Saturday, March 14, 2009

Unions: An Anti-American Institution

Saw this article on The Economist website. It will be an interesting fight over the next few months or years as unions may try to regain strength and relevance. From an economic view I absolutely cannot understand how labor unions provide benefit to an economy. For a good summary of an economic view I found this piece, which may be a little dated but provides a very sound explanation of the general view of most economists.

I find that it's difficult to argue in a modern economic environment, where globalization is a reality here to stay, that any artificial increase in labor costs will not be adjusted out by simple supply and demand. The Economist article reaches this point in the last few paragraphs when it discusses union views and the role they play in protectionism. If as a firm I can simply move my factory to a different area or outsource my labor inputs in order to lower my cost, I can shift my supply curve to the right therefore increasing my output at all price points, which in theory should lead to a greater quantity demanded. If the theory holds, I could potentially increase the overall number of jobs I provide (albeit at a lower wage rate) and contribute to global growth.

We're at a point where we cannot afford to cut ourselves off from the global economy. If items can be produced cheaper overseas or through non-union means firms have an obligation to both their shareholders and society as a whole to do so. By contrast labor has an obligation to improve itself and constantly provide society with the greatest output at the lowest price.

As an 'oh by the way' it's easy to see why labor improving itself has a positive impact on the overall economy. It's no accident that the educated (or those who took responsibility to improve themselves as labor) are also the least likely to be unemployed. See the facts! I guess my overall summary is that labor unions attempt to shelter the under-skilled, which is not possible in a fully competitive global economy, therefore our government has an obligation to ensure that their policies support the greater good of the US, which is to discourage the anti-competitive wages of unions and focus on providing additional skills to the workforce through education and education related benefits (such as tax deductions and credits).

No comments:

Post a Comment