Thett3 Tournament: Labor Unions are a net benefit to humanity

Introduction: First one must ask: What increases the real wealth of nation? It is done through increasing its’ worker’s productivity and capital. If we imagine a situation in which all the machines, tools, and infrastructure was removed, then people’s wages would go down because not enough stuff would be produced. No amount of unionization will increase the wages of workers, because there simply are not enough stuff that can be produced. Here are a few institutions necessary to increase economic growth: a) Businesses must be rewarded for increasing productivity. Since productivity improves economic growth, businesses must be rewarded for it. This means businesses must obtain a profit for increasing productivity. b) People must have strong incentives to start a new business. The more businesses that form the more ideas that can be tried. It is the process of “tinkering” that creates new ideas that create wealth. This means that people must be incentivized to start a new business through obtaining a profit and knowing that one can improve his or her life through starting a business. c) Government must be free from corruption. This is self-evident, but will be explained more later. d) Investments in capital must occur In order for investments in capital to occur, investors must be ensured he/she will obtain a return on investment. I will explain how unions harm these institutions. Intuitively, one understands why cartels are bad. They raise prices and harm the consumer. The US government has established anti-trust legislation which makes price-fixing between businesses illegal. However, this same logic is applied to unions, which create a monopoly on labor and price-fix labor. They raise prices of labor and harm businesses. The value of one’s wage is based on supply and demand of labor. Therefore, unions can only increase the value of their labor through decreasing the supply or increasing the demand of their labor. I will demonstrate how each one of these situations is bad. a) Decreasing supply of labor One way laborers make sure that they can maintain high wages is to restrict supply through barriers to entry. This can be done through a seniority, rather than a merit system. Or the employer might be prohibited from hiring non-unionized workers. The simple act of increasing the wage reduces supply. If for example, laborers state that their wage should be “$20” instead of the market rate of $15, then a business cannot hire more of these workers, who want to work at a $15 wage. These workers either become unemployed or have to work at a job that offers less benefits or less play which is obviously harmful. The amount of wealth lost from this can be quantified as “deadweight loss” as this supply and demand diagram shows. b) Increasing the demand for labor Another solution is that the laborers can artificially increase the demand for laborer. This can be done through a contract requiring a certain amount of people to do a job. While a worker’s marginally productivity might not be worth their marginal cost, he/she is hired because the worker-employer contract requires it. Because the worker is not increasing the marginal productivity of the firm, he/she is taking away profits from the company. There are two main problems with this arrangement. First taking away the profits from the company is bad because as outlined earlier, profits are a necessary incentive to drive economic growth. Why start a business, invest, or increase productivity if the profits will simply be taken through the unions. The second problem with this arrangement is that the employer-worker contract will make it so that it will be difficult to increase productivity, since contracts make it difficult to restructure and rearrange labor to make them more productive. However, there is another, alternative mechanism that a labor union can increase demand, and that is through using government to obtain special privileges. Government can reduce competition, and provide federal handouts to ensure that the companies the workers work at remain profitable enough for workers to remain employed at artificially high wages. This is obviously bad, since as I demonstrated before that competition is good and profitability needs to be a reward for productivity, not for unproductive activity that distorts the functions of profits. Public labor unions are especially bad I will also stress that public labor unions are especially bad. As progressive Franklin D. Roosevelt stated: “All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service.” While in the private sector, union power and wages are limited by how much profit a company can make, the same does not hold true for the government. The government can simply overtax citizens, inflate the currency (if federal government), or run deficit spending. None of these three policies are good. The government also has legitimate roles that improve economic development and well-being of a nation. They provide education, science funding, roads, water treatment, regulation and providing rule of law. Unions harm development and improvements of these institutions in the same way that private-sector unions harm business. Also, since unionization makes termination of an employee especially difficult, public employees can more likely get away with corrupt actions. Since government has a near monopoly on coercion and force, there are little alternatives then to use government services. Governments have a long track record of corrupt which have caused devasting economic effects, like in Africa, so it especially important that government remain corrupt-free and work properly. Empirical Evidence: Pro might believe that without unions that employers will exploit workers. However, this is false. Since businesses compete with one another, they will compete for labor as well. A business cannot offer wages lower than other businesses, otherwise they’d work for other businesses and not for him or her. This competition allows labor to be worth their productivity. Despite declining union rates, real hourly compensation is still around equal to productivity[1]. Economist and historian Thomas Woods shows that real wages in the 19th century rose despite low union participation rate, and that American workers had higher salaries then more unionized European workers [2]. Research and empirical evidence also conclude the negative effect of unions. It concludes that “Unionzed companies invest significantly less in both R&D and physical capital then nonunion firms”.[3] One can also see how labor unions try to gain political favors from the government. Barack Obama received campaign funds from autoworkers and bailed out the unionized GM. In the restructuring of GM, unions received their pensions and benefits while secured bondholders, who are given first-preference, did not have their money returned [4]. Unions are listed as the top lobbyists, spending millions for campaigns [5]. One can also see how unionized workers create large wage gaps. A direct comparison can be made between public teachers and private teachers. The wage gap is a $13,540 differential[7]. These unionized workers obtain higher pay at the expense of nonunionized workers. Public teacher unions are also an example of how unions harm productivity. Anybody who has been to an American high school realizes how inefficient the system is. Programs like merit pay and voucher systems have been met with teacher union opposition. Firing bad teachers become a difficult process with only one out of every 1000 teacher is fired, which creates a situation in which students fall behind in their education, and hate school. [8] [1]http://tinyurl.com...[2]http://tinyurl.com...[3]http://tinyurl.com...[4]http://tinyurl.com...[5]http://tinyurl.com...[6]http://tinyurl.com...[7]http://tinyurl.com...[8]http://tinyurl.com...