Trahison Des Clercs

The right winger will typically treat the issue of trade unionisation with a dollop of distrust. Sneaky suspicious will sap away at their soul as they consider the impact of collective bargaining on the poor old innocent employer. They won't appreciate it, given they rarely understand it, but economics can be used to support this blubbering. Consider, for example, the marvel of the monopoly union model. The firm, given the naughty union's ability to unnaturally inflate the wage, is forced to choose a restricted level of employment. Demonic unions then force a redistribution of welfare from the worker forced on to the dole to the worker that continues to celebrate company craftsman status. But can we be so simplistic in our understanding of the trade union? We could achieve the usual orthodox tail chasing and offer complexity over the economic agent's preferences. The classic storyline is the notion of the efficient wage bargain where, given union satisfaction is dependent on both wage and member employment levels, they bargain over both. This can lead to forehead wrinkling phenomenon such as over-manning. Unions may well generate inefficiency, but that inefficiency is characterised by increases in wages and employment levels. A standard “yeah but” moment would be consideration of the concept of seniority pay. Here, we can refer to the impact of the median voter model where, due to 'last-in first-out', the more experienced workers can force unions to return to that wage maximisation result. We're back to bad old unions generating unemployment. But let's step back a mini-minute. Rather than ramble and rant about the nature of preferences for these apparently obnoxious organisations, let us glean a generously general account of union upshot. Let's finger tap over two possible accounts of the impact of the trade union terror. Out of laziness, let's call them scenarios and describe their basic nature.

To introduce scenario 1 lets first sneer at the “power to the people” beret wearer hell-bent on switching over the white hat and the black hat. It is, according to these fist wavers, the evil employer executing empty ethics. The rider to the rescue is the “thou shalt no longer try and put children up chimneys” trade union. They counteract the bargaining power of the employer and therefore force a redistribution of economic rents from employer to employee. Sounds like fun! I'd certainly get teary eyed as I hear a few verses of the Red Flag. This scenario, however, rejects the Citizen Smith routine. We instead should see Unions as a means to redistribute “between” workers. How? Unions enforce wage norms, ensuring that wages cannot reflect the perfect competitive ideal set by productivity criteria. Given the lack of solidarity and differences in bargaining power, they ensure the development of inefficient wage differentials. These differentials increase the problem of working poverty, as the least powerful workers essentially subsidise the wages of workers higher up in the food chain. For example, take the NHS in Britain. One can argue that the bargaining power of the nurses have led to skewed wage differentials with most unfortunate repercussions (such as insufficient monies going to auxiliary workers, with negative knock-on effects in terms of increases in infection rates as monkey cleaners are paid peanuts)

Scenario 2 rejects the humph, maintaining a most friendly account of the impact of the wonderfully worthy Union. Given labour market failure, firms do not pay wages according to the marginal revenue productivity of labour. How can the worker respond to this affront to perfect competition? They have two options: “voice” (i.e. stay put and demand a fair deal) or “exit” (i.e. stick two fingers up and leave the premises). Independence of workers would lead to inefficiency as, despite preferring "voice" to "exit", workers hide their true preferences due to the fear of experiencing employer retribution. Worker co-operation then becomes a vital aspect of improving the working of the labour market. Here's a classic quote from Commons (1950, The Economics of Collective Action. New York) to hammer home the point: "Collective action means liberation and expansion of individual action; it is literally the means to liberty". We now picture the labour union as an organisation consistent with individualism, self-reliance and freedom. The Union can therefore increase efficiency as it attempts to remove nasty ole underpayment. The individual essentially escapes a crummy coercion. These efficiency gains are then accentuated by these "voice effects", where worker productivity increase due to improvements in worker morale.

And where do I stand? Smug and self-righteous, I'll go with the wage norm analysis.