From: kbanaian@bernard.pitzer.claremont.edu (King Banaian)
Subject: Collective bargaining (was Re: Help Dis Totenberg!)
Keywords: Wages, competitive markets, unions, monopoly
Organization: Pitzer College
Date: Sun, 22 Nov 1992 21:02:38 GMT

In article <MDL.92Nov20161456@ak.cypress.com> mdl@cypress.com (Matt Landrum) writes:

>What is the Libertarian position on collective bargaining?
>Are there any regulations that a Libertarian would support
>in order to insure that those not possessing capital
>would be able to profit in proportion to their contribution?
>
>Should companies be allowed to replace striking workers
>with permanent replacements (I'm fairly sure of this one,
>but I wanted to hear someone elaborate)?

I haven't read the preamble nor the Libertarian platform.  I agree so often 
with what they say I didn't bother to check the fine print.  But it's safe 
to say that Libertarians would not support collective bargaining, and it's 
for very sound economic reasons.

A basic premise of economics is that in a perfectly competitive market for 
labor, the last worker hired receives a wage that equals the additional 
value s/he creates for the firm.  Now that competitive market is going to 
have many firms, making similar goods.  Some workers will gain value from 
working in a career they love.  (I teach, and I would for even less money.  
Please do not forward this to my employer.)  Likewise, some firms make a 
profit because they are well-situated to produce goods at below the market 
price.  

Now what happens in a competitive market when people for some reason like 
the good more?  Firms can make more money, so they want to hire more 
workers.  Some people working in other industries are induced by higher 
wages to shift jobs;  others who weren't working at all enter the labor 
force.  The market responds to consumers.  Likewise, if people decide they 
don't like the good as much, wages in that industry fall, and those who didn'
t really like working in the industry go off to find other careers.

OK, that's what happens in the classroom, and not in real life, you say.  
Why not?  One good explanation is collective bargaining.  Wage adjustments 
necessary for fully functioning free markets are suppressed by contractual 
rules.  In particular, declining industries have trouble cutting wages, 
leading to layoffs.  Those laid off are usually the last hired, but they may 
be the more efficient workers.  So unions can cause excess unemployment.

But the bigger problem, Matt, is that the wage set by the union is not going 
to be the competitive wage we discussed above.  Instead it is set in a 
fashion economists describe as "bilateral monopoly".  See, a union is a 
monopoly seller of labor, often confronted by a monopoly buyer (the firm).  
They haggle, out of which comes a wage determined mostly by bargaining 
positions and skills.  It has no relevance to the value of the product nor 
to the alternative employment opportunities available to the worker.  And if 
the wage is above the competitive one, the union and firm have to construct 
rules to keep new labor out.  Again, the competitive wage just balances the 
last worker's wage in this industry with what s/he can make elsewhere.  If 
you set the wage above that, you get a bunch of workers who want to work in 
this firm.  (This is the main reason for union shop rules, and why right to 
work laws are such a plague to unions.)

Notice, last, that part of the problem generates as well from having firms 
with monopoly power.  But no Libertarian I know favors them, either.

Would someone with more contact with the Party itself post a reaction to 
this?  Does this strike you as consistent with the LP position?

K. Banaian
Economics Dept., Pitzer College
Newsgroups: alt.politics.libertarian