Because there are psychic benefits of not going to the other employer.
I’m not sure that acceleration is without value - I’d certainly prefer a raise now over a raise in a year. Besides, in a high-turnover field, it’s possible that competition will not increase wages.
I’m not sure how that follows - they could earn lower profits than before without dropping below a normal profit, couldn’t they?
A couple points:
I dont fall for the "if unions exist they self evidently economical’, entrepreneurs improve markets. In a free market Austrians would have an important entrepreneurial role.
However, I do believe unions can be economical. An employer might prefer to pay higher wages to a guild in exchange for the reduced costs that come from a skilled and reliable work force. The money saved on transaction costs can be spent towards wages.
Then we’re no longer talking about merely maximing monetary income - that was my original assumption. Obviously if you have other ends (maybe you just like the idea of belonging to a union) then other means may be suitable for achieving them.
Agreed on the acceleration point, but the market is usually quite efficient about that kind of thing - a truly free market would be even more so. I suppose there could be geographic issues if there is only one employer in a given field in a geographic area. That would increase the transaction costs of switching employers.
I don’t understand your second point. A high turn-over field is usually the sign of a very competitive market for labor - for example, technology in the late '90s. There was high-turnover for a reason, and it was because employers are constantly offering better terms in order to attract more and/or better quality employees. Did you have some other scenario in mind?
What I meant, was that IF the employer is going to pay a higher-than-market wage THEN profits will be lower-than-market. I should have qualified that with “in the long run.” Yes, I suppose a firm with substantial entreprenurial profits (over and above the “normal” rate) could temporarily afford to pay above market wages and continue to earn an above-market rate of return on their capital. What incentive they would have to do this is not clear, since they could easily hire labor at the market rate if they chose to do so. Are you saying that a voluntary union could somehow prevent or discourage the firm from doing this? Maybe for a while, if there was a risk of having to replace the entire workforce at once - but there will always be employees willing to break ranks with the union for a small pay increase (especially if there is no threat of physical retaliation), and that can easily be made up for from the savings of hiring new employees at market rates. H***, unions today, with all their coercion and special privileges still have this problem. I just don’t see how a voluntary union could make it work.
Yes, but in that case wouldn’t an employer simply ban the union from forming? In other words, if collective bargaining produced a greater overall payroll, employers would presumably disallow unionization (unions couldn’t form), and if it didn’t produce a greater overall payroll tgibson’s argument would apply (unions would cease to be). Either way, it seems to me that unionization would be unlikely to exist in a free market, at least as a means for collective bargaining.
I don’t think this gets mentioned enough. Economists should be concerned with the value for the parties involved in a transaction (including externalities), not anything as abstract (in the economic sense) as a “country”. Whether or not the rest of the people in a nation think they benifit from something that has nothing to do with them is not at all relevant to economics. Economics shouldn’t be nationalistic.
I think that Dr Paul’s answer is perfectly clear and as usual perfectly reasonable.
If workers want to form a union to negotiate with their own employees they are free to do so. But they won’t recieve any help from the Federal government. This means no special right, no fiscal benefits, no political back-up in negotiations etc. Which sounds perfectly reasonable and I don’t think it contrasts with the Austrian point of view. No Austrian economist (at least to the best of my poor knowledge) has ever said “workers will accept whatever wages are offered to them and will never complain”. Think of a union as a “haggling committee”, which tries to obtain the highest possible “price” (ie wage) from the “buyers” (employees) to benefit the “sellers” (its own members). Until no violence is threatened or private property is put in jeopardy (think Luddites) it’s a perfectly acceptable scenario even for the most hardcore Austrians.
Unions become a problem only when they are backed by government force or when they are allowed to run unchecked: workers have all the rights to abstain from work to prove their point, but they have no right whatsoever to stop others from working (usually using violence), blocking a factory gates or using violence against others’ private property (if they want to set fire to theri own cars that’s another matter completely).
Finally allow me a few words. I have not a great knowledge of economics but I have a little working experience. Employers (private, that is) are much more willing to sit at a table and listen to reasonable proposals from a determined union representative than to make concessions to people parading around and making a racket of it. The problem is that unions live and thrive on high visibility and government muscle, and workers are often brainwashed into thinking that their own demands can only be met by invading the town streets with whistles and flags.
Just look at the British and Japanese automotive industries. Both were plagued with strikes in the '60s. Then the Japanese employers and employees understood that it was much better to sit around a table, come to an agreement and get back to work. The British workers instead kept on striking (often herded by persons which thrived on high-visibility events, like the infamous Red Robbo) and their employers, a mixture of snobbish aristocrats and slothful bureaucrats, instead of getting on with it asked the Government to step in and do the talking for them (well, they really allowed the whole thing to become nationalized). How it went in the end can be gauged by the number of Toyotas and Rovers on the roads today.
I’m not sure what you’re arguing here. I’m not saying that the existence of unions simpliciter proves that unions are economical, but I am saying that, if unions existed voluntarily in a free market, then they’d be economical.
The scenario I was picturing was fast-food workers, who are not highly skilled, and frequently leave the industry entirely for other fields.
From your response here, it seems I misunderstood your original claim. With my new understanding, I agree.
Yep. But certifications have nothing to do with my point. I’m talking about union contract and you’re talking about another function of unions.
Still, I see no benefits in such "reduction of transaction costs. You seem to be saying that employers LOVE the existence unions which would be absurd if you look at what’s going on in reality.
Certifications can come from somewhere else rather than unions, and usually they do. Unions do not stand for “standardized”, “certified”, “qualified” or anything else but a group of people getting together to act to their interests, which is the primary purpose of unions.
One of the (mal)function of unions is, ironically, protect those who are not qualified.
Certifications do not help reduce transaction costs. Look at the FDA, do you know how long it takes to get your drugs certified? Certifications hurt the society in many ways that is hardly manifest because you don’t see it. Who will see the harms of those helpful drugs get dragged in the process? People only see drug companies produced bad drugs and the victims crying on Oprah sort of thing. Still, drug company is the residual claimant and the harms are balanced off. That’s self-correcting errors as opposed to non-self-correcting errors. This concept can apply to your senario of “surgeons” as well. You’re seeing the harms caused bad doctors while ignoring the benefits those “uncertified” “good doctors” “could have” otherwise brought.
In what way wage standarization/stability will be beneficial? Are you a free market person? People who are more valued should be compensated more and people who are not shouldn’t be. That’s how we will benefit.
Thats how markets function.
So? Should business misdeeds that happen under government monopolies be used to slander markets?
You miss the point. Its would have to be a voluntary system, and yes it would reduce transaction cost by spreading information.
The same way that speculation is beneficial to the price system. You can not make correct economic decisions without accurate pricing.
Read my posts.
From some of the essays I have read on this site, I’m surprised that the views on unions expressed here are so neutral with regard to a unions function and efficiency in a free market. Can anyone recommend an essay from an Austrian/Libertarian perspective that discusses the roots of the modern labour movement? I think that might shed some light on whether unions, voluntary or not, are really pro-labor at all. At any rate, my thoughts are:
Austrians have demonstrated that better working conditions and better wages are brought about by investment and raising the productivity of labor, not political or “collective action” (Even a mass boycott is a spontaneous result of the market). So what are unions for? They are bodies that rely on legislation to restrict access to the labor market and control its output for the benefit of its leaders.
In a free market, labor cartels could exist and function voluntarily, yes, but stripped of their legal protection from competition and outside market forces, wouldn’t they go the way of all other cartels and monopolies in a free market. Wouldn’t they be inherently unstable and self-destructive?
A question to consider; suppose the wave of pro-union legislation that swept through America in the 30’s and 40’s never happened? What would unions and the whole so called “labor movement” look like today?
Free market unions could be an efficient way of determining whether employees are paid the right wage. If they go on strike and the employer has no problem finding other workers to replace them at the same wage or cheaper, it means the strikers were already paid enough or too much compared to their market value. On the other hand, if the workers cannot be replaced at the current wage rate, this would mean that they may be right in asking for a raise.
Wouldn’t this be like saying that “grape collectives” in a free market could be an efficient way of determining whether shoppers are paying enough for grapes?
The best I can figure is that unions would be largely replaced by “temp agencies” that actually do provide a useful service to both worker and the employers in a free society. I cannot see any market function for unions: what little function unions have now have no efficacy considered apart from legislative force. This is not to say, of course, that unions should not be permitted to exist voluntarily, only that they would have no value in a free market because they seek to influence wages in a manner apart from supply and demand.
Those articles are directed at disproving unions as they have existed. No one here is defending the use of coercion.
Today the government fullfills many market functions through regulation. It licenses people and tests products. Once the government has been removed voluntary organizations will rise to meet demand. Its often said that businesses will regulate themselves to protect themselves from consumers, but people do not act with perfect knowledge. Consumer advocacy groups, like Consumer Reports or car magazines, can increase market efficiency.
There is one thing here that everyone has forgotten when it comes to unions. That there is not one employer in the world, in the country, or even in our cities and towns. It seems to me that if I do not get paid enough by company A, I will go to company B for employment. Understanding that there is limited labour and many different consumers of labour, it seems that simply by unionizing rather than going to another employer undermines the claim that the workers are not being paid suffeciently. for if I could get a better paying job than installing a steering colum in a GM car, I would do that, but because I don’t and instead go on strike… am I not saying that I am either not qualified for a better paying job, or find the higher paying jobs less desireable?
The question really is, Are unions logical? and I can not see how they are.
The economic impacts of unions should be well understood by everyone on this site so I don’t see a need to go into that. But I would make a comment not in so far as actual unionization, but just of labourors working together.
When I worked a construction job this summer, we ended up getting behind on our project (interestingly enough it was the school of business and economics at Cameron University at Lawton, Oklahoma) and the site manager started requiring us to come in on Saturday to catch up. So thats what we did. except there was grumbeling among the work force (except me and a few other who like money more than sleeping in late) finally in a very informal meeting during a break on a friday, about 1/2 of the guys (and this was about a 25 man crew) vowed they would not show up on the next day. When I showed up to work the next day I was one of 5 including the boss. I suppose after hearing that so many would not show up nearly the other 1/2 decided they would not bother showing up either. those of us that showed cleaned up and did a few things and then were sent home at noon. That was the last Saturday the boss ever asked us to work.
So on very minor things, a sort of unionization can be effective. it was good for those who didn’t show, and bad for me, the contractor and the customer. but its a free market, and so the contractor can either deal with it or find a new work force.
That is an example of a misallocation of resources. A more efficient allocation would pair the workers who did not want to work on Saturday with an employer that did not want to pay overtime and would pair your employer with employees that do want to work on Saturday.
Today many government policies hinder the ability of the market to allocated labor effectively. But even in freedom markets are not self correcting, individuals and groups needs to act as entrepreneurs in order to improve allocation. Labor organizations could be among them.
Are unions good for America?
During my life, I have worked in a union bargaining unit, for a short period of time as a member in good standing. So I have seen what goes on in the Union hall. I have also worked as management over union labor and management over non union labor. Having been on the inside and on the outside, I can unequivocally say that Unions are absolutely horrible for efficiency. The insane work rules that Unions insist on absolutely cripple production and greatly increase costs. Plus, the union keeps getting back the jobs of morons who richly deserve to get fired. Currently, I have to spend a good deal of my time on keeping my current workplace Union Free. Even if your company is not crippled by having a union, you still have costs in the ongoing effort to remain Union Free. Getting rid of the draconian laws that give Unions all sort of power and priviledges would be a great start.
Unions are an absolutely crippling force in American society.
Which reminds me of the one particular fond memory I have of Ronald Reagan, when he smacked down the Air Traffic Controllers Union and fired them all. That is the sort of thing I like to see when it comes to unions. 
That’s an often overlooked issue. There can be reasons for paying higher wages then market wages. Just that there can be reasons for working at less then the market price. I.e. most entrepreneurs work for less then that. At least in the beginning phase of a business. Ask me[;)].
As for Unions, I see them as a part of civil society where they have a role to play. Just like industry federation, churches, civil associations, clubs and the like can do. They day do not perform their role in a good manner is no argument against them in concept.
There many types of labor unions in our economic system. Principally I see them as being wage bargaining unions in both open and closed shop states and then there are skill based unions who take the function of training the next level of journeymen seriously. Absent government protection the union that certifies they have skilled workers and guarantees the work would possibly be quite successful in a niche resembling the skilled worker temporary agency. The ability to collectively bargain for wages in a competitive market would be less likely to survive as the fundamental assumption of a truely competitive economy is that there are sufficient buyers and sellers of any good or service that market power would be hard to maintain.
An industry that has skills in high demand is likely to pay good wages and an efficient labor market would communicate the demand for that skill set to encourage entry in to the the new field. Thus, a responsive labor skill union would work to ensure their journeymen were highly trained and on the leading edge of skill sets and they would thus gain contracts as their reputation increased. I have a hard time seeing where the union is bad in this situation.
Now, on to the idea that a union exists to protect incompent members. Any union that does this to systematically does so at its own perile in any even near competitive economy. The production will move to where work is more competently and cost effectively performed over time. Incompetent managers can be much more detrimental to the company and in some cases is much more protected.
-steve in Portland.
Has there ever been a case where employers formed a ‘reverse union’ where a group of employers banded together and refused to pay any employees any more than a certain amount?