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Die Vereinigte Dienstleistungsgewerkschaft, or stronger unions for America?
Ezra Klein writes:
So what makes us [the United States] different. In a word, power. Or the distribution of it. Europe has strong unions and active governments; countervailing powers that wrest a portion of the pie for their constituencies. We don't.
Many intelligent Democrat bloggers are converging upon this meme.
A few years ago five separate German trade unions, drawing heavily from service industries, merged to form the very large Vereinigte Dienstleistungsgewerkschaft.
Here is a propagandistic article about Die Vereinigte Dienstleistungsgewerkschaft.
It is hard for me to believe that the American hi-tech sector would create more prosperity -- and I mean for the middle class, never mind the rich -- if it had a Vereinigte Dienstleistungsgewerkschaft.
Here is an article about the current and forthcoming death of German trade unions. Germany is now moving toward a two-tier labor market; guess which tier the new jobs are being created in? I have never known a Vereinigte Dienstleistungsgewerkschaft to support the "creative destruction" which is the lifeblood of capitalist innovation. Unions are better suited for a relatively static set of manufacturing tasks, precisely the jobs which are disappearing from Germany and also from the United States. Read this too; German unionization is down to about one out of every five jobs. Unions are declining more generally throughout the OECD.
Here is how German unions have responded to the Airbus crisis; it is not pretty. Here is a German complaining about German unions.
German unions were an instrumental part of postwar recovery and democratization. And I do not doubt the standard evidence that, in partial equilibrium terms, there is a union wage premium of about ten to fifteen percent (though, interestingly, such a premium cannot be found for Sweden, France, or Germany; union defenders claim that the collective bargaining benefits spill over into all sectors. Maybe.).
But today? I do not see the appeal of a Vereinigte Dienstleistungsgewerkschaft, most of all for the relatively dynamic United States. It would bring a one-time boost in some wages and a long run decline in growth and job creation. That is not a good deal. And if I imagine the counterfactual world in which I am a Democrat, I would not feel any differently about this question.
Posted by Tyler Cowen on October 30, 2006 at 06:52 AM in Economics | Permalink
Comments
Unions in Europe aren't nearly as strong as they were thirty years ago,
especially in France and England. The special report on France in this
week's Economist notes their relative weakness there.
Posted by: Bill Stepp at Oct 30, 2006 7:46:31 AM
I think the "unions uber allies" wing of the Democratic Party confuses cause and effect when it comes to worker well-being and unions. I think there are good reasons to be a Democrat, but supporting labor cartels in this day and age isn't one of them. In fact, the Democrats will eventually have to dump the unions and their ignorant xenophobia if the Democrats ever want to be a 21st century party.
Posted by: Keith at Oct 30, 2006 7:59:02 AM
So why isn't the US economy creating more prosperity for the middle class? The data I've seen suggest that almost all of present economic growth go straight to the very rich, or even the super rich. Median wages are stagnant, and the upper middle class doesn't seem to get any traction wage-wise either. What's your explanation, Tyler, and if you recognize it as a legitimite problem, how would you solve it?
Posted by: Dan Karreman at Oct 30, 2006 9:14:46 AM
The reason that unions cannot bring higher wages in Sweden is that it is so heavily unionized (85% or so) that unions cannot bargain higher wages. You can't squeeze blood from an apple. There is only so much asking for more money can get you - it has to come from somewhere. You can make trade offs however - in Sweden the tradeoff is "we'll only work so many hours and you can pay us only so much, so long as we all get the base bottom line" (they set the minimum wage via the unions). Sort of like "we'll pretend to work and you'll pretend to pay us", but not so bad).
In any case, in the countries where unionization is lower, the unions can bargain for higher wages and non-union employees can be paid less, sectors with high unionization can charge more for their produces and the other sectos can pick up the difference (eg paying more for airline tickets, taxes bailing out the companies etc) but this is not possible in a country with almost completely unionized.
Posted by: economistatwork at Oct 30, 2006 9:56:04 AM
Dan,
You might as well ask why you don't see much growth in wages for first year corporate managers. Maybe first year managers are worth the same as they have always been worth. Median wages have only crept up slowly over the years, they have never changed by a huge amount within a 5 or 10 year period. However, at what point in life are many people able to achieve a higher standard of living? What is real dollar mobility for those without a college education? How many people that start in the bottom income quintile of society in their twenties reach the top income quintile of society by the time they retire (or the fourth)? Those are more interesting questions, given the very impressive wages earned in the top quile in this country. And the answers are very impressive too. 95% reach a higher quintile within 15 years and 30% reach the top quintile.
Posted by: economistatwork at Oct 30, 2006 10:15:33 AM
Dan Karreman,
Two, no three, factors occur to me that would explain why mean
wages are stagnant. (You actually said "median" but I assume
you intend 'mean' since I don't believe median wages have been
stagnant.)
(1) Asserting that mean wages have been stagnant ignores other
things that come from the same bin as salaries, in particular,
the rising cost of government regulation and medical premiums.
The Sarbanes-Oxley Act was an enormous hit on the economy. The
wealth to throw away on this had to come from somewhere, and
arguably at least some of it came from what otherwise would have
been increases in salaries. The same can be said for ever
escalating medical costs. Again the money has to come from
somewhere and it's easier to take the money out of paychecks
before it ever gets in to the paychecks.
Now presumbably those who favored the Sarbanes-Oxley Act and
are in favor of whatever it is exactly the medical/insurance
communities are doing will be pleased by all this because they
believe doing things this way is worth more to people than having
increased incomes. If you believe that then the problem isn't
that wages (or their equivalent) aren't increasing but instead
that employees just don't understand the great deal they're
getting.
(2) There have been an enormous number of immigrants to the
United States in the past twenty-five years. Most of the immigrants
are uneducated and lack skills that would earn high-incomes.
Most are not entrepeneurs. It should not be a surprise that
most immigrants are in the bottom income deciles. I have yet
to hear an explanation of how we can have so many low-income
earners enter the country and not see a drop in mean income.
(3) It's not just America, where suddenly salaries are not
going up in synchrony with productivity. Something similar is
happening in Japan, Germany, France, the United Kingdom, etc.
Stephen Roach wrote an essay on it recently.
See http://www.morganstanley.com/GEFdata/digests/20061023-mon.html
The culprit he fingers is obvious. I would have suggested
even he'd hadn't written this essay. It should be on everyone's
mind when trying to explain anything that might seem economically
right now.
How do you suddenly add 1.5 billion unemployed or underemployed
people to the worldwide global capitalist economy without
having all sorts of rippling impacts? Twenty-five years ago
there may have been 600 million underemployed people in China.
That had a tremendous impact on them but precious little on
us because we barely interacted. That is not the case now.
There is relatively speaking a surplus of labor and a shortage
of capital. That means a downward pressure on real salaries in the
developed world and extraordinary opportunities for investors
and entrepreneurs who can figure out to make use of all that
underemployed labor.
This will continue until the global capitalist economy
has grown enough to employ most of the unemployed and the
underemployed. How long this will take is not clear.
Posted by: Mark Amerman at Oct 30, 2006 10:57:02 AM
So as economists are fond of asking "Unions are a bad choice compared with what?"
Tyler doesn't disagree with the point that distribution is significantly influenced by bargaining power. Let's stipulate that workers' share of the pie depends on their bargaining power. In turn I will stipulate that unions reduce social fluidity, and thus long term economic improvement.
But if unions are the best option for aggregating worker power, you can't reasonably ask workers (or their political representatives) to give them up. Appeals to altruism aren't good economic arguments.
Then what is the right mechanism? So here's my challenge, Tyler (and anyone else who's inclined to play): Design a social mechanism that can aggregate the bargaining power of workers while maintaining a high level of social fluidity.
Note that this would strictly dominate unions, since it would (by hypothesis) do as well for workers, and employers would prefer it.
Two further condition:
- The proposed mechanism must be incrementally implementable, so that we can get it started in favorable niches and grow it to universality.
- It must be "self funding" so that it politically and economically supports its own implementation. No altruistic interventions by higher powers.
I think if such a mechanism gets traction, these debates would evaporate and we could work on something more exciting. If not, unions are perhaps the best available option (though I don't expect that would stop Tyler complaining). So help us out here.
Posted by: Jed Harris at Oct 30, 2006 11:48:17 AM
Is it naive to wonder if anyone has ever theorized about voluntary union membership? The idea would be that you would join a "union," which would negotiate on your behalf. As a voluntary union, it would have to compete with other unions for your membership as well as for jobs, sort of like a talent agency. It seems to me that such a system could be a happy middle ground between rigid strike-prone unionism and cutthroat negotiations between corporations and individuals. You can ignore one guy who is asking for well-deserved higher pay, but it may be harder to ignore a few dozen. I think the cast of "Friends" got fat raises this way.
Posted by: John at Oct 30, 2006 12:29:49 PM
"You might as well ask why you don't see much growth in wages for first year corporate managers. Maybe first year managers are worth the same as they have always been worth"
this doesn't address the issue that for most of this century, these first year managers wages increased, relative to inflation. Only in the last few decades has there been an extended period of flat wages.
Mark is closer to an answer to this point. But this doesn't let anyone off the hook. If we've added billions of workers, we've also added millions of talented professionals, perhaps tens of millions. Why are wages/incomes for these groups so different? I can see returns for starting a business aimed at mass markets increasing dramatically. What I can't justify is the returns for top managers.
Posted by: mickslam at Oct 30, 2006 3:05:58 PM
I am always curious about what people who complain about unions recommend. Should we pass a law that bans them and put anyone who would collectively bargain in jail? How would we narrow that ban to make it OK for investors to collectivize their efforts as shareholder in corporations, or corporations in tax exempt trade groups, or investors in tax exempt trading houses (NYSE, etc). How do we decide who may, and who may not, advance their commercial bargaining through collective efforts?
As for an individual member of a union, do you think they should care about the economy as a whole, about creative/destruction cycles of capitalism, about off-shoring of jobs, or should they just care about getting as much as they can as soon as they can? How do they balance the liklihood that their union will cripple the company in 15 years against the urge to use its power to make $135,000 a year, full benefits and matched 401(k) contributions?
I concede the calcifying effects of unions on growth and job creation, the long term drag they place on industries, but I do not concede that unions should be legally exiled from pursuing their short-term interests. Just because come commercial collective action may prove economically detrimental doesn't mean it should be illegal. A minor drag on large scale economic growth is no way to go about legislating; something truly dangerous should be required before overriding the liberty to pursue economic interests collectively. I don't think Unions are that pernicious, and among all teh commentators here, I don't think anyone else thinks unions should be illegal, or that union members shouldn't have the right to decide to make a short term bet. So what is to be done?
Lets pick on a powerful vested interest that is far rougher on our economy and our liberties. How about all those law enforcemnt types pouring public money into the War on Drugs, prisons, etc. Someone put up a post with 14 links about that.
Posted by: guy in the veal calf office at Oct 30, 2006 3:21:56 PM
Jed, you assume that "aggregating worker power" is a good thing. Why is that?
I, for one, see no possible gains in subsuming myself into a collective.
Posted by: Noah Yetter at Oct 30, 2006 3:33:02 PM
mickslam,
to the extent that growth of median wages is less according to CPI, you must also remember that CPI is clearly not taking into account new technologies (the median wage-earner in 1970 did not own a computer, she does today, etc). You have to separate non-wage benefits, account for differences in work-hours and work-environment, and a host of other things. My point was that a) median wage growth is not actually that much slower than it used to be and b) it hardly speaks to actual earnings at all, since most people only earn the median for a short part of their lifetime.
Posted by: economistatwork at Oct 30, 2006 3:40:04 PM
"I am always curious about what people who complain about unions recommend. Should we pass a law that bans them and put anyone who would collectively bargain in jail?"
No, but we could abolish the laws that give unions the power to force workers into membership and representation. What's wrong with it being voluntary all the way around?
Posted by: David Andersen at Oct 30, 2006 4:26:31 PM
David-
I agree with your proposal to the extent closed shops are legally mandated, but not if collectively bargained for. You ought to agree also that the Unions should regain the powers relinquished in the "national labor relations" legislation, which was compromise legislation meant to reallocate coercive power and make everyone play nice. Unions got closed shops, yes, but they were required to give notice before strikes, to submit to mediation, and the courts and executive branches of governments were given powers to enjoin strikes. Let us agree to unwind that deal entirely.
Then, the two collectives can really start wrassling, we'll have wild cat strikes, closed highways & airports, closed schools causing havoc to your child care schedule, etc, and then mass firings and hightened passions, etc, but the two groups will hopefully approach a natural equilibrium unmediated by the politically gamed hand of government. Without government involvement, you won't have the GOP or Democrats "tilting" the conflict one way or the other (I use scare quotes, because I'm not sure where fair is). I think that's better, and I'm willing to see, but it could also turn into Spain.
Posted by: guy in the veal calf office at Oct 30, 2006 6:22:41 PM
I don't mean to be too glib, but I've got to ask... did you intentionally put the phrase "Vereinigte Dienstleistungsgewerkschaft" in every single time where you might have used pronouns or a referrent instead because it's fun to use a six syllable word that makes the German for Speed Limit feel it's length threatened?
Posted by: Neal at Oct 30, 2006 6:38:45 PM
If unions bring about "long run decline in growth and job creation", perhaps it is on the same order as the "destruction of jobs by minimum wages". In other words, essentially unmeasurable.
I'm leery of believing either of those conservative excuses. I'm much more likely to believe that the rich want to get good servants cheap.
I'd be interested to hear if the literature about unions is any more conclusive than the literature on minimum wage.
Posted by: Mike Huben at Oct 30, 2006 8:10:01 PM
Noah Yetter opines "I, for one, see no possible gains in subsuming myself into a collective."
As Tyler tacitly admits, many workers, at least in the short term, can increase their share of economic growth through strong unions. This gives them a rational economic reason to organize unions -- which they do, historically, even in the face of mortal danger.
You may not be one of those workers, or you may prefer benefits of not participating. That doesn't affect the economic and social significance of unions one way or the other.
Tyler's point (with which I largely agree) is that unions impose undesirable limitations on social fluidity. So I claim the question Tyler needs to address is what alternatives can we make available, for those whose best option now is a union?
Posted by: Jed Harris at Oct 30, 2006 10:36:53 PM
Yeah Veal Guy, unwind it all. Fine with me. Problem is, too many people want problems solved instantly by authority. Problems are rarely given the time necessary to come to equilibrium naturally, without government intervention.
Fair is simple, I think. Fair is that everyone can enter and exit agreements voluntarily, according to terms voluntarily agreed upon.
Posted by: David Andersen at Oct 31, 2006 12:23:06 AM
"So I claim the question Tyler needs to address is what alternatives can we make available, for those whose best option now is a union?"
I don't think short-term solutions exist. People need to become better educated, more productive, and more versatile. In short, people need to become more valuable to each other. That's a long-term process and I think it includes a cultural/philisophical component that emphasizes we are personally responsible for our own well-being (to the extent possible).
Posted by: David Andersen at Oct 31, 2006 12:26:52 AM
"I'm much more likely to believe that the rich want to get good servants cheap."
Mike is perhaps not so much a believer in the idea that we're personally responsible for our own well-being and should take steps to maximize it. Do people who don't want to be cheap servants have no choice in the matter, especially in the long run?
Posted by: David Andersen at Oct 31, 2006 12:28:58 AM
Mike, if you want to see the unemployment caused by minimum wage laws, just raise the minimum to a high enough level. Okay, so people aren't that stupid and don't do that. But that doesn't mean that unemployment is eliminated; just that it's not visible. What of the people whose work is so poor that they cannot get a job that demands a minimum of production to match the minimum of wage? Is it acceptable to you that the least among us should suffer so that the next-to-least may prosper? Personally, I consider the minimum wage to be a racist and immoral law, and people who support it to be racist and immoral people. Hey, if you don't want to be judged as a bad person, don't consistently do bad things.
Posted by: Russell Nelson at Oct 31, 2006 3:48:10 AM
There is a non-zero cost to union membership, whether or not the union gets you anything through bargaining. If the would-be union would not have enough bargaining power to wrest significant concessions from the firm, then the employees are better off not trying.
Posted by: Cyrus at Oct 31, 2006 7:36:57 AM
Professor Cowen--
Not only are the unions agreeing to effective wage cuts, but according to this Financial Times column (reg. required),
"According to the European Commission's latest report on the eurozone, the wage share in GDP has fallen from just under 62 per cent in 1991 to about 57 per cent in 2005, mostly due to wage pressures inside Germany. In the US, it has remained comfortably above 60 per cent throughout this period."
So the wage share of GDP has DECLINED in Germany recently, mostly because the unions have accepted arguments that they needed lower wages to be competitive. What was the point again?
Posted by: John Thacker at Oct 31, 2006 9:28:20 AM
economistatwork, could you provide a citable source for the assertions you made about class mobility? I'd like to share it with some of my socialist friends who believe that we have a caste system in this country. I know enough anecdotes to believe it but I've never found the hard evidence.
Thanks in advance...
-dk
Posted by: dick king at Oct 31, 2006 3:48:21 PM
The union is called "VerDi". Even though I am well-versed in German politics and culture, when I read "Vereinigte Dienstleistungsgewerkschaft", I drew a blank. Using its full name is about as uselessly confusing as refering to the AFL-CIO by its full name would be. (How many even remember what CIO stands for?)
Posted by: David Wright at Nov 1, 2006 1:00:29 AM
Wish someone would talk about Jed Harris' proposal. Is he asking too much?
dick king -- economistatwork's claim doesn't seem to jibe with this New York Times graphic Scroll over the income quintile to see where those people ended up (over ten years).
Anyway, comparing people's lifecycle incomes to the annual quintiles is pretty dumb. You might as well try to prove that Americans are getting richer by showing that most babies eventually grow up and earn more than newborn babies do.
Posted by: Noumenon at Nov 1, 2006 12:24:49 PM
Anyway, comparing people's lifecycle incomes to the annual quintiles is pretty dumb. You might as well try to prove that Americans are getting richer by showing that most babies eventually grow up and earn more than newborn babies do.
Yeah, though that's about the equivalent of what people actually do when they claim that the gap between rich and poor is getting worse because more people go to college and grad school. (And thus trade several years of lower income as a student for years of higher income when they get out, increasing income inequality.)
Posted by: John Thacker at Nov 2, 2006 8:28:44 AM
Hey, that's a very good point, John!
Posted by: Noumenon at Nov 3, 2006 12:42:27 AM
