Friday, December 16, 2005

Unions: Making Markets Work

Lots of labor news today. The Copley News Service reports that the gocery chain Ralphs broke a strike by surreptitiously rehiring locked out workers. That happens to be illegal.

In New York the Transit Worker's Union is initiating strikes after negotiating past the contract deadline.

Why can't workers negotiate their contracts individually? Because we are living in a world of large organizations. When you bargain with a government or a multi-billion dollar corporation then employers make all the rules. When workers unite then balance is restored and contracts reflect the market rather than a power imbalance.


Blogger RoastedTomatoes said...

This is a great point, and one that's long been a basis for the corporatist ideologies of Europe. Employers minimize wages simply by making market decisions; workers face a collective action problem and can't act as a group without some sort of facilitating institution that reduces costs and imposes sanctions of some kind on noncollaborators. So the wage bargaining game is really asymmetrical until unions enter the stage...

Blogger Hellmut said...

Thanks for the post, Roasted Tomatoes. If one wants to know how well workers can do if there is a level playing field then one need only to look at the compensation packages of CEOs.

Blogger Morty said...

The belief that workers can only negotiate as a group only applies to jobs with low barriers to entry such as factory workers or day laborers. The more specialized and skilled one becomes the harder and more costly it becomes for the business to replace that person. In my own job I have some specialized knowledge and skills. I've estimated that it would cost my company about $500k in lost productivity if I left my job. The next time I get a job offer or at my next review I'll get a good piece of that $500k and the company knows it and they negotiate accordingly. Now if one of our unionized employees were to leave what would it cost the company? Only about $13k and that assumes that the floor is operating at full productivity. If we happen to be operating at less than full productivity then losing a single employee actually represents a net benfit.

Blogger Hellmut said...

That's a good point, Marty. Anytime demand for a skill outstrips supply cartells are less effective.


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