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Reducing Union Power Increases The Workers’ Wages

by | 13th, September 2012

THIS might come as something of a surprise but reducing the power of unions can indeed raise the workers’ wages. This isn’t the point that Hopi Sen was intending to make here at all but it is indeed  a useful interpretation of the facts.

This seems to suggest that over the last decade and a half, non-union members have seen a greater proportional increase in their income which has eroded the wage premium enjoyed by union members in both the public and private sectors.

The explanation of this is that there are two possible models about what unions do for wages.

The first is the one that many people buy into. The union allows the workers to stand up to The Man and recover some of those profits exploited from the sweat of their brows. In this case, a reduction in union power should mean a rise in the portion of the economy that goes to profits along with a fall in the amount that goes to wages. We have seen in recent decades a fall in union power. We’ve also seen a fall in the portion of the economy that goes to the workers’ wages. However, we have not seen a rise in the amount going to profits. So this model is at best incomplete. That extra bit of the economy has actually been going in higher taxes (especially VAT) and in wages to the self-employed.

The second is that unions manage to increase pay for union members: but at the cost of wages to non-union members. There’s quite a lot of academic economics that suggests this is what really happens. And here we see that declining union power means that wages for not-union workers increases faster than that for union members. The evidence is at least consistent with this explanation of what unions actually do.

Which leads to an interesting thing we can say about all those calls for increased union power. Sure, it’ll be good for those who are in unions. But it will screw the rest of us who are not. So why should we support it?

 



Posted: 13th, September 2012 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink