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Monday, January 22, 2007

A Note on Unions

If I dislike unions so much (and I do), would I join one? Hell, yes! Elaborate, you say... Fine, but I'm going to do what an economist does best and assume (and forgive the following jargon):

A1) Institutionalized collective bargaining does not increase efficiency in a labor market that can be treated as a commodity market. That is to say more elaborately, for quality-undifferentiated labor or unskilled labor, the labor may be assumed to be readily available and treatable as a classic commodity--only efficiently allocated when fully exposed to the the functions of a free market (given constant transportation costs).

A2) Unions exist and I can only talk about not-having-them in my theoretical econ-world.

The existence of unions works against labor market efficiencies and causes a total loss to society. However, it would be unwise for me not to exploit the system for personal gain. Therefore, a fallacy of composition occurs and Smith's invisible hand slaps us around a little bit.

Now for my crack-pot pet theory for the day (see previous post): labor unions are a byproduct of market failures and themselves failures of the organized labor market. Therefore, governments should protect me, nay all of society, from myself by banning unions. This will increase welfare, or at least keep me from hurting others due to my inability to comprehend the consequences of my actions of the inability to make the best decision for society as a whole due to imperfect information.

2 comments:

Juris Naturalist said...

I accidentally rejected Nathan's last post to this article, so here it is republished. - JRH

Juris Naturalist said:
How does a union come to exist? What incentive did the workers have initially to organize? The employer must have had some way of depressing wages. This could only happen if the workers did not have alternative markets for their labor. In other words, the employer held a monopoly on work needing to be done. How does one come to posess such a monopoly? How can one restrict entry into the work-needing-to-be-done market? Such market power is not the result of free forces but of political manipulation. The employer has a monopoly granted by the state. So, what do the workers *learn*? That they must use the coercive powers of the state to grant them privileges as well. What's the proper response to a problem caused by government? More government, of course...

Jeff said...

All this may be true, even though your last comment hurt me a bit. Felt like a paper cut.

So, what about treating quality-undifferintiated services just like we treat our competitive goods?
1) Homogeneous products (per above)
2) Readily available information (which unions prevent)
3) Multiple players in the market (failure of which on the demand side justifies unions by your argument)
4) Free entry and exit (free exit prohibited by existence of unions)

Surely giving up one of the assumptions, namely 3 for the sake of 4 and 2, given 1 already, makes logical sense.