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How Unions Reduce Real Wages


Muda69

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https://mises.org/wire/how-unions-reduce-real-wages

Quote

For more than a century the economic thinking not only of the public but of the majority of economists has been dominated by a myth — the myth that labor unions have been on the whole a highly beneficent institution, and have raised the level of real wages far above what it would have been without union pressure. Many even talk as if the unions had been chiefly responsible for whatever gains labor has made.

Yet the blunt truth is that labor unions cannot raise the real wages of all workers. We may go further: the actual policies that labor unions have systematically followed from the beginning of their existence have in fact reduced the real wages of the workers as a whole below what they would otherwise have been. Labor unions are today the chief antilabor force.

....

It is amazing to find how systematically the self-proclaimed humanitarians, even among professional economists, have managed to overlook the unemployed, or the still more poorly paid workers, who are the victims of the union members' "gains."

It is important to keep in mind that the unions cannot create a "monopoly" of all labor, but at best a monopoly of labor in certain specific crafts, firms, or industries. A monopolist of a product can get a higher monopoly price for that product, and perhaps a higher total income from it, by deliberately restricting the supply, either by refusing to produce as much as he can of it, or by withholding part of it, or even by destroying part of it that has already come into existence. But while the unions can and do restrict their membership, and exclude other workers from it, they cannot reduce the total number of workers seeking jobs.

Therefore whenever the unions gain higher wage rates for their own members than free competition would have brought, they can do this only by increasing unemployment, or by increasing the number of workers forced to compete for other jobs and so comparatively reducing the wage rates paid for such jobs. All union "gains" (i.e., wage rates above what a competitive free market would have brought) are at the expense of lower wages than otherwise for at least some if not most nonunion workers. The unions cannot raise the average level of real wages; they can at best distort it.

....

This is the modern Great Illusion. In fact, each union's extorted "gains," by raising a specific industry's costs and therefore its prices, reduce the real wages of all other workers. The interests of the unions are mutually antagonistic.

I have been talking so far about the damage done by strike settlements, or by "gains" extorted under the threat of strikes; I have not yet talked about the damage done by the strike itself. While strikes are ostensibly directed against the employers, most of them are in fact directed against the public. The idea is that if enough hardship is inflicted on the public, then the public will insist that the employer capitulate to the strikers' demands.

....

This result will follow not only because of the success of previous strikes or strike threats in that particular industry. When strike threats have become chronic in an industry, and seem likely to be systematically repeated, new capital and new investment will no longer venture into that industry. Union tactics may even end by discouraging and gravely reducing new investment everywhere.

Hence the strike gains of unions are at best short-run gains. In the long run they not only reduce employment but reduce the real wages of the whole body of workers. For the productivity of industry — and the real wages of workers — are dependent on the amount of investment of capital per head of the working population. It is only because American manufacturing industry has invested more than industry in any other country — some $30,000 for every production worker1 — that American wages so greatly exceed wages in any other country.

Labor unions can only exploit capital already invested, and they can do this only at the cost of discouraging new investment. By discouraging new investment, by discouraging maintenance, expansion, and modernization, labor unions in the long run reduce real wages below what they would otherwise have been.

....

To sum up. The net overall effect of union policy has historically been to reduce productivity, to discourage new investment, to slow down capital formation, to distort the structure and balance of production, to drive nonunion members into lower paid jobs, and to reduce the total production and the total real wages and real income of the whole body of workers below what it would otherwise have been.

The rates of wages that are best for the workers as a whole are those that are determined in a free market. There are, no doubt, areas in which the activities of unions, wisely directed, could be on the whole beneficent — in negotiating with individual employers, for example, concerning hours of work and such conditions of work as light, air, sanitary arrangements, rest rooms, coffee breaks, shop rules, grievance machinery, and the like. But wherever the unions are allowed to use violence and coercive tactics to achieve any aim, the long-run result is bound to be bad for the workers themselves. This being so, what should be the public's attitude toward labor unions, and what should be the legal framework in which they operate?

The public must recognize, first of all, that the interests of unions and union leaders are by no means identical with the interests of labor as a whole, and that being pro-union is by no means synonymous with being pro-labor.

In accordance with the principle of freedom of peaceful association, the law should not prohibit unions, but neither should it go out of its way to encourage them. Certainly the government should not continue, as it does in the United States, to turn itself in effect into a union-organizing agency and to force employers to negotiate with unions. And under no conditions should the law — or the law-enforcement officials — tolerate union violence, vandalism, or intimidation.

To translate this into more concrete terms: American Federal, state and city governments need not forbid unions of their own employees, but neither should they have any obligation to recognize, consult, or negotiate with such unions in fixing compensation or conditions of work. Under no conditions should they tolerate a strike by public employees. Public officials have been notoriously spineless in dealing with unions, but the law should give them wide discretion in deciding what penalties to impose, from loss of pay and mild fines to suspension or permanent dismissal. None of these penalties will be effective, of course, unless public officials also have a clear right to hire immediately temporary or permanent replacements for the strikers.

For private industry the minimum need is (1) the complete repeal of the Norris-LaGuardia Act of 1932 — which in effect denies injunctive relief during a strike to employers and non-strikers from violence, vandalism, and intimidation — and (2) the repeal of the Wagner-Taft-Hartley Act of 1935 and 1947 — which compels employers to recognize and "bargain collectively with" specified unions, and in effect make concessions to them. Repeal of these and other laws would merely return the United States to the pre-1932 Federal legal situation. In addition, however, all mass picketing should be forbidden, as well as any picketing whatever that involves harassment or intimidation.

The century-old tolerance on the part of public officials of union coercion and violence is in large part a product of the myth that such violence is necessary to secure "fair wages" and "justice for labor." Not until this myth is destroyed can we hope to have industrial peace, orderly economic progress, and maximum real income for the great body of the workers.

A long but very informative read.

 

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That was interesting reading. Looking at some history, Hazlitt passed away in 1993. While corporate scams did exist back then, my guess is the version/interpretation of capitalism that conservatives in power have brought on us would be criticized heavily by Hazlitt if he were alive today. While reading more about him, he also support a higher level of responsibility for business owners and employers to pay their employees well enough that the need to unionize would never be an issue. Even when I spent a Summer working in the warehouse for Lilly’s, the workers there refused to unionize. The pay and benefits at that time were better than what union people were being paid in similar jobs. I also know that the Teamsters were trying hard to get their foot in the door. My guess is that Hazliitt and Lilly were cut from the same cloth. I am not sure if Lilly employees are still treated with such regard in this day and age or not. 
One question I have regarding this then, is the alternative having the “right to work” laws in place? 
Another question.....he advocates in the article having laws in place that forbid picketing. His goal is to return to a point in time in this country where the federal government is less involved in local issues. So if laws were in place that would forbid picketing, wouldn’t that be federal overreach as well? While punishments and fines are recommended as well, are they really enforceable? If tomorrow, we see 90% of airline pilots picketing, would they actually be fined? Or even fired? If so, say they holdout until the fines are lifted? Or if they are fired, then what? Hire scabs? 

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1 hour ago, Irishman said:

That was interesting reading. Looking at some history, Hazlitt passed away in 1993. While corporate scams did exist back then, my guess is the version/interpretation of capitalism that conservatives in power have brought on us would be criticized heavily by Hazlitt if he were alive today. While reading more about him, he also support a higher level of responsibility for business owners and employers to pay their employees well enough that the need to unionize would never be an issue. Even when I spent a Summer working in the warehouse for Lilly’s, the workers there refused to unionize. The pay and benefits at that time were better than what union people were being paid in similar jobs. I also know that the Teamsters were trying hard to get their foot in the door. My guess is that Hazliitt and Lilly were cut from the same cloth. I am not sure if Lilly employees are still treated with such regard in this day and age or not. 
One question I have regarding this then, is the alternative having the “right to work” laws in place? 
Another question.....he advocates in the article having laws in place that forbid picketing. His goal is to return to a point in time in this country where the federal government is less involved in local issues. So if laws were in place that would forbid picketing, wouldn’t that be federal overreach as well? While punishments and fines are recommended as well, are they really enforceable? If tomorrow, we see 90% of airline pilots picketing, would they actually be fined? Or even fired? If so, say they holdout until the fines are lifted? Or if they are fired, then what? Hire scabs? 

How does Honda’s pay and benefits compare to GM today? How does Imagine Schools of Broadway’s pay compare to FWCS?

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