Thursday, January 11, 2007

Textbook Economics, The Decline of Unions

From George Will's most recent column: "Recently, the UAW has been retreating, crippled by economic forces beyond its control — and by its past successes in winning benefits that companies can no longer afford as they compete with foreign manufacturers in America who do not have unionized workers and the legacy costs of union retirees."

In other words, it priced its members right out of the competitive, globalized labor market. It's Econ 101:

From the
Gwartney textbook: "For a time, unionized workers enjoy higher wages. In the long run, however, investment will move away from areas of low profitability (e.g. Delphi, Ford, GM). To the extent that the profits of unionized firms are lower (MP: Delphi, GM, Ford), investment expenditures will flow into the nonunion sector (MP: Toyota, Honda, Nissan) and away from unionized firms. As a result, the growth of both productivity and employment will tend to lag in the unionzed sector. The larger the wage premium of unionized firms, the greater the incentive to shift production toward nonunion operations. Empirical evidence shows that industries with the largest union wage premiums were precisely the industries with the largest declines in the employment of unionized workers."

Classic textbook economics in operation: The UAW has seen its membership decline by almost one million members in the last 20 years, and is lower today than at any time since 1942!


At 1/12/2007 12:12 AM, Anonymous Anonymous said...

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At 1/12/2007 9:00 AM, Anonymous Walt G. said...

Why is it when capitalists band together and form corporations; that's OK. When businesses join chamber of commerces; that's OK. When lawyers or doctors form associations; that's OK. When college professors, even free-market college economists, accept tenure (a union-like safety net); that's OK. But, when common workers form unions; that's bad? The opposite of organized is unorganized and a single unorganized worker has little or no bargaining power.

The problem, as I see it, is an inability to change with the times. However, workers still need someone looking out for their best interests. A look back at labor history shows how capitalists will operate unchecked. Since politicians need money to be reelected and being reelected is always their number one goal, corporations will always have the laws in their favor. The common workers only strength is in the power of their numerous votes and banding together for their common cause. Union serve that useful purpose.

At 1/12/2007 9:28 AM, Blogger Mark J. Perry said...

If the main goal of a union is to ensure market wages for its members, they will survive and thrive in even the most competitive labor markets. But since the main goal of many unions is to achieve "higher than market" wages/compensation for its members, that strategy will destroy jobs in the long run (e.g. UAW has lost 1 million members), and destroy the companies that employ those workers (Delphi, GM, Ford, etc.). That is the economic analysis outlined in the Gwartney textbook.

One problem is that once union workers receive higher-than-market wages for decades, it might be unacceptable to ever accept a market wage/compensation.

For example, who has better health care - UAW workers, or GM engineers and accountants? Probably UAW workers, who would now find it unacceptable to accept an "average" or "typical" health care package that most of us have.

At 1/12/2007 10:03 AM, Anonymous Walt G. said...

If we can work together and couple the above market wages with above market productivity, the wage premium will pay for itself and drastic cuts will not be necessary. We just have to quit looking at the past as a way to do business, and build cars that people are willing to buy. We CAN do this.

The health care issue is national in scope and can't be solved at the GM/UAW bargaining table. I consider that a much bigger problem than the minimum wage law or even Iraq, but nobody since President Clinton seems willing to attack that hot potato. Think about it: Are you more likely to die from a heart attack or from a terrorist attack? One way might be more dramatic, but the other is more apt and you're still just as dead. We (GM/UAW) CAN'T solve this problem.

At 1/12/2007 11:26 AM, Anonymous d.c.stimac said...

I agree with you, "workers still need someone looking out for their best interests. A look back at labor history shows how capitalists will operate unchecked." I think about safety in the workplace everyday and who will protect the worker if the worker is not represented. I am a salary worker and my best interests and benefits are a direct result of what the UAW has done for their members.

At 1/12/2007 11:32 AM, Anonymous Bob Wright said...

walt g:

I submit that no one is saying common workers forming unions is "bad".

It is common sense that like the individual strands in a rope, people are stronger when together than they are individually.

As you appropriately point out, many people join trade associations of all kinds: doctors, attorneys, college professors, tradesmen, etc.

Joining together in common cause is not the issue as I see it.

The economics of your association is the issue.

Keep the association. Adjust the economics.

At 1/12/2007 9:15 PM, Anonymous Anonymous said...

I know that union have given the average worker in the United States a great amount of protection that the worker did not have prior to labor uprising. That being said, there is no doubt that unions have also tried to get as much as they could from the employers. At the same time, I think that the unionized workers have become somewhat lazy. I have been in many metal stamping plants of Ford and GM to see 4 people sitting down, and propped against a steel beam for every 1 person that is "working". With this kind of efficiency, it is hard to believe that GM or Ford could ever be in a place where they make a decent profit.

Another idea of this discussion is getting paid "higher that market" rates. No only do the average union worker make more that a non-union worker, but the unionized worker does much less work during the average day to earn that money. As an employer, I will no longer consider hiring former UAW workers. They do not have the teamwork perspective in the workplace. The most common phrase is "I't not my job!". I have never seen a UAW person put in a solid 8 hour day of work.

At 1/13/2007 8:04 AM, Anonymous Anonymous said...

If this is true what you say, "I have been in many metal stamping plants of Ford and GM to see 4 people sitting down, and propped against a steel beam for every 1 person that is "working"." Then I must summize, I would call this a supervision or management problem for letting these actions and performances occur. You mentioned you are an employer, do you let your business run like this? Probably not, therefore it is a supervision issue.

At 1/13/2007 11:39 AM, Anonymous Walt G. said...

I see a lot of false assumptions in this post. As a metal stamping employeee of 33 years, I've seen most of our work downsized through automation.

You can't assume because an employee is sitting down he or she is not performing a value-added operation.

For example, in the past we had hand-fed presses putting put 250 hoods per hour with 20 or more employees. Now, we have automatic presses putting out 400 hoods per hour with 6 or fewer employees. Many higher quality parts made by fewer people.

These presses are so large that one employee is needed to sit per side to cost-effectively restart any line stoppages. When a press stops, the company starts losing money, and the workers physically go to work. In a perfect world, the presses would perform flawlessly and never stop, but mechanical part handing issues and mechanical breakdowns are real-world problems. At $500 per hood and 400 hoods per hour, how many minutes per hour would you care to wait for employee response (that’s $3300 per-minute downtime cost)?

I am not saying that some employees don’t goof off, but an employee sitting when a machine is operating is not always necessarily bad business practice. A clear understanding of the unique manufacturing processes inherent in each operation is needed to make that judgement call.

At 1/13/2007 12:31 PM, Anonymous Anonymous said...

like I said before, I am not a union worker, and I also want to say that most union workers deserve every penny they make. I have seen their jobs, especially the skilled trades and these are specialized trades that need expertise to run them. I also want to say to the person who is blasting union people standing around, there is no standing around, if you're standing around then the assembly lines are not running and that is not happening. Most non-union people are jealous and for what ever reason want to bad mouth what they cannot have.


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