Agreeing on unions?

by on March 4, 2007 at 7:32 am in Economics | Permalink

Ezra Klein has an interesting post on union elections, favoring greater unionization; Jane Galt is not persuaded. [Addendum: Mark Thoma has more.] 

I propose a deal.  I’ll agree that unions, in the best natural experiments we have, boost wages by about 10 to 20 percent.  On the other hand, will Ezra (and others) agree that unions are mostly detrimental to the rate of economic growth?

If so, the utilitarian evaluation will boil down to the choice of discount rate, keeping in mind that under the left-wing account the gains follow mostly from redistribution more than from wealth creation.

Admittedly the empirical literature on unions and economic growth is murky.  But it does seem that in non-socialist societies, more unionization lowers the growth rate.  (In socialist societies, it may be that economy-wide unions internalize some poliitical externalities and lead to better policy, a’la Mancur Olson.)  These papers are easy enough to criticize, so I’ll admit I am more convinced by simple theory here than by any empirics.  Unionization raises the cost of many growth-enhancing business decisions, such as layoffs or implementing technical progress.

Union supporters?  Do we have an epistemic deal about how you are willing to lower the growth rate?  And can we pull your true discount rate from the Stern/global warming debates?  (I recall Jane once writing that a zero discount rate would require her to revise everything she believed, but I think the opposite is sooner true.)

Oh, did I mention that the union wage premium, especially for private sector employees, has been declining and may be disappearing altogether?

And no, I will not be moved by sarcastic attempted reductios which pretend that enslaving the workers would raise the growth rate too.  Figure out yourself what is wrong with that.

Addendum: Johan Richter asked for: "Your preferred policy towards unions," so I’m calling this #12 out of 50.  My preferred policy is laissez-faire, noting I have never been a right-wing, union basher, Morgan Reynolds sort of guy.  But I see encouraging unions through the law as a relatively short-sighted solution to the problems of labor and the desire to raise living standards.

Paul Zrimsek March 4, 2007 at 8:26 am

If so, the utilitarian evaluation will boil down to the choice of discount rate

Sir Nicholas Stern has got one you can borrow.

The Chieftain of Seir March 4, 2007 at 9:13 am

As a card carrying Union Member, personal experience leads me to believe that Unions are bad for everyone in the long run.

Unions discourage people from broadening their skills (only do your job or else!).

Unions encourage people to rely on seniority as opposed to effort to advance themselves.

How can this be good for anyone?

On the other hand, if unions performed a signaling function, they might have some use. In other words, if belonging to union indicated that you were a hard worker and knew your stuff, they would benefit everyone. It would save employers on screening costs and save employees effort in trying to prove their true worth to potential employers.

Brian March 4, 2007 at 10:13 am

“But I see encouraging unions through the law as a relatively short-sighted solution to the problems of labor and the desire to raise living standards.”

What are the better, non-union solutions?

Martin March 4, 2007 at 11:10 am

Robb,

Didn’t you know that Tyler’s as much a mystic as a scientist?

Got to keep the faith, dude….

Allan March 4, 2007 at 11:27 am

The first unions were not only about wages, they were about safety. I remember seeing stories on how, before unions, electrical workers would routinely die because the companies refused to implement safety rules.

Unions also help raise the quality of life of union members. My granmother worked in the sweat shops of the Lower East Side. I would want that for no-one. Yes, that could not happen today because of government regulations, but, do you really think we would have the regulations had the unions not been there?

Unions also are essential to the rise of the United States. While it may be true that unions can slow productivity, that is just the supply side of the equation. By raising wages and ensuring job security, unions enable workers to be confident that they will continue to receive wages and will purchase more.

So, rather than being a net negative on the economy, it may be that unionization is a net gain for the economy and benefit the nation as a whole.

sa March 4, 2007 at 12:17 pm

sandvik above makes a good point regarding the assesment of risk. It seems to be an under-explored idea when discussing unions.

Johan Richter March 4, 2007 at 4:49 pm

Thanks for the reply. Just a clarification. Laissez-faire would mean that an employer can fire workers for joining unions, allowing employment contracts that prohibits strikes etc?

squik March 4, 2007 at 5:05 pm

Much of the anti-union arguments revolve around economics (e.g. expense, efficiency). Much of the pro-union arguments revolve around social justice (e.g. safety, equitability). There is no hope for common understanding if the sides are approaching this from disparate ground. Economics doesn’t trump social justice and vice versa.

Corporations are merely fictitious entities given legal status by society. Viewing business and society strictly through economic terms is both unnatural and can lead to devastating social consequences. Unions are another fictitious entity given legal status to balance influence and goals of corporations.

Economists have a way to view this situation, if only they would use it. Instead of looking for equilibria which maximize profit or efficiency, seek equilibria which best balance competing concerns, both economic and social.

Mike March 4, 2007 at 5:22 pm

Mr. Cowen is underestimating the effects of unionization. While periods of increasing and decreasing union membership show no correlation to overall economic growth, they do correlate to increasing and decreasing income equity. One should not ignore the fact that union membership peaked around 1980, about the time that middle and lower middle wage began to stagnate. Since then, union membership has declined and worker wages have not kept up with the growth of income for the upper percentiles. Americans may not like to think of themselves as union labor, but they were better off when they were.

Vincent Clement March 4, 2007 at 8:51 pm

I’m torn about unions. I recall having some heated arguments with my dad, who was a member of a union. However, when the company he worked for went bankrupt after his death, the union did nothing to protect the widowers and widows – they only cared about dues paying members. Eventually, the widowers and widows went to court and won their case. Pensions were maintained. That event verified my opinion of unions.

Fast forward 20 years. The overwhelming majority of my working life has been in non-union employment, though about half of it was and is in a unionized environment. Currently, I work as a non-union professional for a municipal government. In about a month’s time or so, I will be a unionized professional.

Due to massive personnel changes in senior management, half-hearted attempts at corporate reorganization, questions about secondments and new hires, a ’40 hour’ work week that varied from 35 hours to 44 hours per week depending on your position, lack of communication between non-union employees and senior management and a general distrust of senior management, the non-union employees decided to form an independent trade union.

It wasn’t always like this. Their was an informal agreement between the association representing the non-union employees (a voluntary social association) and senior management, that the non-union employees received the same wage increases and benefits as the union employees. In return, we worked during strikes by union employees, worked longer hours and were willing to discuss with senior management any budgetary and labour issues. Flexibility was assumed.

Unions bad? Unions good? I’ll let you know after we negotiate our first contract.

Dick King March 4, 2007 at 11:10 pm

I apologize for the double posting. For some reason the last paragraph-and-a-half got chopped off my previous attempt to post this story. I hope I haven’t exceeded some length limit!

I hesitate to bring up this anecdote because I can’t prove that it happened, but I was told the story by one of the people involved, with whom I had a relatively long working relation who was a member of the involved union but was [he had to be] but who didn’t like everything they did.

At the time, ca. 1977, I was doing some contract programming for a major east coast electric utility. Utilities have energy control centers, which are places where the supervisory control gear is concentrated and the operators make changes to meet the needs of power generation and and transmission and distribution. I worked for this company: http://www.qeiinc.com/ .

It would be embarassing to say the least if the energy control center didn’t work during a power outage, so they had backup generators that took a few minutes to get online — and they had batteries, two rooms full of impressively large lead/acid batteries, each of which could keep the place running for about an hour with enough power left over to get the generators started. [I presume they're using more refined battery technologies now, but this was thirty years ago.]

Lead acid batteries don’t last forever, even when they float, so once a month someone was supposed to take a dummy load, a fan-cooled resistance element, and bridge it across each cell in turn for a few minutes and write down the voltage. This chore took about an hour or two.

One battery room was routinely “checked” by one particular worker — adjacent to his lunch hour. Apparently he “checked” the batteries by writing down plausible benign voltages in the log book and taking an early lunch. After a while a supervisor noticed that one battery room was wearing out a cell every so often, but the other never seemed to need anything. He did the test himself and found out that all h*ll would have broken loose if there had been a power failure and the redundancy of having two battery rooms turned out to be needed because the other one wouldn’t come online, say because some relay didn’t do its job.

Naturally, the utility tried to fire the guy. The union hired expensive legal talent and succeeded in making it not happen. The question of why the union traded away raises the diligent employees could have had in return for contract clauses that made it possible to prevent an employee who was not doing his job and could have caused a fifteen minute glitch to turn into a nightmare for a major utility is left as an exercise for the reader.

-dk

Bill Conerly March 5, 2007 at 12:28 am

The American debates about unions miss an important element: our law says that if a majority of workers want a union, then that union represents 100% of all workers. No worker is allowed to bargain separately with the employer. It’s like if 51% of cookie buyers want Oreos, then none of us is allowed to purchase Chips Ahoy.

In practice, some workers want rigid work rules; others will accept some flexibility of job assignments for more cash; others would trade cash away for better benefits; others don’t care so much about benefits, but want to be able to leave early on Wednesdays. Union contracts force workers into one-size-fits-all contracts.

In New Zealand, every worker has the right to select his/her own representative. Some join a union, others bargain for themselves, a few hire a representative to bargain for them. That system eliminates debates about “right to work” or card check vs. elections. It seems to me to be heavily rooted in the English right to contract.

theCoach March 5, 2007 at 9:34 am

John Pertz,
Should capital be allowed protection via incorporation?

frankly0 March 5, 2007 at 11:47 am

In the end, for most workers in a given economy, what counts is not overall “growth” per se, but growth in their wages and/or quality of life.

Except to an economist, of what importance is economic “growth” in abstraction from its impact on most people who participate in that economy?

It hardly suffices, then, to present evidence or arguments that unions may do damage to economic “growth”, abstractly defined. One would have to demonstrate that it affects the things most people might reasonably care about, including their own wages, job security, and health. It is certainly plausible that the presence of strong unions in an economy do much to promote those factors.

Noah Yetter March 5, 2007 at 3:58 pm

Wouldn’t a laissez-faire union policy essentially boil down to “no unions”? I have no familiarity with the models in this area but my intution is that a union derives all of its power from the ability to strike, and that in a legal environment where a striking worker could be fired, each worker has a strong incentive to cheat the cartel and not strike.

Personally I favor such a system. I have yet to hear a compelling argument, from economics or ethics, why an employer should not be able to fire a worker for any reason at any time.

Slocum March 5, 2007 at 9:09 pm

“By raising wages and ensuring job security, unions enable workers to be confident that they will continue to receive wages and will purchase more.”

That doesn’t seem to be the case with manufacturing unions (autos, steel) and airline unions. By raising wages above market rates, unions have undermined the competitiveness of their employers and, therefore, their own job security. The non-union employees of Toyota in Kentucky enjoy excellent job security, but the tens of thousands of ex-UAW ex-employees of Ford clearly don’t.

dogfacegeorge March 9, 2007 at 4:05 pm

Here’s the problem that those who prefer a laissez-faire policy should grapple with. The government has ALREADY interfered – on the side of capital – in the market for labor services: The government encourages capital to accumulate in corporations. AS A RESULT, the market for labor services does not have atomistic buyers. Consequently, have a market failure – an oligopsony.

Should the government try to compensate for the market distortion that was CAUSED by governmental intervention by encouraging a counterveiling market distortion, an aggregation of labor? THAT is the policy that Congress set more than 70 years ago. It has remained the official policy of the U.S. ever since.

It’s not that two wrongs make a right, but that two counterveiling distortions will come closer to an ideal solution than just one distortion that favors capital.

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