Portugal fact of the day

In 2008, 1.9 million Portuguese workers in the private sector were covered by collective bargaining agreements. Last year, the number was down to 300,000.

The article is by Eduardo Porter and is interesting throughout.  Here is one additional bit:

The drop in unionization in Portugal “is going to blow the wage distribution apart,” David Card, a labor economist at the University of California, Berkeley, said.

Perhaps the most compelling evidence that Europe’s tentative new path will lead to deepening inequality comes from the country that adopted the strategy earliest and came out at the other end a paragon of success: Germany.

Average really is over, for Western Europe too.


Before 2009, collective bargaining agreements were usually extended to non-parties in the agreement to an entire sector by government law ("portaria"). So, in practice these were not agreements but a government approved cartel that forbids smaller (or less capital intensive) companies of competing based on low salaries and low skilled workers. The troika Memorandum had provisions to limit these extensions and that's why the number of workers under these agreements was reduced. Unionization in Portugal in small in the private sector and didn't change much since 2009. Governments since 2009 are probably also refraining from using extensions as a way to reduce wage costs.

Maybe "Average Is Over" is a function of the development of smart bombs and other high tech weapons in the 1970s. During the Great Compression, elites needed mass armies, so they treated the masses well economically. But, warfare has gone high tech and the need for cannon fodder has dropped sharply, so elites don't need the masses to fight their wars for them, so they don't feel the need to cut the masses a large share of the pie.

...and that's how the leopard got his spots.

There's no Soviet Union to fight anymore, but the elites still need the masses on their side, since the masses can do things like revolt and string up the elites. That's why the elites have been rapidly importing new masses.

"the masses can do things like revolt and string up the elites."

No, they can't. First, the "masses" never revolt on their own; "peasant" revolts are always lead by a rival elite or near-elite against the core elite.

Secondly, the very change in the nature of warfare that Mr. Sailer describes means that quantity simply cannot overcome (technological) quality. Civilian-available arms are no match for smart bombs, cruise missiles, Predator drones, jet fighters, missiles, and (at the extreme) nukes. The masses, no matter how massive, would be utterly slaughtered in a rebellion with minimal losses on the side of the elite and their military servants.

Right. It's like how the machine gun or artillery made the original intent of the Second Amendment technologically obsolete. The Second Amendment wasn't about gun control (that never came up), it was about whether states could have their own armies that could shoot it out with the feds, Concord and Lexington-style. Militias armed with hunting rifles were pretty effective in the 18th Century at making central governments think twice, but they aren't anymore.

the snark can be cut with a knife. but a lot of people choose to enlist. If anything, America is overfed as evidenced by the obesity rate

"but a lot of people choose to enlist."

Enlisted personnel are getting more elite too. You need an IQ over 100 (as measured by the Pentagon's AFQT admissions test) to be allowed to enlist in the Air Force or Navy these days.

Is that good or bad?

Good for the military, bad for the half of Americans who have 2 digit IQs.

"... but the Army'll take anyone who can crawl to their door." -- my Coast Guard grandfather

The current minimum, even for the Army requires an applicant to score at the 35th percentile on the AFQT, which is close enough to an IQ test that its 1990 renorming was the central subject of The Bell Curve. And that's only for high school grads. If you only have a GED, you need to score at the 50th percentile.

But in reality, the situation is even worse for below average IQ Americans: In FY 2011, all branches met their quantity goals and exceeded their quality goals. The Army had 99% high school graduates (i.e., not GEDs) with 63% scoring above average on the AFQT.


The Coast Guard does have the highest minimum AFQT score of any branch of service.

You make "elites" sound like The Borg. That seems wrong, but what do I know? It would explain the pointless elections we keep having, but there are other explanations that don't require space aliens.

I agree. The elites are too busy loathing each other to really care so much about the masses. There's never really been a time in history when the masses have spontaneously risen up against the elites. Almost always its the case of one elite faction using the masses as a directed weapon against their enemies. Look at the composition of the leaders of the Russian or French Revolutions. How many actually came from peasant backgrounds?

"The elites are too busy loathing each other to really care so much about the masses."

But those battling elites all sure seemed to come together nicely in 2013 to push for more immigration: Obama, McCain, Bloomberg, Gates, Zuckerberg, Murdoch, Schumer, Rubio, the list goes on and on. In contrast, how many big names took a strong public stand against more immigration? Limbaugh, Coulter, and not too many others.

Wow, it's almost as if the people on top of the pyramid have certain interests and ideologies in common that they don't share much with the people lower down the pyramid.

You make "take a strong public stand against more immigration" sound like one of the ten commandments!
I guess it's unpalatable that not everyone shares your value system?

Don't portray this as an elite evil; you know well enough that the polls show the middle classes as severely conflicted on immigration issues as well. It's not as black n white as you portray things to be: "The elite are pro immigration and the rest of USA anti"

Rahul - be fair.

The middle classes are conflicted. Fair enough.

But it's not as if we have one party opposed to all immigration and one forthrightly in favor.

The majority is not spoken for in elite political circles.

I say this as a child of immigrants. It's so patently obvious, that I'm willing to give recognition to positions contrary to my own interest.

Both sides are in favor of an open door policy that would have been anathema to FDR., Truman, and Eisenhower.


Since you agree that the middle classes too are conflicted on immigration, I guess we don't have a huge disagreement? Yeah, sure both parties may be idiots, I'm not a huge fan of either side.

I don't know how long-dead FDR., Truman, and Eisenhower would feel about this but nor do I think that that should be our benchmark to judge policy. And also, I applaud you for giving recognition to positions contrary to your own interest.

If anything, recent events have shown how ineffective those weapons are. Most were designed under the old paradigm of fighting a large conventional military with visible and defensible fixed assets, and modern warfare has easily countered much of their impact. Smart solutions tend to be cheaper than human ones, but of far worse quality across the board and replace them at their peril.

are you sure ? maybe "the world is flat" ?

some tidbits of good news: stock valuations still very low for most sectors:


How to get ahead: The most important class that your kids will take…

Trevor Brandt-Sarif had no interest in computer science when he arrived at Harvard in 2011. Philosophy was his thing. Writing code? That was for those kids at MIT. But while taking the requisite Introduction to Ancient Philosophy, Brandt-Sarif also veered about as far as you can from Socrates, Plato, and Aristotle in a Harvard classroom: He enrolled in the wildly popular computer science course, CS50, joining hundreds of other undergrads to learn what has become the language of the 21st century. “Coding is relevant to our world,” said Brandt-Sarif, who credits professor David Malan for making computer science come alive in everyday life. CS50, Brandt-Sarif said, is “very much the thing to do.” In just a few short years CS50 has rocketed from being a middling course to one of the biggest on campus, with nearly 700 students and an astounding 102-member staff that includes teaching fellows, graders, and multimedia producers. Classes are so big lectures are held in Sanders Theatre and office hours so crowded it looks like a tech start-up.

And so....???
You know how easy it is to learn how to "write code" in some language - it's like nothing. It's also an almost worthless skill unless you're willing to focus years and years on improvement and mastery.

As someone with plenty of experience making machines do things, I could not disagree any more with your statement.
If one had to focus years and years on improvement to make coding useful, nobody would ever hire a developer out of school.

Now, what is useless is to just learn how to do small things in a low level language with no real libraries: The value comes from using small amounts of simple code to leverage millions of lines already for you. Using something like Mathematica, or VB.net to control things that Office does. It's the reason you'll be hard pressed to find scientists that can't write a little bit of code.

Card and most others seems convinced it is true, but I have always been a bit confused on just why unionization should lead to wage compression. Why couldn't a union demand a certain total amount be spend on compensation (presumably a higher amount than a competetive labor market would produce) but still leave it up to management to distribute that total compensation among workers in approximation proportion to their contribution to the firm's success, under the plausible theory that such a distribution is more likely to increase the funds available next year than a flat distribution? One obvious worry is that management would distribute it so as to punish pro-union workers, but given the complexity of some union contracts, I find it hard to believe that protections against that couldn't be agreed on. A more plausible explanation is that any any institution that gives one vote to each worker is going to tend to favor policies that redistribute from the small number of highly compensated members to the mass of voting members. But then why are heavily skewed seniority-based pay arrangements tolerated by the mass of union members?

>Why couldn’t a union demand a certain total amount be spend on compensation (presumably a higher amount than a competetive labor market would produce) but still leave it up to management to distribute that total compensation among workers in approximation proportion to their contribution to the firm’s success, under the plausible theory that such a distribution is more likely to increase the funds available next year than a flat distribution?

1. Probably because almost no one is such a significant outlier that this can be accurately reflected in pay, and especially so in industrial contexts in which most unions emerged.

2. Because this isn't in the median member interest.

>But then why are heavily skewed seniority-based pay arrangements tolerated by the mass of union members?

3. Because this grandfathers most existing members, and these existed back when working for a company your entire life was a common outcome. I'd wager that most people simply imagined it eventually benefitting them, in turn, as they rose along the seniority ranks (and their expenses increased accordingly).

Because older workers are the ones that are active in the union and who vote.

Often the compensation scheme are set up to screw the future hires who do not vote in the current elections.

Finally, many US unions are in older industries that have not increased employment for years -- like the autos -- so there are a lot of senior workers but few young workers.

I think union bosses' pay rates need to be limited by statute to four-times the lowest union members' pay rates.

I think you just murdered the SEIU. Heck you killed every craft union with an apprenticeship program.

You are basically saying that low value workers should be barred from organizing as should any unions that train membership. You would still have some effective unions though, they would just be completely communistic ones.

I hope that the decline of unions mean a decline in the violence and coercion that have always been their stock in trade.

You might want to think twice about throwing this particular stone in a post about Portugal, considering their history with being violently coerced by a right-wing economics professor dictator.

I'm pretty sure most people are much more concerned with the violence and coercion that comes with living in a failed state with a moribund economy than historical examples of the struggle necessary for reserving collective bargaining rights.

"The struggle necessary" usually meant beating up fellow workers.

From the article,

>Tethered to the euro and thus unable to devalue their currency to help make their goods less expensive in export markets, many European countries — especially those along the Continent’s southern rim that have been hammered by the financial crisis — have been furiously dismantling workplace protections in a bid to reduce the cost of labor.

>The rationale — forcefully articulated by the German government of Angela Merkel, the European Commission and somewhat less enthusiastically by the International Monetary Fund — is that this is the only strategy available to restore competitiveness, increase employment and recover solvency.

You mean, defaulting or inflating away the pain aren't going to be allowed by Frankfurt, forced wage devaluation is the only remaining option.

The amount of social unrest they've unleashed is incredible.

It's the euro, not Frankfurt (I think you meant Berlin: capital since reunification).

9/7/2011 Barron’s: “Milton Friedman’s Euro Smackdown” by Gene Epstein – MF was pessimistic about euro’s prospects. “Suppose things go badly, and Italy is in trouble. An independent Italian money would address that with a reduction on the lira exchange rate, which would lower Italian prices and wages relative to other’s, and enhance Italian competitiveness. With the Euro, Italian prices/wages need to fall – a more difficult action. Such asymmetric shocks hitting different countries, said M. Friedman meant the euro had an uncertain future."

Case in point is the sovereign debt crisis. With separate currencies the sovereign, troubled debt would have had more (from exchange rate changes) favorable prices, and national economies would have quickly recovered, assuming no sadded sovereign mistakes/unnecesaary Hells.

The ECB is stationed in Frankfurt, to my knowledge.

It's not so much "Average is Over" as opposed to "we can't devalue our currency anymore since we're in the Eurozone with those tight-fisted, inflation-phobic Germans, yet for some reason the Euro remains popular enough that our politicians aren't willing to get out of the Euro and devalue back to prosperity/competitiveness".

Why does the Euro remain popular enough in these countries that no significant mass of their politicians are pushing to get out of the Euro? Is it just loss-aversion? Fear about the effects of a de facto default involved in swapping Euro-denominated debt for local currency debt? Fear of bad blood with other European countries? Fear that if they pull out of Europe, the magic will disappear and they'll turn into Third World Countries?

Yes, I'm aware that Germans are facing increasing income inequality too. But I'm looking at the countries in the periphery more.

Inertia, reserve currency status, large economy etc is why the Euro has resisted all pronouncements of its doom

Fear that if the Euro goes, the European project will go with it. The European Union, however many its faults, is one of the major political achievements of our time.

The last one.

If the euro goes, the EU goes, then what happens to The most marginal euro countries. Greece and Portugal were basically Third World countries that belonged to NATO. You could argue that the Germans and French won't let anyone on the continent fall so far, but remember they have never done anything for Albania.

Maybe the people who would use the devalued currency dont think that their buying power should be used to pay for their country's and banks bad debts. Would you?

The notion that the unions have too little power in Portugal or any other southern-european country is completely laughable. I mean seriously...

If that is what average is about then it will be back when we run out of cheap laborers the poor countries. The worldwide birth dearth will push us that way.
A reduction of licensing, copyright and patent might help also.

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