Economics

Two (Quixotic) Methods Labor Unions Use to Raise Wages

Although the results of the 2022 election are not yet fully in as of this writing, now that the Democratic Party has seemingly withstood the obliteration predicted for them by most prognosticators, it behooves us to ask what’s next on their agenda. Bernie Sanders is not officially a member of this party, but his views are a very good indication of where the Donkey is headed next.

If in the presence of Jeff Bezos, Senator Bernie Sanders (I-VT) knows exactly what he would tell this wealthy entrepreneur.

“There’s nothing that I would say to him except, ‘You know what? We’re gonna take you on. You could either start responding to the needs of your workers, or we’re gonna fight you ruthlessly,’” Sanders said in a phone interview with Vanity Fair earlier this year.

And how is Bernie “gonna” fight them? By promoting labor unionism. It therefore makes sense for us to consider the basics of this institution.

First, can organized labor raise wages? Sure, for a while. The automobile unions did so. But look at the havoc in which they enmeshed Detroit, and the harm they perpetrated upon themselves. Manufacturing companies in this industry fled, resettling in Alabama and elsewhere in the anti-union south to get away from them.

It is one of the hoariest of economic findings that wages tend to reflect productivity. If the two deviate, market forces automatically occur which bring them back into close association.

Suppose a typical worker can pick strawberries and thereby produce value at a rate of $20 per hour. This will tend to be his wage rate. Why so? No other rate of pay could long endure. For example, suppose his remuneration was $30. Then the firm would lose $10 for every hour he is in their employ. If this sort of thing is their general practice, they will tend to go bankrupt and no longer be able to pay any salary at all.

What about pay at the level of $12 per hour? This, too, cannot long last. For the firm will be earning significant profits, when multiplied over their entire labor force. Just as nature abhors a vacuum, the economic system does so for profit; it tends to be reduced, and in equilibrium, fall to zero. How so?

If firm A is paying its employees $12 in return for bottom line increases of $20, it earns $8 in pure profit for every hour they work. What, pray tell, will competitor B do? Why, it will “raid” A and offer the worker, oh, say, $13. C will not stand idly by: its bid will be, for example, $14. A is not going to look upon with favor this loss of its workforce; it will up the bid to $15 in an effort to win back its workers, or, keep them in the first place. You see where this process is taking us. It can only end at $20, if we assume the costs of these interactions are negligible.

Even though unions are doomed to failure in their quest to permanently raise wages, they brag, insufferably, that they have done just that. In many industries the pay of organized labor is indeed higher than that of those without the supposed “benefits” of a union. “Why” is simple. Their membership is composed of the higher skilled and more productive who would be taking home bigger pay packets entirely in the absence of these organizations. Actually, when union strikes, slowdowns, bargaining, “consultations,” etc., are taken into account, wages are actually lowered as a result of their activities. These hardly increase productivity, the be-all and end-all of wage determination.

Unions have two techniques they employ in their quixotic attempt to raise wages. One is legitimate, the other not so. The first is the mass quit. Some conservatives balk at this, thinking correctly of the chaos that ensues. But any one worker, absent a contract to the contrary to which he agreed, has the right to set down his tools and exit the premises. If he cannot, then to that extent he is a kidnap victim, or an actual (partial) slave, both of which are now happily illegal in the US. Does he lose his right to quit if others exercise their self-same right to do so at the same time? Of course not.

The union advocate will object at this point. He will claim that the workers are not really “quitting.” Rather, they are merely walking off the job until the boss sees the light of day and meets their demands. But they cannot have it both ways. For the corporation also has the right of free association to hire replacement workers if the unionists are no longer willing to fulfill their responsibilities as employees. It would be one thing for spouse A to divorce spouse B. But if A, then, forbids B to find a replacement for him, that would be quite another matter. Even though we all commonly refer to “his job” for the worker, no one can own a job (any more than a shopkeeper can own “his” customer). It is instead emblematic of an agreement that no longer holds; it has been abrogated by the unionist.

The second technique employed by the union is the strike. This is a mass quit coupled with physically invading the employer’s premises. Organized labor will not allow trucks to bring raw materials into the factory nor finished goods to leave these premises. Most important, it’s not uncommon to beat up replacement workers (in an act of hate, they denigrate them as “scabs”) and accuse them of trying to “steal” their jobs, the very ones spurned by the strikers. We would not tolerate such behavior in any other realm of the economy. Imagine if the divorcing husband used physical violence against the wife’s new relationship.

Of course, nowadays, union brutes no longer need to engage in such obviously criminal behavior. There are now labor laws forbidding the struck company from hiring other workers. The firm is now compelled to “bargain fairly” with them while wishing, instead, to “divorce” them and “marry” others. Imagine the hue and cry if divorce were prohibited; the couple was instead required to “bargain fairly” with each other. Yet, the rights of free association are identical in both cases.

These troublesome entities cannot permanently raise wages; they raise all sorts of turmoil and rights violations in their attempt to do so. Bernie, you’re barking up the wrong tree.

The post Two (Quixotic) Methods Labor Unions Use to Raise Wages was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.

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