Market Failure in Everything: The Labor Market Edition

The union question is a hard one for me. I don't believe that the degree of market power workers and firms bring to the bargaining table is in balance. "Superstars" at the upper end of the income distribution have too much market power, and firms have too much market power at the lower end of the income distribution, where the lower end starts at fairly high levels of income.

Unions are one potential answer for workers at the lower end of the income distribution, but is a return to unions the best solution to the market power imbalance? Should we return to the past, or should we try to use the changing political landscape as an opportunity to build better institutions for both workers and firms, institutions that offer workers the same degree of bargaining power that unions provide, and the the same degree of income, health, and retirement security, but do so more efficiently? We already know how unions work, pretty much, but can we do better?

A proposal to implement novel policy has no chance of surviving the political process even if it is well-grounded in economic fundamentals, and even if it looks to be a clear improvement over unionization for everyone involved. There is legislation to change union membership rules under debate in Congress, but the current political battle is about getting people on record for the next presidential election rather than a serious hope of changing the rules on union membership drives. If the next presidential election goes according to plan, then there might be a chance for change, but even then unions may be (and probably will be) the only viable solution within the political process.

In any case, with respect to the current legislation, here's Jonathon Chait on a proposal regarding open versus secret ballots when votes are taken for the formation of a union. As noted above, the vote for legislators will be open, not secret, and put them on record on the union question:

Why so threatened by a union card?, by Jonathan Chait, Commentary, LA Times: Congress is debating a measure to change the way workers can form a union. Instead of holding a secret-ballot election, a union could be formed if a majority of employees sign a card indicating they want a union. The House passed the bill Thursday. However, the Senate will probably filibuster it, and if that somehow fails to happen, President Bush will certainly veto it. But it shows, despite conservative bluster about Big Union goons, just how modest the contemporary labor agenda is.

The conservative objections to a "card-check" plan certainly have some merit. In an ideal world, workers would decide whether to form a union by holding a free secret-ballot election. The workers would be able to listen to arguments from both sides, consider their choice and vote entirely on the merits of the arguments put forward.

The problem is that, in the real world, union elections bear little resemblance to this happy picture. Companies that face organizing drives have an enormous amount of control over the elections. They can hold mandatory meetings and barrage employees with anti-union propaganda. ... They can predict that a union will result in the shop closing and everybody losing their jobs.

And that's just the legal part. On top of that, they can do all sorts of illegal things: fire workers involved in organizing, actually threaten to close the shop if a union forms and so on. Enforcement of these violations tends to be spotty and lax. Generally, it takes years for illegal union-busting firms to face any penalties and, even then, whatever fine they pay is often well worth the price of maintaining their bargaining power over the employees.

In theory, it might be possible to create enough regulations with enough enforcement to ensure fair secret-ballot union elections. In reality, it's never going to happen. Hence, the card-check proposal... The fear raised by business groups is that letting pro-union workers approach their fellow employees with a card would amount to intimidation. ...

But the real problem in the American economy is not that workers have too much bargaining power. It's that they have too little. Corporate profits have exploded in recent years, while wages for average workers have barely budged. It's obviously great that business is doing so well. What we need are a few measures to help divvy up the pie just a bit more evenly. Anything that helps to slow down the massive erosion of unions is one of those sensible, small steps.

Update: Tyler Cowen has interesting comments, as does PGL at Angry Bear.

Comments

[Lafayette]

EV: “I don't believe that the degree of market power workers and firms bring to the bargaining table is in balance.”

Come to France and I will show you where it is clearly on the other foot. The consequence? A quarter-century of unemployment levels around 10%.

Thanks to what?
1) A thirty-five hour work week that torpedoed French productivity (which on an hourly basis is at the same level as the US).
2) A university system stretched out such that students do not look for employment until the latter part of their twenties.
3) Unions that deal with the government instead of the companies directly, since the state is a minority partner in the ownership of the enterprise (particularly in the transport services/industry). Governments are highly influenced, because the negotiations have wide political heft, even though unions do not represent more than 20% (about) of the working population.
4) Government departments/entities that are privileged bastions, meaning that they have higher salaries than private industry and special retirement schemes that are far more costly. Their unions are particularly strong because the state is run by a group of people, both on the left and the right, from the same state-sponsored school that promotes dirigisme.
5) Unions that are impermeable to government forced arbitration, particularly the transport unions that can shut down the country.
6) Employment contracts that make firing extremely expensive, so companies are enticed to dislocate to warmer labor climates.

“There is legislation to change union membership rules under debate in Congress”

I propose a European solution with an American twist. That compensation be negotiated by unions that include stock ownership as an integral part (based upon performance metrics, just like corporate directors), and that personnel ownership allows the unions (or staff, if there is no union) at least one or multiple positions on the Board (that are voted by union members or company staff).

The proposition has some advantages:
1) It lessens the “US – THEM” divide that leads to confrontation and conflict between management and staff-workers.
2) Unions/staff know full well the component of labor costs as a percentage of the total, which must enter into their negotiating stance. It assures that difficult decisions that can lead to redundancies are equitably shared by both management and staff.
3) Because staff become corporate stakeholders, they are more intimately connected to company operations, thereby enhancing (possibly) productivity.
4) The oversight by stockholder representatives ensures far less hanky-panky on the part of Directors.
5) It ensures that a dialog takes place where key information is available - thereby lessening the obscurity within which Directors alone make/take decisions with total impunity.

Though having posted the question (elsewhere) on this forum, I still do not understand why Directors and the Board can expropriate corporate value (stocks) to reward a particular group of people (usually themselves, particularly if the Board is stuffed with management Directors, which it should not be) without the oversight/sign-off of the totality of the stockholder ownership on certain absolute values (total stock options and performance criteria).

[anon]

We are in the era of globalization - the Flat Planet.
Labor at ALL levels is now or is going to be a competitive market.
We have already seen the movement of the jobs related to assembly in factories. We have seen businesses that rely on telecommunications (eg computer Help Desk) migrate to low cost providers. We are seeing engineering and computer programming become global professions.

I believe that the flow of money will also affect who owns what businesses and how much CEOs get paid.

but... back to the subject: Unions.

A Union in the USA is almost a joke if the industry is global. Unions need to go forth to the world and raise up the working conditions and wages of the 75-80% of the planet that is so much lower than the USA, Europe, Japan et al _OR_ they can simply unionize here and watch as the jobs go elsewhere.

A second issue I have with Unions is: entrenchment. Many unions seem to have been in place for so long their mission is no longer to right-a-Wrong which may have existed when the union was formed but rather to preserve the tenure and power of the Union itself.

[ken melvin]

Doubt unions will ever again be a force (even if the service workers organize). Labor's role is too diminished. Employee ownership holds great promise for distribution and cooperation. To think that resolving labor management problems would solve employment is to err. The problem is much deeper - labor's role will continue to diminish. France (Europe) may be doing the best that can be done given the circumstances while the US is still stuck in a rut trying to make the old paradigm work.

[save_the_rustbelt]

The reason organzing is so difficult is that employers do not have to obey the law.

"Management lawyers" routinely inform managers how far to go in breaking the law to intimidate employees (I've sat through some of those meetings, and learned not to mention ethics).

And then Ken is probably correct, so it may not matter.

[Laurent GUERBY]

Lafayette, still using unemployment numbers? Let me remind you of some facts (you know reality, etc...):

"""
For the fourth quarter of 2004, according to OECD, (source Employment Outlook 2005 ISBN 92-64-01045-9), normalized unemployment for men aged 25 to 54 was 4.6% in the USA and 7.4% in France. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the USA and 86.7% in France.

This example shows that the unemployment rate is 60% higher in France than in the USA, yet more people in this demographic are working in France than in the USA, which is counterintuitive if it is expected that the unemployment rate reflects the health of the labor market.
"""

Another datapoint on the "unemployment" definition:

In 2005 there were 904.10 millions worked hours in France and 911.90 millions in UK (for similar population), less than 1% difference. Unemployment was 9.5% in France and 4.7% in the UK, so yes double unemployment in France for about the same worked hours.

Mark, I'm curious at what's your take is on unemployed as a measure of work market state? Do you still believe the measure means something?

[Brock]

Prof. Thoma,

What sort of novel, non-union, institutions do you have in mind, which would improve worker's bargaining positions at the lower end of the income distribution?

(The minimum wage is obviously one such institution, but it's not "novel".)

[Noni Mausa]

Basic income. That would replace most unions nicely (to say nothing of welfare, food stamps, and a lot of the prisons).

Businesses can run deficits for quarters at a time, and can run recievables for 30 or 90 days, no problem. The banks have no problem with that.

People need 2000 calories every single day. Without some bargaining power for "labour", a significant proportion of the population are essentially hostages to the wage system.

This isn't some ideological claptrap, it's reality.

And when a "correction" occurs in a family's income, they can't hibernate, and they have minimum bargaining power with the banks.

For most people in North America, true privation is not likely -- but the threat of it is always there, and once fallen into privation it is difficult to re-emerge. And the things that can push Americans into privation are random, unpredictable and beyond their control -- changes in the industry, foreign economic choices, a new invention, a health crisis.

The possibility of random privation is another silent bargaining partner (dark glasses, muscles, a cosh and a sneer) at the shoulder of management. He never speaks, but he's there.

Noni

[Stormy]

We need to start thinking outside the box. By just framing the problem, we can start to consider other avenues of attack.

The problem: Wealth is not being distributed. Workers are receiving less and less a share of the pie.

Are stronger unions an answer? Yes, but for those of us with good memories, we can recall what happened with repeated and yearly strikes. Now we have system that is almost diametrically the opposite of that by-gone era: Capital has run amuk.

Going back to the problem: Redistributing the wealth. Other possible avenues:

1. Close down tax havens…Cayman Islands, etc.

2. Make taxes more progressive, both on individuals and corporations.

Use the money to provide a decent social safety net for everyone: National health care, stronger social security system, etc.

And what do we do with our corporations that simply wish who to use labor, tax, and environmental arbitrage in developing countries—much to the disadvantage of our own working class as well as the working class in those countries?

1. Place a tax/tariff on their incoming goods. Again, the moneys can go towards building the safety net here.

2. Review their corporate charter. If they are bad citizens, remove it. Sweatshop labor cannot be countenanced.

3. Start reviewing WTO policy towards the environment and labor. Push for a change here. We do live in one world, I think.

4. Review pending trade agreements with an eye on the environment and labor. In short, no more fast track that simply benefits corporate interests.

5. Stop just talking about currency manipulation. Do something about it. Set up penalties.

6. Stop the offshoring of R&D facilities. That is our future. The resultant technology transfer will gut this country.

In short, start reigning in the multinationals. Their interests are not necessarily coincident with ours—or any country’s interest, for that matter.

[Stormy]

One additional point: What I find sadly lacking is any vision of the problem.

On a positive note, I find Faux's remarks in TPMCafe to be exactly on target. That DeLong had to resort to silly, emotional arguments shows precisely how on target Faux is. We need to hear more from him--and less from knee-jerk pro-globalizers. Finally, someone who can see the forest--instead of nitpicking the leaves.

[mrrunangun]

Simply enforcing the existing labor laws and immigration laws would improve the position of people on the low end of the wage scale. Passing more laws will not improve things as long as the people running the government are free to chose not to enforce them. Rising wages in what is left of low-end manufacturing might further encourage automation and offshoring, but I see no legal cure for that.

[STS]

Mark:

Excellent question. Where is the "countervailing power" (to use JK Galbraith's term) to balance global capital? It has to be labor in some form, and unionism needs some redefinition to remain relevant. At a minimum it has to go global itself, since attempting to defend labor within one country simply raises the incentive to off-shoring.

[cm]

Lafayette: I have seen unions at work in Germany, from a public-observer perspective, and from a distance in France. Your description is not without factual merit, but please tell me how this is in the aggregate worse than in the US, in terms of resulting living standards and quality of life.

For example, I'm pretty confident the 10% unemployed, which may or may not be precisely the bottom 10% on the social scale of living standards, live better than the bottom 10% in the US, and not unlikely the US bottom 20%.

Then you have different cultures. Perhaps the French and the Germans would prefer to work less and have more time for leisure pursuits? Who's to say that matching nominal US government statistics, about we have quite a bit of doubt, in any or all categories should be a universal policy goal?

BTW, I have it from credible French sources that French professionals actually work quite hard, and from experience can say the same thing about Germany, despite your 35-hour week. In both cases, I'd overall say actual work hours and stress levels are quite in excess of workers' desires.

And then much of this 35-hour week stuff has always been a myth. It never applied to small-time operations that constitutes a large if not the larger part of the total headcount, and many workers to whom it applied were driven to overtime, paid or unpaid, nonetheless.

[evagrius]

Well, I'm glad that I belonged to a union, ( AFSCME), that enabled me to take early retirement without having to go through a stressful period of harassment and intimidation by management because I couldn't or wouldn't kowtow to the politics of pretending everything was tutti benni when it wasn't.

[donna]

Until we can take away the human nature of greed and taking advantage of other people, it's ridiculous to talk about markets solving the problems that unions help solve.

As long as employees are thought of as a commodity instead of an integral part of the company, workers will be taken advantage of and will need to negotiate as a group. When employers want to pay people what they are actually worth, they don't need to worry about unions trying to step in.

[Robert D Feinman]

The permanent growth model that our capitalist/consumerist system is based upon is breaking down. We are entering an era of tightening raw material supplies, overpopulation and the need to take account of "externalities". The two most prominent externalities that are ignored are pollution (including CO2) and the depletion of fossil fuels.

We cannot grow forever in a finite world. Capitalism assumes that we can. Money borrowed to finance a new enterprise is paid back, with interest, from the use of the resources consumed by the firm.

It is common for the populist ideas of better equality to be promoted, especially when things are as out of kilter as they are now in the US. But, redistribution won't solve the underlying issues of looming shortages.

To get a feel for the issues I suggest reading ecological economist Herman Daly. Here's a sample essay to get you started:
Daly Essay

Here's one of mine (if you don't mind the plug) on the issues that a steady-state economy will have to deal with:

Planning for a No Growth Economy

[Lafayette]

RDF: "It is common for the populist ideas of better equality to be promoted, especially when things are as out of kilter as they are now in the US. But, redistribution won't solve the underlying issues of looming shortages."

Thank you for a Malthusian version of the end of the world. Like Malthus', it is exaggerated.

Why? Because of innovation in techniques to find alternatives and changes of usage to diminish consumption that are provoked when prices become exorbitant due to shortages.

[dale]

"Until we can take away the human nature of greed and taking advantage of other people, it's ridiculous to talk about markets solving the problems that unions help solve."
Excellent comments Donna.

Markets have there place- but one countervailing power against unbalanced markets- or too strong a reliance on markets- is social solidarity. That's the too rare and fragile element in our society. Unions are a classic vehicle for expressing solidarity within the market framework.

Other than granting each worker and the communities business operate in ownership shares and rights- I can't think of anything better than a union. I hope to be informed of what new possibilities there may be.

I do think the decommodification of workers-people is a key to these problems as well. Decommodification and work incentives seem to be at odds- but many elements of our social life are at odds. We will have to learn to deal with the contradictions between the inherent worth and dignity of each individual and the systemic needs of a somewhat autonomous economic system.

[Lafayette]

LG: éIn 2005 there were 904.10 millions worked hours in France and 911.90 millions in UK (for similar population), less than 1% difference."

Our data does not match.

My sources is OECD Productivity Database, January 2006, downloaded from the OECD site.

The figures are 47.46 million total annual hours worked in the UK and 38.38M for France, a difference of 23.6%.

The average number of hours worked (per capita) show a lower variance between the two countries: 1668 hours for the UK and 1543 hours for France, a difference of 8.1%.

[cm]

Lafayette, Robert D Feinman: Perhaps there is a global/macro version of the "S curve", at least in some metaphorical sense, and we are approaching, or are inside, its flattening region.

The paradigm of exponential growth is not necessarily tied to capitalism in its capacity of being a mode of production/economic activity, but certainly to the model of finance and business administration underlying it.

No paradigm of exponential growth can be sustained for a long time. As Lafayette observes, it can be supplanted with other paradigms that circumvent certain limits, as has been abundantly demonstrated in the past. For example, use of strong animals, mechanization, and automation circumvented limits of human strength, speed, and accuracy, enabling activities that are in a literal sense humanly impossible with manual labor. Use of oil-based fuels and internal combustion circumvented the limits of horse power, steam power, and burning wood. And so on.

However, as in any domain of increasing sophistication, the low-hanging fruits are easiest to pick, and then things get tougher. I have a hunch that we are only now running out of the low-hanging fruits of current modes of economic/social organization (i.e. modern capitalism), and that many problems are unsolved or unapproached not primarily because of technical difficulty but because the current economic/social paradigms don't support what this would require. But perhaps that has always been like that.

Back to labor market failures, I can see how supposedly tech companies, and perhaps larger classes of employers, "cannot find" qualified people/"local talent", while at the same time there is unemployment in the respective labor pools and too many of the people I know suffer under a perception of being stuck in dead-end jobs, or whatever passes for "careers", and in good part perceive they are employed under their potential (but then who wouldn't think that of themselves?). This strikes me as a social problem, not one of technical paradigm.

[Keith]

I think Mark Thoma makes a very fundamental error in his analysis, and I see a lot of more liberal-leaning economists make Thoma's following mistake when discussing labor issues:

Thoma confuses the level of demand with market power, but market power is about the structure of the market and whether individual firms face an upward-sloping supply curve in labor and whether each individual worker faces a downward sloping demand curve. Wages per se tell us nothing about this. But Thoma mistakenly tries to infer bargaining power backwards from wages. Thoma wants to believe, without really thinking deeply anough about it, that wages necessarily follows a direct relationship with bargaining power.

When you look at unskilled construction labor markets, those essentially work like double-sided auctions with lots of firms and lots of workers. In other words, those are perfectly competitive labor markets and nobody has any bargaining power. That indicates a lack of systemic exploitation. People are generally receiving their marginal revenue product in their wage. It's just that the marginal product and resulting wage are low.

Remember, just because there's not a lot of demand for a particular type of labor, so wages are low, it doesn't mean that firms have bargaining power; it just means that the equilibrium wage prevailing in the competitive labor market is low.

Now, if you look at a lot of high-wage labor markets, those have workers with specialized skills often bargaining with firms with specialized needs. Now, there, you have a lot of bargaining issues, and the workers can often be heavily exploited or they may be the ones doing the exploiting.

So it looks more like high-wage workers are more likely to be underpaid (and overpaid) than low-wage workers, given the structures of their labor markets. I recall one study which indicated that Michael Jordan was in fact highly underpaid.

The main efficiency-based economic justification argument for unions takes place when you have a company town with one employer (or employer cartel) that employs a very high fraction of the workers, who are also highly immobile. And the vast majority of America no longer fits that description.

In reality, it looks like at least part of the increase in inequality has actually come about because we've reduced exploitation. More and more wages have become tied to actual individual output, and that has increased wage inequality. in other words, in the "good" old days, firms screwed higher-productivity workers to the benefit of lower-productivity workers. As workers have become more mobile, that phenonmenon has become rarer, so wage inequality has increased.

Too many people believe that exploitation increases inequality, but in fact it may just as easily go the other way around.

I still am amazed when otherwise skilled economists start advocating cartels as the solution for a particular type of market, even when there is no market structure that jusitifies such a cartel.

I think unions might have a future, but it will have to mainly take the form in which workers cooperate with stockholders to keep their eye on management and make sure that managers advance stockholders interests. The workers would also have to do the same.

To that end, I think we should allow company unions.

[Mark Thoma]

Keith:

I didn't argue that wages per se indicate market power, of course there are exceptions at both ends (and the middle) of the income distribution. Picking those out and pointing to them does not undermine the general point.

I said it was a general trend, and I stand by that. Firms have relatively more market power when dealing with low-income workers on an individual basis. There are a myriad of reasons why that would be true.So it looks more like high-wage workers are more likely to be underpaid (and overpaid) than low-wage workers, given the structures of their labor markets. I recall one study which indicated that Michael Jordan was in fact highly underpaid.

Michale Jordan has less market power than a minimum wage worker? Right. That passes the smell test. What you missed is that the potential they are talking about includes his market power. Saying he hasn't fully exploited that power doesn't prove point you are trying to make.

I see lots of right-leaning economists make these errors in their attempt to defend their ideology...

[Lafayette]

cm: "I have it from credible French sources that French professionals actually work quite hard"

If you saw the amount of paperwork shuffled in this country, you'd understand why they "work hard".

In fact, their productivity per hour worked (GDP per hour worked) is one percent higher than that of American's. Imagine what their unemployment rate would be like if they deregulated employment to American standards (which will never happen) - certainly not nearly twice as high.

"Perhaps the French and the Germans would prefer to work less and have more time for leisure pursuits?"

The "more leisure time" argument was one employed by the Socialist government when it introduced the 35-hour week. The French were supposed to lift greatly the usage of transportation (to go place), hotel room rentals, tourist site entries, etc., etc., etc. - whilst enjoying the longer week-ends. All BS.

Industry used the 35-hour week to negotiate more flexibility in hours employed. It did little to change productivity in the aggregate.

Dirigisme is political philosophy that insists that the government knows what is best to regulate markets. State interference in markets comes most often with a serious penalty in efficiency. Workers and management should negotiate their agreements on case by case basis, and everyone will be better off.

In order for people to share wealth, a country must first generate it. If there is great income inequality in the US, it is due to insufficient taxation (and redistribution) at the top. This is far less the case in Europe. Europe's most singular problem is, rather, a history of dirigisme that goes back to before WW2.

They just cannot seem to break a bad habit.

[cm]

Keith: One drive by our local Home Depot parking lot in the morning hours will quickly answer all your questions about (at least casual) construction labor supply.

[Lafayette]

Keith: "I think unions might have a future, but it will have to mainly take the form in which workers cooperate with stockholders to keep their eye on management and make sure that managers advance stockholders interests."

I can only agree. If it was that workers WERE ALSO stockholders.

What is so difficult about that concept? Why not partial compensation in stocks (at a serious discount) or stock-options (for achieving performance metrics)? Why is it that "performance" is a ticket to stock-options for upper level management and not for blue collar workers? This does not make sense.

Still, what is necessary is a law stating that the Board of Directors must have independent representatives elected by stockholders - and not just a token one or two. Why shouldn't the larger base of owners of a listed stock not have the right to oversight at the highest level of decision-making? Why is it that some companies quake when large stockholders come a visiting to ask embarrassing questions?

A couple of Directors from CALPERS would do wonders at some companies ...

[cm]

Lafayette: "The French were supposed to lift greatly the usage of transportation (to go place), hotel room rentals, tourist site entries, etc., etc., etc. - whilst enjoying the longer week-ends. All BS."

Again, who's to say how you are supposed to spend your leisure? Are you telling me I only can have a reduced workweek when I spend $XYZ annually in the tourism industry? So that "wealth is generated" in the economy? What about hanging out in the park or on the patio? Or for that matter, in front of the idiot box?

[cm]

Lafayette: And maybe the unfulfilled expectations of leisure spending also hint that the 35-hour week is not practically as prevalent as one would think.

And when referring to hard-working professionals, I was not referring to paper pushers but people like engineers who actually create product. Even for paper pushers, how much additional paper gets pushed on account of workweek limitations? European bureaucracy neither starts nor ends with labor regulation.

[Robert D Feinman]

Lafayette:
Arguing by analogy is a frequently used technique, but not valid. Malthus got several things wrong, including his mathematics, but we have much more data and scientific knowledge now.

You can hypothesize that we may find some technological fixes for current problems as occurred in the past, but you can't claim this as a certainty. A prudent course of action is too assume we won't solve all our problems and act accordingly. If things turn out better than expected, great.

I suggest you read up on the current crises in fresh water and arable land for a start. Then check the blog theoildrum.com regularly for discussions on fossil fuels. Wishing won't make it so, and the world commitment to innovation is insufficient (especially when compared to the efforts put into militarism).

I also don't need to point out that there are no viable plans for controlling greenhouse gases on the table. Appeals to improved efficiency are just pandering to present consumption patterns. No politician is willing to discuss doing with less or changing our obsession with consumption. The US has 4% of the world's population and consumes 40% of the resources.

If the undeveloped world was to even achieve a fraction of our standard of living where would all the "stuff" come from? Present UN goals call for alleviating poverty for the 1.2 billion people earning less than $1 per day. The objective, to bring them up to $2 per day. Is this your idea of a successful program? Notice that even at this level the effort would require over $1 billion per day in GDP growth (or transfers). Now compare that with the total international foreign aid commitment.

Sorry, increased consumption isn't the answer, much as spoiled Americans like to think it is.

For the curious here is another reference on an alternative paradigm.
Study on Happiness (PDF) - it's from a bank of all places.

[Lafayette]

RDF: "Malthus got several things wrong, including his mathematics, but we have much more data and scientific knowledge now."

And that makes are forecasts more "professional" and therefore believable?

What hubris.

"You can hypothesize that we may find some technological fixes for current problems as occurred in the past, but you can't claim this as a certainty."

The history of technological innovation is one of finding solutions. Necessity is the mother of invention.

Petroleum at $100 a barrel is a GREAT mother of invention.

[Robert D Feinman]

Sorry Lafayette you didn't respond to any of my points, all you expressed is your opinion. That's your privilege, but doesn't add any new information to the discussion. Try again.
-----
On the issue of what organized labor might look like if it was able to re-form:

Traditional unions worked well when the bulk of the labor force was in manufacturing or other routinized jobs. One person on an assembly line is pretty much like another and unions were able to eliminate setting one worker against another. Now many jobs are much more self-directed and workers need a different range of services. A junior lawyer may be working 80 hours a week and others don't see this as exploitation because they are making lots of money, but it is. The same goes for IT professionals and those in health services.

I've suggested an AARP style association which would provide services to such people that include portable health care and retirement plans. Several groups are now looking into such ideas. Here's my original proposal:

A proposal for a worker's affinity group

Building a bond between disorganized workers can also provide an educational function. Unionized workers and the families of such workers tend to vote for more politicians who support progressive social programs. They all see what they have gotten from being members of a group. There really is a benefit to strength through numbers.

[Bruce Wilder]

I am not too impressed with the analysis we bring to these issues. Do "superstars" have "market power"? Do the highly compensated have "market power" or just plain old "power"?

I'd suggest that highly paid CEOs are not necessarily "superstars" -- their positions at the nexus of political power in large organizations give them lots of power, but not "market" power, however that might be usefully defined. And, actual "superstars" -- Brad Pitt and Michael Jordan -- do have very high marginal productivity in their work, due to features of a peculiar combination of technology and market structure, but we'd be unwise to try to generalize from that case.

Keith, above in comments, did an able job of outlining an analysis of labor as a commodity, and what "market power" might mean in such a context, but I'd challenge that analysis. It misses or downplays essential features of the bargaining over labor compensation.

The first and critical "essential" feature of labor compensation is that it must be motivating. The price paid for a commodity doesn't have to motivate the behavior of the commodity.

The marginal productivity analysis of labor compensation tends to miss this essential feature of labor compensation.

Most Americans work for large organizations. Movie Guy looked up the statistics for me, once, and right now I can't find them, but, as I recall, something like 70% work for organizations employing more than 20 people, and more than half in organizations employing more than 100.

Here's a weird fact of economics, which helps to understand the difference between markets and hierarchies: everyone, who goes to the local supermarket this week has roughly the same marginal utility for bananas. That's because the bananas have a fixed, posted price, and everyone, who wants them, buys bananas until their marginal utility for bananas matches the price. Now, people face differing budget constraints, and so on, but the point ought to be roughly clear. This is the great thing about markets, everyone kind of adjusts their purchases to match their preferences, and, where they are all working against a uniform price, there will be a kind of rough uniformity at the margin, as they adjust their marginal preference to equal price. (I hope I said that right.)

When people work on their own, and sell their product or services through a market, the same kind of uniformity with regard to worker preferences tends to obtain. People work to their own satisfaction, at the margin. And, it is part of human nature to be very clever at adapting work to the contours of human satisfaction. Any craft easily becomes hobby. People will ride horses, sail ships, re-enact battles (except for the killing and maiming part), make candles or pottery, cook food, etc., etc. For Fun!

The thing is, work in large organizations, is not all that much fun. It is not that we don't like working in teams, because, in fact, humans are social and most people like teams, (or can like teams, subject to qualification). The problem is, that large organizations, for reasons of coordination and technical efficiency, need a different kind of uniformity from the uniformity of the supermarket. They need the uniformity of coordinated behavior -- everyone showing up at the same time, perhaps, or doing a task, not to the satisfaction of the individual, but to the rule.

People are not particularly happy about this way of working. Automobile assembly plants, which represent an extreme in this regard, are not particularly happy places to work, where everyone has to perform a single 35 second task every minute, minute after minute, at the same time, pace and place as, say, 1200 other people. But, they are enormously, fantastically productive places. A small car, worth ten thousand dollars wholesale, can be fully assembled and painted, with less than 10 direct labor hours.

In a hierarchical organization, there are a whole bunch of things going on in the supervisor/subordinate relationship, some of which are analyzed by economists in a principal-agent context (and some of which are ignored): stuff about being able to observe what the subordinate does or infer it from outcomes, and so on. I don't want to go into all that sfuff, here.

My main point is that employment in the context of a hierarchical organization is fundamentally unlike shopping for bananas. A market's efficiency depends on letting people express their preferences. The organization's efficiency, by contrast, depends on the success of the organization in persuading people to behave in accord with rules, which ignore their individual preferences.

An automobile assembly plant cannot let the guy, who staples the carpet on the floor before the backseat decide for himself where, when and how he staples. (I actually know of a case, where an auto company, which had been foolishly promoting employee contributions to quality and productivity, had to recall several tens of thousands of cars, because the carpet stapler guy had "innovated" that made it easier to get the carpet to lay flat, and punched a hole in the gas tank.)

The way an employer gets the power to tell someone exactly what to do is that the employer pays the individual more than they can get elsewhere (a rent) and then conditions continued employment on obediance. You cannot motivate specific performance with a credible threat to fire someone, unless being fired entails significant cost to the employee.

Again, there are lots of details and variations, here, which matter but which would distract, but my general point, here, would be that large organizations exist because they are able, despite some obvious frictional waste and bureaucratic ponderousness, to generate significant "technical" efficiency in the reduction of waste. And, the economies from that efficiency show up in higher marginal productivity for labor employed in the matrix of those organizations, and allow the organization to pay a compensation, which includes a rent. The employee would lose that rent if the employee were fired, so the employee has an incentive to be submissive.

With that framework of analysis behind us, I can make a couple of simple points.

First, I am ambivalent about unions, too. On the one hand, large organizations by their very nature generate political (not market) power. Firing the employee is costly for the employee, and while the cost and the credibility of the threat is necessary in the context of legitimately movtivating cooperative behavior of the kind necessary to the organization's economic or "technical" efficiency, there's not enough limit on abuse. All power corrupts, as the man says.

On the other hand, unions can easily slip into hold-ups and obstruction of legitimate efforts by the organization to improve the organizational efficiency.

I don't think we should confuse "market power" with the political power, which is inherent in hierarchical organizations. It is misleading in several respects, not the least of which is the economics. The existence of, often, substantial rents from working in an organization means that there is, potentially, a lot of discretion possible in how much is paid.

I find that in a lot of our casual discussion of trade with China, people put a lot of emphasis on the low cost of labor in China, without realizing how truly minor direct labor costs are in modern manufacturing. Our mental models for these things are not very good. And, thinking about the case of Michael Jordan doesn't help build a realistic portrait, either. Nor does thinking about the case of a individual selling labor services into a market, as day laborers hanging out at Home Depot, do.

[Laurent GUERBY]

Lafayette, OECD data counts individual (paid or not) overtime in the UK but not in France, because they take a french government data source where it's not counted, so the relative result isn't surprising.

To OECD credit it's honnestly mentionned in their methodology if you bother to read it.

For more information (unfortunately most of it in French - including experts evaluation of OECD data), see here:

http://guerby.org/blog/index.php/2007/02/27/151-heures-travaillees

Facts, facts and facts.

Mark, I'm still curious of your take.

[Bruce Wilder]

I might add to my comment above, the hypothesis that overpaid CEOs are not "superstars", but are rent-skimming, exploiting their political power to take a little slice off everyone's top.

[Bruce Wilder]

There's also a class consciousness thing, with regard to labor unions.

Why isn't the American Medical Association, one of the most successful unions in American history, considered to be in the same category as the CIO?

Are members of the American Association of University Professors proud members of their labor fraternity?

[Lafayette]

LG: "Facts, facts and facts."

Yes, and when one does not want to believe data published by a reputable organization, one accuses it of being incompatible.

[Laurent GUERBY]

Lafayette, as I said, OECD does mention this issue, it's not a question of OECD reputation (they do a great work normalizing lots of useful measures).

I fully believe OECD in that french hours worked without including individual overtime in France are lower than UK worked hours including overtime.

Based on that I was looking at a way to COMPARE MEANINGFULLY hours worked in UK and France, so I looked for and found another source which includes unpaid and paid overtime FOR BOTH France AND the UK.

Nothing complicated, just a bit of digging through existing stuff.

Facts, facts and facts.

Of course, if you don't like facts you're free to ignore them.

[Lafayette]

LG: "Of course, if you don't like facts you're free to ignore them."

It is unconscionable that the OECD should publish incompatible data sets published in a spreadsheet for the express purpose of comparing country to country. Which is what you insinuate.

(Et, puis, quoi encore?)

[cm]

Lafayette: Just what is your philosophy/position? You are railing against inequality, corporate malfeasance, state bureaucracy, and unions all alike, while rejecting doubts about official numbers from "reputable" establishments. You seem to be recommending increased corporate ownership/stewardship by workers, deregulation, and entrepreneurship.

[Lafayette]

BW: "There's also a class consciousness thing, with regard to labor unions."

True enough.

Unions represent a minority of the working population. Which means that management, for the most part, is getting a free ride with most of the working population.

Unions in the automobile industry have almost certainly priced their labor out of the market, which is why GM is having so much of a challenge to compete with, say, Toyota. Still, I think this may be the exception to the rule.

[gordon]

Mark Thoma asks about industrial relations institutions and wonders "can we do better?" Obviously, his "we" means the USA. In Australia, where I live, we have done pretty well in the past, with a Conciliation and Arbitration system provided for in the Constitution and reliant on Federal and State laws to formalise, rationalise and, if you like, "civilise" the process of setting wages and conditions. There is a brief outline here, and a rather nostalgic retrospective here.

Unfortunately our system is in the process of being destroyed by conservative forces. However the fact that something has been done in the past goes a long way to show that it's not impossible.

[cm]

So far the focus has been on unions, their (de)merits, and union-busting. What about actual market failures? What's the market, and what's the failure?

One thing that I keep bringing up is that apparently a number of employers fail to, or have a hard time to, staff positions that are desired at least internally, with preferred candidates, while there is an apparent pool of willing candidates who are unemployed or want to move from another job. That is, a "job/worker matching" failure.

A not unrelated market failure, if one wants to look at it that way, is that "creative destruction" apparently fails to generate the promised "new" jobs for those who lost theirs due to structural changes, presumably because the businesses to provide those jobs are not being created, or the businesses supposed to provide those jobs don't provide them (domestically?).

Anything else, and any thoughts?

[James Kroeger]

No one has more sympathy for the Poor and Working Class than me. I've even had a central role in an unlikely organizing victory of a manufacturing plant of 600 employees. But even I must admit that, ultimately, unions are not the ideal solution to the problems of the underprivileged.

My hope is that union leaders will eventually realize that their organizations only have a long-term future if they can evolve into mostly-political organizations, committed to an effort to advance a logically defensible pro-worker economic agenda, one that would optimize the welfare of those who work for a living.

[gordon]

If anybody's still interested, another fairly useful source on the (dying) Australian system is here and a link is here.

[SK]

Laurent & Lafayette,
I'm just curious. You are talking about some 900 milion or 47 million ANNUAL work hours in the UK/France?
My understanding is that both countries have about 60 million population each. I didn't look for the statistics of the number of peole employed but I'd just say about half the entire populations is employed in each country, that is, 30 million each. Using Laurent's data, it's about 30 hours a year and 1.5hours a year in case of Lafayett's data. I may be missing some point here?

[anne]

Gordon, thank you so much for the Australian references and please add any more that you think would be helpful. There is an election coming, by the way, and I sure do not care for your Prime Minister.

[ken melvin]

James Kroeger,

Very interesting concept 'they can evolve into mostly-political organizations, committed to an effort to advance a logically defensible pro-worker economic agenda, one that would optimize the welfare of those who work for a living.' Food for thought, room for development.

This would help alleviate the problem of a certain political party pitting working people against one another, and that of corrupt union leaders peddling their votes to the highest bidder ala the teamsters and Nixon and Reagan. And, the one of unions defending their members interest to the detriment of other workers.

[mrrunangun]

Keith: "I think unions might have a future, but it will have to mainly take the form in which workers cooperate with stockholders to keep their eye on management and make sure that managers advance stockholders interests."

I can only agree. If it was that workers WERE ALSO stockholders.

What is so difficult about that concept? Why not partial compensation in stocks (at a serious discount) or stock-options (for achieving performance metrics)? Why is it that "performance" is a ticket to stock-options for upper level management and not for blue collar workers? This does not make sense.-Lafayette

The closest American companies usually come to this is the ESOP where payroll deductions are applied to discounted shares in the employer. In my part of the world, the American midwest, the largest current local employer has one of these and over time has made some of the mid-wage workers multimillionaires and low wage (by local industrial standards) workers very comfortable in retirement because the company has been successful. If the employer had been unsuccessful, it would not have worked out so well. That so many of its workers had a stake in its success may have helped to achieve it.

At the Big Three US auto companies, the union leaders and the management executives had a common interest in putting off the day of reckoning for the companies. A strike may have been in the best long term interest of the industry and its future workers ten or fifteen years ago, but that would have meant no or low bonus cash for incumbent management and maybe worse. That made it advantageous for management to grant unsustainable wages and benefits to the union's bargainers in order to avoid a strike on their watch. The stockholders and current workers are holding the bag.

[cm]

mrrunangun: Beware of survivorship bias. Certainly aggregate worker determination was a contributing factor to the success, whether it's precisely the stock that has made the critical difference is probably unknowable.

There are enough examples where things didn't work out despite everybody making their best effort, and people who traded "hard" compensation for stock or options got quite a shaft in forgone or even lost compensation.

We like to attribute successes to this or that, often correctly, overlooking the "filter" of enabling circumstances. When 1 out of 50 who make the effort succeeds and you are one of the other 49, few will even know you ever existed.

[gordon]

Anne, since our PM is so heavily influenced by your President and his Administration, I'm glad to see some open-minded interest from a US citizen (which I presume you are). Are you the sole remaining "Good American"?

[Robert Waldmann]

I think that you could rephrase his question
to "We already know how [US] unions [have] worked, pretty much, but can we [they] do better?

Unions in different countries are very different. US unions have always been characterised by relatively low membership, high dues and rich strike funds, and complete independence of each union from the AFL-CIO. The US has an extraordinarily high wage differential between unionized and un-unionized workers. Unions in some other countries aim for universal membership (in Sweden there are more union members than workers). There they act like an interest group aiming to represent the interests of workers (a very unspecial interest group).

Consider the case of Robert Barro. I think it is safe to say he is not a pinko. Soon after moving from Rochester to Harvard, he wrote a paper on employment protection laws (restrictions on firing) and the duration of fluctuations in unemployment. In this paper, he distinguished between US type unions and "neocorporativist" unions. He said he gave the paper in Rochester and someone said "three months at Harvard and you are talking like a sociologist."

Unions can do three things, they can strike, they can lobby and they can provide services to their members. To have effective strikes, unions need money in the strike fund. To lobby, they need mass membership. In the USA public sector workers are much more likely to be unionised than private sector workers. Often they are not allowed to strike. Still the unions are powerful, because they represent blocks of voters. I personally think US unions should focus on political activism (getting the votes out for Democrats). I believe that this way they would help their members and help non members too (including, I might add, and in my partisan opinion, shareholders).

I wrote two things above, then corrected myself. I thought of direct services. The vast majority of Americans love social security. Who came up with the idea ? His name was Ferdinand Lassalle and he was a German union organiser. Bismark decided not to let the unions keep all the credit for such a great product. Lassalle was a Jew who had a huge mass following in Germany. I think he was on to something.

So how about this. Why don't unions provide health insurance to their members ? They are large groups and don't have adverse selection problems. Workers do not have to be expelled from the union when they are laid off. I think part of the problem is that unions make firms provide health insurance, so uninsured unionised workers are rare (also can you spell nue Heimat ? I thought you couldn't).

To Lafayette I would note that Unions are also very powerful in low unemployment countries. I would say that the problem is that French unions represent senior workers with safe jobs. The fraction of French workers who are members of unions is miniscule (even lower than the US). While French union leaders claim to aim to help all workers (and probably believe it) they are elected by and in contact with the workers least at risk of unemployment. Also much of the blame for the decline in membership and the crazy approach to industrial relations belongs to the Commies. The CGT leadership was long (is still) monopolised by communists. Clearly the AFL-CIO can do better. Looking at the case of France to judge unions is like looking at the case of Zimbabwe to judge presidents. Contrast with say Austria or the Netherlands or, of course, Sweden.

French unemployment is now anomalously high on the continent (there is also Germany with the Ostogiorno). French union power is not. Again, I think the question is not unions yes or unions no but what should unions do.

Now, I don't really put much hope in unions. I really think the solution to the problem is very simple and has nothing to do with Unions. An increase in inequality can be reversed by increasing the progressivity of the tax code. This is very simple, wildly popular, demonstrably works (google Clinton and "tax increase" and Bush and "tax cuts") and would guarantee power for the party which did it for the forseable future, provided that the increase in progressivity included cutting taxes paid by most people (google Clinton and "middle class tax cut").

However, Fred Hiatt wouldn't like it, so it won't happen.

[Lafayette]

mrr: “the largest current local employer has one of these and over time has made some of the mid-wage workers multimillionaires”

When I joined IBM I made regular visits to Endicott in upstate New York. There, I was told the story of how IBM introduced ESOP to its workers in the 1930s.

There was a long alley of metal lathes on the shop floor that was called “Millionaires Row”. The men who worked those lathes started purchasing company stocks and, by the time IBM was well into computers (in the 1950s), these men had a portfolio of IBM stock worth, in some instances, close to a million dollars.

This case is atypical, I would agree. Still, the concept is certainly NOT new. And, it can be expanded. It takes a law to make sure that employee-owners (stockholders made stakeholders) of the company can be elected to the Board to oversee their interests. The European experience with this measure, cast into law, is NOT disastrous. Two seats on a Board of between ten and twenty seats is not going to change much in terms of management leadership.

But, it does keep an eye on those who dip repeatedly their hands into the cookie jar. It also forces management to dialog with the representative BEFORE the fact and not AFTER, which is way too late.

Unionism has got (probably) about as far as it is going to get – in the US. I simply do not see middle-America coming out on the streets to demonstrate for more "ethical governance in business". For all their acuity in business affairs, Americans are lost in the desert as regards social fairness - overcome perhaps by the rat-race to riches.

So, the fraud will continue. Yes, the manipulation of stocks at the Board level is legalized fraud - no more, no less. (Just like investment banks offering pre-IPO stocks to insiders.)

What makes unions different in Europe is that they did not waste time in the fifties and sixties getting worker benefits into law, and not just negotiated contracts.

It is painful to fire people in Europe. Very painful financially for a company, because the severance penalties are enormous. And, yes, it is kinda stupid, because it simply provokes employers to dislocate low- and semi-skilled manufacturing to warmer regulatory climates. This means an aging workforce is protected in their privileged employment to the detriment of the young - who suffer from chronic short-term or temporary employment, hopping from job to job for years on end.

But, why are the severance penalties enormous for CEO’s (in the US). Where is the fairness?, I ask. Why is one class being treated differently from another? Wherefore this distinction in privilege in a publicly owned company? What is the rational? There is none, neither rational nor fairness.

It just “been that way since the beginning of time”. Well, that reason is no longer good enough.

NB: No haikus, no sound-bites, no hundred words. Learn to live with the method ... it's called "debate".

[Lafayette]

donna: "Until we can take away the human nature of greed and taking advantage of other people, it's ridiculous to talk about markets solving the problems that unions help solve."

Good comment.

The two go hand in hand. Talking about hands, let me put it this way: The Invisible Hand needs guidance from the hands of state.

It is a walk on a tightrope, balancing personal initiative and the need for fairness. If the state regulates too far, which Europe has done, then you milk the cash-cow until the teat is empty. No more money for capital investment, no more return to stockholders, no entrepreneurial initiative ... but a fat, dumb and happy workforce ensconced in "protected-by-regulatory-legislation" durable employment which produces products that have low margins and are therefore unprofitable. More than 60% of French companies on the CAC40 (the French Dow-Jones) earn their profits outside of France globally. So, these profits go to maintaining a cushion for local employees. (Some will find that such is perfectly sensible, and I would agree. But, it is not the best formula for generating capital for local reinvestment and job creation - which is precisely what is happening.)

One need not genuflect at the altar of profits. But, neither can we have a system/arrangement where a privileged few get the cake-with-cherry-on-top and the rest get the crumbs.

So, the question returns to this: Where is the fairness balancing point (or "tipping point" to use popular current jargon) beyond which one side is served and the other rendered disservice?

I can only see the balance coming from two factors: (1) That there is a scale in salary to motivate people to work hard and progress but it is "fair" (the highest salary is never more than some sane multiple of the average salary) and (2) that stocks are offered to ALL employees either at discount (ESOPs) or performance-achievement stock options and, in either case, they allow that employee-owners (now stake-holders) to have a place on the BoD. (Outside stock-holders should have the same privilege – that of electing their representatives.) This is what we might call "ethical corporate governance".

The advantage of the above is that it simply takes existing methods/practices/customs and extends them further down the hierarchical food-chain.

NB: And "bollocks" to those who say it is not possible because it constrains companies from making the "right business decisions". Right for who?

[Laurent GUERBY]

SK, sorry the number of hours I gave for a week (I forgot the word "weekly" when translating my french blog post), OECD data cited by Lafayette is annual.

Lafayette, I'm happy you're so blatantly saying that you did not read the full OECD report and that you stick to your "beliefs" and not "facts".

Here is an analysis:

http://www.encyclopedia.com/doc/1G1-136209872.html

"The annual hours worked indicator is one of the most widely cited indicators provided by the OECD. The Factbook's comparability note says that "The data are intended for comparisons of trends over time and not yet suitable for inter-country comparisons." This warning is usually ignored. In its original form in the data annex to the annual OECD Employment Outlook, this table includes a warning about comparing levels as well as a great deal of country-by-country notes that assist the data user in assessing comparability among different countries. For example, data for the Netherlands exclude overtime hours--helping to explain the relatively low annual hours for this country. These notes could be attached to the tables in the Internet version of this table. An alternative to the chart for this indicator that is more consistent with the comparability note in the Factbook would be to chart the change in hours worked from 1990 to 2003 for each country rather than the 2003 level for each country."

See also recent work by OECD on the topic, page 8 of

http://www.oecd.org/dataoecd/31/7/29880166.pdf

still concludes it's mainly useful for trends within a country and hard to use for international comparisons.

Hopefully, work is done to have more usable data ASAP.

says...

Who says that labor markets are failing? We have had mass immigration for at least 30 years and wages have declined considerably. Looks like the system is working just fine to me...

That is if lower wages are the goal.

[Peter Schaeffer]

The above anonymous post was mine

[kotika]

I have a friend who works as a lawyer for the Los Angeles seaport, he once told me that their union employees get 80-90K per year in wages. This is not because they are so skillful but because it has been unionized for a long time. A poor immigrant does not need to apply for a job there: any new jobs go to the sons and nephews of existing union boys. The work rules are such that when the increased volumes of shipping came from china, the management was unable to either make the existing employees work more hours, or hire new non-union employees -- causing the famous two-week delays in unloading ships sometime in 2002 or 2003.

and lets not forget why unions have such a bad name in the USA: it is because some of the biggest and influential unions had been criminally corrupt, in fact infiltrated by the mafia. This story is well-documented and well-known too, yet noone mentioned this, i'm surprized.

[paine]

what a thread
up top here as a tease
i might suggest

we are on the verge of a job rights movement here
in amerika the reckless

its aim :

smashing the job crow system

i'll get back to that...

-----------------------------------
above in the comment cages
prowling back and forth
are
more wishing well creatures
and casters of magic spells
then you'd find
in most disney feature length cartoons

----------------------------

problem:

corporate dominated amerika
contains
two large sources of income

job (J)

investment (I)

and two large household income groups

the 95% + ...(J) income households

and the 50% + ....(I) income households

given the over all 3/1 J/I ratio

how would households in each category
like to see it change ????

their interests conflict

one finesse

up the I share

and WE can make the J grow faster
so your smaller share
will by a larger amount....in the long run

another answer

create a one ratio fits all type
household cocktail
where
all households (roughly)
x % job income
y% investment income

but now since the J/I ratio for all households favor
J

there'll be a J push over I push ???

then there's the in ward looking non envy solution

the J class for itself in itself
can organize itself tax itself
progressively transfer among itself
and produce a north american sweden

where the I class
small but sturdy
gets a nice safe passage
thru the tax gauntlet

or the opposite extreme
we could attack the I households
directly nail their wealth to the wall

as the benficiaries of the system
make the I class also
the payers of the system's
social costs

my my we could go on and on ....
making
recipes for the cook shops of tomorrow
as some old timer once called it

mean while out there on the job sites

a movement is prolly building
that will hurl
all this into the air

like the black liberation movement
of the 50's

unprecedented

transformative

historic

and open
for immediate enrollment

at your nearest job site

[Lafayette]

LG: "I'm happy you're so blatantly saying that you did not read the full OECD report and that you stick to your "beliefs" and not "facts"."

I'm happy that your happy.

The fact remains that you expect me to believe that the OED reports employment, output and productivity statistics on a spread-sheet for comparison in a country-to-country fashion ... and their data underestimates the actual numbers. Therefore an inter-country comparison is not possible. Therefore the information presented is not usable.

But, YOUR data is correct.

This is the sort of head-in-the-ground pettiness that has kept France from undertaking the profound structural reforms that have been necessary for over a decade. You think the French social model is for the world to emulate and everything is just fine? Not surprising.

I suppose you will tell us next that the reason France has had around 10% unemployment for the last quarter of a century is, again, a statistical quirk. Also, the fact that net individual worth has diminished in the past fifteen years is also a lie, or is it a damn lie or just a statistical mistake?

Right ... when pigs sprout wings.

[paine]

don't tangle with laff

he's a con-numb -drum
waiting to fall on your brain

this gets to the briar patch at the center of his mind

"Lafayette: Just what is your philosophy/position? You are railing against inequality, corporate malfeasance, state bureaucracy, and unions all alike, while rejecting doubts about official numbers from "reputable" establishments. You seem to be recommending increased corporate ownership/stewardship by workers, deregulation, and entrepreneurship."

yes and its a hunters stew too long on the boil at that

[paine]

esop
is just one in a very long line
of prag-utopian attempts to square the two class circle

js mill
among other gentlemen reformers
hoped ownership and workership would become one

in the co op movement he saw the future

well

rational investors like to seperate
and spread risk

in tito's yugoslavia

the workers (at first)
loved the idea of industrial co ops
but they
wanted to sell their shares
and diversify

some olson ite might point out

the share of income
for a line worker
in profits is all too often
too small and too easy to free ride
and and ...
a meme that old ..200+ years ...
if it hasn't caught on...
must be running up against
some pretty big negatives..eh??

[Laurent GUERBY]

Lafayette "Therefore the information presented is not usable."

That's OECD own words, not mine. I'm just making sure people are aware of it before jumping to conclusions. FYI OECD methodology revision paper propositions are very close to the methodology used to produce the data I showed (but you have to spend some time reading both methodologies of course).

As for the state of France vs other countries, before concluding on so called "models" to imitate I just try to understand existing data. In the UK case, the model is:

1/ administration creating more inactive instead of unoccupied active
2/ 15 hours work week instead of 35 hours work week

[Lafayette]

All that changes what, in conclusion?

Never mind, every time I discuss reform with French economists, I go down the same intellectual rat hole.

It's amazing how they love the fog of numbers. (How many angels can dance on the head of a pin?)

Borrrrrriinnngggggg .....

[Lafayette]

cm: "Again, who's to say how you are supposed to spend your leisure? "

I don't give a fig how you spend your weekends.

BEFORE anyone spends their weekends at leisure, they must assure that they can afford to do so. They gotta work.

Germany has EXACTLY the same problem as France: Total hours worked in the basement of the European classification and wage rates are high. But, oh, how the Germans love to ski weekends in the Austrian alps. Spend a romantic weekend in Paris. Sun themselves on the beaches of Rimini for three weeks in summer.

Why not? I agree, they can do it all. But, when you have one of the highest manufacturing wage rates not just in Europe but in the world, your productivity has to go through the roof in order to offset the manpower factor input. And, German productivity is not spectacular. It's export product stars are therefore highly engineered cars and machine tools. That's fine, but it cannot sustain an entire country

German engineering is top-rated - but its expensive. That's great for German engineers that earn wacko salaries. But, bad for the poor grunts who have to work fitting seats into cars on an assembly line.

The German total compensation rate is $32 per hour. For the EU it is about $27/hr and for the US $22/hr. For South Korea they are $12/hr and for Taiwan, they are $8/hr. For China and India it is $2 to 3 dollars an hour.

That jobs are dislocating is no wonder whatsoever.

This phenomenon is happening all across Europe. What makes wage rates sooooo expensive in the EU. Look at the base rate, then look at the social charges. Wow!

The EU is pricing labor out of certain markets, and this is causing the same strife that it does in the US.

What's the solution? Guess.

[Lafayette]

RDF: "Sorry Lafayette you didn't respond to any of my points"

I rarely respond to a litany of woe. You list the problems of this world from YOUR point-of-view and I'll list mine. OK?

I am not Malthusian and do not believe that mankind is constantly shooting itself in the foot. If it is not Climate Change it is Water Scarcity, and if not that it is Arable Land. And, let's not forget the Chronic Deficit and, recently, the Meltdown. How about throwing in the Andromeda Asteroid that is careening towards earth from out of deep space?

A litany of woe, as I said. Cassandras interest me the least.

[r]

I have been reading this blog with interest. Donna is right (way back up top) that until employers stop treating employees as commodities, things won't improve. Unions, however, have had their day. Unions get power, and the leaders become corrupt and just interfere with productivity (someone mentioned the unionized ports of Los Angeles, where they pay huge salaries, but goods sat on ships for days because they couldn't hire non-union to help). The exploitation of workers is a fact in hi-tech. Visa guys are like little slaves. The guy who holds their visa, a small employer who rents them out, makes all the money. You have some guy getting $20 or $30/hr, while he is rented out to another employer who is a "preferred vendor" where the first employer cannot get in, and they are paying maybe $55/hr and so on, with layers, until at the top, a US employer is paying a vendor $90/hr for the same guy. Then when the guys get their Green Card, they go nuts asking for huge salaries, and stock options, thinking now their time has come.... The ultimate problem is the pressure to show short term profit NOW, with no interest in the future. AND, there is the engineered costs of products resulting in overpriced items that puts the whole system out of wack.

[Lafayette]

r: "The ultimate problem is the pressure to show short term profit NOW, with no interest in the future."

Some call it "make hay whilst the sun shines, because tomorrow it can rain".

Don't blame corporate managers/directors for wanting to make a profit, even in the short-term. That's what they are paid to do.

Rather, changing the rules such that short-term profits are made more fairly is possible. That is your bogey, not short-term profits. All profits are earned on a daily basis, so they are all very short term.

Understanding business is not rocket-science. Business managers have one and only one independent variable, the customer. One can manipulate the customer, but one cannot control their behaviour.

Should they decide no longer to purchase your product, for whatever the reason, a manager must fiddle with a number of dependent variables to avoid bankruptcy, manpower being one of them. Given its impact on the cost structure, the salarial mass is the easiest variable to alter - particularly downward.

A competitive market assures that profits are "normalized", that is, one company selling the same product/service does not make that much more than another with the same product/service. Hi-tech companies are somewhat of an exception. If you look at high-tech stocks, what sets them apart from humdrum product companies is that they have a specific market advantage that others do not. (The i-Pod is a recent example, but Microsoft Windows could be another.)

Where we have been discussing fairness, it is in the question of inequality in the distribution of the riches (profits, asset values) generated by the whole economy. Jamie Galbraith tells us that, for all their riches, this small segment of society is a finite number. (So, why worry? ... Lafayette said that, not Jamie Galbraith.)

Because even a finite number can garner far more than their fair share of the pie. And, if we start by assuring fairness at the top, it replicates easier. That is, then we can make it trickle down to below. Finally.

A way to do that is to increase marginal tax rates on the rich and the very rich. And not just a tad, but a whopping good sum.

Another way to assure fairness is to make sure that the total net profits (that go to shareholders) are not manipulated by corporate directors in the Gross-to-Net transformation of profits. That can only happen if workers are made stake-holders (like management) through stock-option schemes and allowed to oversee the management decision process.

When THAT happens in America, Karl Marx will turn over in his grave and clap.

[cm]

Lafayette: "All profits are earned on a daily basis, so they are all very short term."

Speaking of soundbites, this is one. Profits are recognized on a daily basis (i.e. when the check is cached). They are earned doing something called investment or performing a service (and even here arguably by putting oneself in a position to provide the service at a certain scope, quality, and speed), which typically takes far longer than a day.

[Lafayette]

cm: "Profits are recognized on a daily basis (i.e. when the check is cached). They are earned doing something called investment or performing a service"

A shame you don't want to understand. Profits are declared annually for purposes of paying taxes.

They are earned (or not) on each and every transaction.

Make an effort.

[Laurent GUERBY]

Lafayette, I'm not an economist, I'm just trying to understand the meager data they make public :).

[Lafayette]

LG, I have an economics degree but I do not profess to be an economist. So, my ability to interpret data is no better than yours.

I have dealt with the OECD regarding their information and analytical methods. I cannot imagine that they would publish information for purposes of country-by-country comparison that consisted of apples and oranges.

I have needed the data to assess the opportunity of various companies to find suitable accommodation for start-ups throughout Europe. The comparative country data is absolutely essential to obtain an informed opinion upon which to make a decision.

[Lafayette]

Deutsche Bank "Well-Being" Research Report: The non-economic dimensions of well-being: But well-being also has non-economic dimensions: good health and education, a clean environment and safe streets all contribute to individuals’ overall well-being. These elements are difficult to quantify and to aggregate, but their importance indicates that it might be worthwhile for those who determine the priorities of economic policy to evaluate and track them.

Thanks for mentioning this research, RDF. It is interesting. The Economist had a generalized index of “well-being” measured country by country some time ago. I think it became so controversial that the magazine gave it up.

Still, controversy aside, the conclusion above mentioned in the report itself is worth while considering.

Some criteria are objective (crime) whilst others very subjective. If family is important to well-being, then how is it that the fact that the French divorce at about the same frequency as Americans affect the index.

In fact, it is necessary, as the research suggests, to divorce “economic well-being” from “sociological well-being”. Both are measurable, if both have obviously different metrics that must be measured.

Sociological metrics that can be polled are: Crime, Family Ambiance, Drug Use, Scholarly Achievement, Number vacation days. In fact, the best way to do it is to list a number of such criteria, take a poll, and apply proper weighting factors to the criteria according to the poll.

In other words, it should be doable and I am surprised it has not been done.

[mrrunangun]

One of the important determinants of a union's success is its ability to effect a horizontal monopoly. You can't get goods thru a port without going thru the Longshoremen's. You can't get a drivers' license without going thru AFSCME. You can't get coal out of an organized mine without going thru the UMW, but you can if your mine is unorganized. You can get a car built without the UAW if your plant is unorganized. You can get a house built without IBEW or the Plumbers' outside the Chicago city limits. I have no idea how effective the Teamsters are nowadays. It does seem to me that labor solidarity and pride as I knew it in my youth is lacking nowadays. I have been a member of most of the above at one time or another. The Labor movement conferred dignity on the American working people from the thirties thru the seventies, and contributed to social cohesion in the country. It's strength is slipping away for many reasons, and it is hard to see what will take it's place in society.

[Laurent GUERBY]

"I cannot imagine that they would publish information for purposes of country-by-country comparison that consisted of apples and oranges."

Lafayette, please read the OECD PDF, they did publish apples and oranges tables but to their credit they explained that it was not usable for cross-country. Then people reprinted the tables and wrote articles without taking the explanation into account.

Again, page 8 of the following OECD paper:

http://www.oecd.org/dataoecd/31/7/29880166.pdf

I have zero problem with OECD doing this, as I always try to find the fine print and avoid commenting when it's not there.