Sunday, March 27, 2011

Proper Pay

Perhaps now would be a good time for me to briefly discuss my views on unions. They have been plastered all over the news again thanks to Wisconsin, and recently, though much less publicized, Illinois passed a prevailing wage act, which I will also comment upon.

Unions are not evil, let me just get that out. However, there are noted negative effects unionization can have on industries. First off, unions are generally a good idea in monopsony situations. A monopsony is when there is only one employer in a given market. As the word suggests, it does, in a way, parallel monopolies. Monopolies are not price-takers, in that they can charge much higher prices for goods or services than a competitive firm can. Monopsonies can offer much lower wages, since obviously, many workers have no other option for employment. Thus, having a union would curb some of the downward pressure on wages in these markets.

On the other hand, unions work the same way strict labor regulation does. In economies with strict labor laws for hiring and firing, we tend to see less risk taking, which isn't necessarily all bad. However, when it becomes difficult to fire employees, firms take large losses in recessions, for example. Also, they will be reluctant to start hiring again immediately. If the possibility of another downturn exists, then firms will tend to wait before committing to hiring again. Also, risk taking isn't all bad. Yes, risks like those taken by some banks in the crisis are, possibly, destructive, but I'm talking about investing in new technology, or exploring new production methods. As this article shows, labor laws have a very large role to play in firms' choices when it comes to investing in risky technology. Unions, by enforcing stricter hiring standards and higher wages on firms, effectively add, at times, unnecessary costs to firms. While fair wages are a must, unions do occasionally push these wages so high that the effects on unemployment offset the higher wages. For example, public schools get there money through the property taxes on the homes in their respective areas. If a school is in a poor neighborhood, then property taxes will not generate as much revenue, and naturally the school has less money to spend. Now, if there is a teachers' union present that demands equally high wages as their counterparts in Greenwhich, what do you think that's going to do to school programs, extracurriculars, etc...? The prevailing wage act passed in Illinois makes union wages requisite for even non-union firms and workers. Not unsurprisingly, the CEO of Caterpillar has announced plans to possibly leave Illinois.

Finally, don't be completely blinded by unions always presenting themselves as the "little guy." The head of the New Jersey teachers' union makes $550,000 a year.

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