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Sunday, March 04, 2007

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.

    Posted by on Sunday, March 4, 2007 at 01:11 AM in Economics, Income Distribution, Market Failure, Unemployment | Permalink  TrackBack (1)  Comments (72)


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