Friday 5 September 2008

Employers' Union Zindabad

“Labour unions are bad because they force poor employers to set floor wages. This either drives employers out of business or makes them replace labour with machines. In either case, the poorest workers are rendered jobless or unemployable. There are any number of examples where unions have insisted on outdated rules be complied with, not caring of the harm to business by doing so. For instance, American railroad unions made railroads keep three men in the engine long after the companies had switched to diesel and electric trains which can be run by one driver alone.” 

And so my author drones, all the time maintaining that he is not against unions, and if I can hardly hear him say anything in their favour, it's completely my fault. 

Very well. May I ask, though, why he must pick an industry like railroads, which has long ceased to be economically viable across the world? 

No matter how you look at it, you cannot probably run a railroad that people will use unless you subsidise it highly. Hence, it is convenient to blame any player you hate. You can always show failure. Few will ask you to establish causality (Prove that unions' unfair demands broke employers' back). 

Also, why does he never talk about an employers' union or cartel setting wage ceilings? Instead, he, and many like him, keep repeating that an employer unwilling to pay 'market' wages will find his workforce lured away by others. 

Now, I'd like to bring real life to bear on this, if I may. Let me take the example of computer operators in ad agencies. The thinking goes like this: “The operator's job is more or less mechanical. Anyone who has time can teach himself the designing software. It takes memory and hard work but neither talent nor aesthetic sense. There is no dearth of boys who desperately need work, so why pay 'too much'. We'll stick to an 'industry rate'. If that doesn't suit someone, too bad. He'll have to look elsewhere.”

I'm sure the 'industry rate' is not a price point, but a price band, and agency owners believe the band is wide enough to allow sufficient competition.

What if it isn't? What if the 'industry rate' is actually a wage ceiling, enforced by an unspoken diktat, the force of which will only be felt if anyone dares to step out of line. (“How dare you pay your operator so much, mister? You may be running a charity, we aren't. Back off, or we'll break your legs.”)

How does one know that employers do not meddle with market forces, more so in situations where employees are not united, leave alone unionised? 

Does existence of market shifts – wage rises within the wage band or the upward shift of the entire band – prove the absence of wage ceilings? Can the market change preempt the shift, and render it redundant? For instance, can operators turn free-lancers in drove, and start marketing themselves as cheap art directors, competing with the agencies that refused to 'recognise' their worth. Can this lead to an overall lowering of quality, because these self-proclaimed art directors are nowhere near the real thing, yet agencies just cannot match their rates and retain their prestige? 

If this does in fact happen, and I'm quite sure it is, surely it'll be an 'efficient result' of the agency managers' conspiracy. But is it a good one? 

If giving good solutions is not the economist's responsibility, whose responsibility is it? The market's?

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