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My take on the union debate

March 5, 2011

I’ve been asked a few times now, by some friends, about my take on the union debate going on right now (Wisconsin etc…). First of all, I don’t like to comment on on-going news items because I actually don’t know what exactly is happening legislatively. My impression is that it’s just a good old power struggle where the governor wants to pay its employees less money and the best way to do that is to fudge with the part of the total compensation that is less visible. This is the flip-side of another common trick of politicians, namely to over-promise deferred compensation, which will then fall on future politicians to up-hold.

All this hides a more interesting theoretical debate about unionization. Is it really true that by banding together group of workers can acquire more effective “bargaining power”? “Strength in numbers”, “workers of the world, unite!”, and all that? I’m skeptical of this claim. Banding together gives the group one voice, yes, but it also cancels out the individual voices. In particular it neutralizes one of the most powerful weapon for individual workers, i.e., the threat of individual “exit”. Employers compete for the best workers and don’t want to lose them to other employers. So the best way to get better treatment and better pay, is to excel at what you do so that competing employers will want to hire you and the threat of your exit is your best chance at a raise. This is the main reason why wages don’t fall in the non-unionized sector. It’s a basic principle of economics: competition. Conversely, individuals in unionized sectors have no personal incentive to distinguish themselves, because they cannot be personally rewarded (now if some union rules, somewhere, allow that, then it’s a different story). Of course, they might still have an inherent work-ethic, and maybe one’s pride to belong to a union, could still give an incentive to excel. It’s possible. I would expect this effect to be larger the smaller the union, however. Also important is the flattening of the pay scale: if everyone is payed an average salary, it means half of the workforce is underpaid.

Anyways, let’s shift to the political debate. My impression is that the right wants to have it both ways. They want to say that union jobs are “overpaid” and at the same time say that without unionization workers would be treated better. If my skepticism above is right, then union jobs are not that great. Look at teachers: they are losing all of their autonomy. Everybody and their dogs wants to be able to tell teachers what to do at every minute of every day. The central authority and the administrators don’t trust them one bit. Is that worth giving up so that the bottom 10% worst teachers don’t get fired? If I were an ambitious teacher in such an environment, I would be quite frustrated.

People then start fighting about statistics. One side showing studies to support the thesis that union-workers are overpaid, and the other side showing competing statistics claiming the opposite. No debate can ever be settled with statistics. But both sides are vulnerable to ridicule. If as the left claims union workers are under-paid then what is so great about unionization? One thing seems clear to me. Unionization can work sometimes by banding together with the bosses as well, thus forming a bigger lobby that can then extract favors and legal monopolies from the politicians, see the bail-out of General Motors for instance. But favors from politicians is not a strategy that works in the long run, because the political mood can swing at any moment.

Finally, there is the question of Right to Work legislation which would forbid employers from dealing exclusively with a union. Even though I’m skeptical of the effectiveness of unionization, I’m not ready to impose my skepticism by law. Why can’t the government be an “impartial spectator”? And not favor a conclusion over another. Well, that’s where I fall prey to my idealism. There is no such thing, and there never will be, a government that even attempts to be impartial. That’s not the game that is being played. Speaking of idealism, the question going forward is what coalition is larger and more likely to sustain its efforts. The coalition that thinks unionization is a good thing or the one that worries about deficits. I don’t know. It’s a clash of idealisms and I have really nothing to say about that.

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From → Economics

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