 at 1:00 am

The union is called “VerDi”. Even though I am well-versed in German politics and culture, when I read “Vereinigte Dienstleistungsgewerkschaft”, I drew a blank. Using its full name is about as uselessly confusing as refering to the AFL-CIO by its full name would be. (How many even remember what CIO stands for?)

14 John Thacker November 2, 2006 at 8:28 am

Anyway, comparing people’s lifecycle incomes to the annual quintiles is pretty dumb. You might as well try to prove that Americans are getting richer by showing that most babies eventually grow up and earn more than newborn babies do.

Yeah, though that’s about the equivalent of what people actually do when they claim that the gap between rich and poor is getting worse because more people go to college and grad school. (And thus trade several years of lower income as a student for years of higher income when they get out, increasing income inequality.)

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