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The union wage premium, revisited
Ezra Klein, in his response to my post on the union wage premium, directed our attention to this article about the union wage premium in service industries. The paper does find a wage premium, and in doing so offers up some juicy bits:
Our research suggests that unions usually have little power to inhibit subcontracting altogether, but that they can sometimes mitigate its negative effects on their members. The hardest trend to fight has been the outsourcing of labor-intensive kitchen tasks – baking, cleaning and chopping produce, making stocks and sauces. The purchasing of prepared foods has become such a ubiquitous and fundamental business strategy in the industry that it has been almost impossible for unions to stop it. In the end, the economics of using pre-prepared food are simply too compelling, and because the outsourcing is usually done piece-meal, the union would have to fight over just one or two jobs at a time. However, when the numbers of jobs involved are bigger and the economic advantages less clear – for example, subcontracting an entire laundry unit – unions have been able to focus their efforts and have had somewhat more success, slowing the process down or limiting it.
Yes I can see the resulting wage premium within the union, but is this a good way to advance the state of the working man in the United States?
Posted by Tyler Cowen on March 12, 2007 at 05:31 PM in Economics | Permalink
Comments
If liberals were serious about generally helping the American blue collar worker make more money, they'd be trying to cut back on illegal immigration. Instead, they just want to increase the number of people highly dependent upon the Democratic Party for political power to keep their union wage-premium going.
Posted by: Steve Sailer at Mar 12, 2007 10:57:22 PM
Yes I can see the resulting wage premium within the union, but is this a good way to advance the state of the working man in the United States?
Reminds me of how I feel when I hear about how pilots' unions command a strong wage premium. With quite a few salaries in the $150k+ range, it's hard to see how that helps the average working man.
One problem with unions is that the more skilled and irreplacable the worker, the stronger the power of the union. However, those workers tend to make a higher salary even without the union, so unions can increase worker inequality. Though if your point is taking more money from the capitalists, it's okay.
Posted by: John Thacker at Mar 12, 2007 11:46:04 PM
is this a good way to advance the state of the working man in the United States?
Sure. Economic actors (like, say, employees) doing everything in their power to negotiate the best deal possible, to squeeze every last dime out of everyone around them, is commonly called "economic efficiency". Just because it happens to be employees, rather than firms, doing the squeezing doesn't change the point.
This is quite similar to the clever insight Tyler had a few days ago that there are actually plenty of full-bore labour-owned firms. They're called "law firms" and "management consultancies".
If liberals were serious about generally helping the American blue collar worker make more money, they'd be trying to cut back on illegal immigration.
AWESOME troll. *golf clap*
Posted by: Andrew Edwards at Mar 13, 2007 12:42:23 AM
I think that seriously cutting back on illegal immigration would help Americans make more money because if all the immigrants werent here the Americans would have jobs to make money.
Posted by: B at Mar 13, 2007 1:21:30 AM
Seriously Andrew, if you're actually in favor of increasing wages for blue collar workers, then reducing labor supply should increase the price of labor, i.e., wages. Stopping illegal immigration is an obvious technique to reduce the size of the labor market.
Posted by: Jody at Mar 13, 2007 9:06:10 AM
"Yes I can see the resulting wage premium within the union, but is this a good way to advance the state of the working man in the United States?"
Sure. Economic actors (like, say, employees) doing everything in their power to negotiate the best deal possible, to squeeze every last dime out of everyone around them, is commonly called "economic efficiency". Just because it happens to be employees, rather than firms, doing the squeezing doesn't change the point.
No, sometimes it is called 'monopoly rent seeking' when the 'everything possible' includes establishing a cartel or monopoly (in an industry or in supplying labor) and exploiting that monopoly. The UAW did this effectively for decades by monopolizing the supply of labor to the U.S. auto industry and demanding far above market rate wages for unskilled labor. But these monopoly rents weren't paid mostly by the stockholders, they were mostly paid by other American workers who did not enjoy above market rage wages and who overpaid for vehicles of mediocre quality.
But then the UAW failed to organize the new entrants into the U.S. industry ('transplant' factories in union-unfriendly southern states), lost its monopoly, and we all know what has happened. The UAW was slow to realize that its monopoly had been broken or what that implied and continued to make wage demands that has pushed the American auto companies to the brink of bankruptcy.
Posted by: Slocum at Mar 13, 2007 9:12:26 AM
Seriously Andrew, if you're actually in favor of increasing wages for blue collar workers, then reducing labor supply should increase the price of labor, i.e., wages.
I understand that. However:
1) Tyler's post mentioned "liberals" zero times. And "the Democratic party" zero times. Steve's post didn't need to mention them to make his basic point. To do so was needlessly inflammatory.
2) Another good way to raise the income of "the blue collar worker" would be to give every "blue collar worker" a fistful of diamonds and a pony. However, no one proposes this because it is bad policy. Similarly, it's spurious and needlessly inflammatory to accuse "liberals" of hypocrisy for failing to support a measure that (a) would increase the wages of "the working man" but (b) is viewed by them as bad policy for other reasons.
3) To extend the point into the-Democrats-are-in-the-pockets-of-big-labour was so far from the point of the original post, and so dismissive of the possibility that many of one's political opponents are actually trying to do good (albeit imperfectly trying), that the comment was an obvious troll.
Posted by: Andrew Edwards at Mar 13, 2007 12:25:54 PM
Giving every blue collar worker a fistfull of diamonds would drive the market price of diamonds thru the floor.
Posted by: triticale at Mar 13, 2007 2:48:52 PM
Andrew cliams:
"Tyler's post mentioned "liberals" zero times. And "the Democratic party" zero times. Steve's post didn't need to mention them to make his basic point. To do so was needlessly inflammatory."
The first two words in Tyler's post are "Ezra Klein," who is a liberal Democrat.
Posted by: Steve Sailer at Mar 13, 2007 3:14:55 PM
The weird thing is, Ezra Klein won't really admit what he's about.
Ezra wants a legally enforced cartel because that cartel supports political causes that he believes in. I'm assuming that Ezra does not support a law that would force competing corporations to merge or coordinate all of their decisions, and would require entering corporations to join this cartel upon entry into the market. I certainly wouldn't/
It really is amazing, when you think about it. Somebody wants to force workers to join cartels that are enforced by the state because those cartels donate money to that person's political cause. That's simply corrupt.
And yes, I do think we should take medical and legal licensing out of the hands of the AMA and ABA respectively. But I don't know anybody who supports having the AMA and ABA oversee licensing on the grounds that the AMA and ABA support their political causes.
Posted by: Keith at Mar 13, 2007 4:34:21 PM
Keith, that is not why Ezra Klein is in favor of unions, and you know it. He's in favor of unions because he thinks they're necessary to balance the power of employers over employees, and because he believes that, on balance, they raise the standard of living of American wage-earners -- in other words, the wage premiums earned by union workers are larger than the price increases, etc., paid by other workers. He may be wrong about this, but he's not corrupt, and it's a pathetic critique to suggest that he is.
Posted by: K. Williams at Mar 13, 2007 6:11:09 PM
Giving every blue collar worker a fistfull of diamonds would drive the market price of diamonds thru the floor.
On the other hand, it would make engagement rings cheaper. Everyone wins! :-)
Posted by: Andrew Edwards at Mar 13, 2007 7:54:01 PM
K. Williams claims:
"Keith, that is not why Ezra Klein is in favor of unions, and you know it. He's in favor of unions because he thinks they're necessary to balance the power of employers over employees, and because he believes that, on balance, they raise the standard of living of American wage-earners"
We could help the American wage-earner more directly by cutting back on unskilled immigration, but immigration helps Democrats, so liberals aren't in favor of that. What they are in favor of are cartels (unions) that are dependent on government power and therefore contribute money and votes to Democrats.
Posted by: Steve Sailer at Mar 13, 2007 8:28:41 PM
"The UAW was slow to realize that its monopoly had been broken or what that implied and continued to make wage demands that has pushed the American auto companies to the brink of bankruptcy."
With 20/20 hindsight, acting in the best interests of its members at the time, the UAW did exactly the rational thing - they extracted most of the value of the auto companies and transferred it to the workers.
Posted by: TomHynes at Mar 13, 2007 8:32:20 PM
Paul Glastris of the Washington Monthly inadvertently supported Sailer's argument here: we have to stomach the bad aspects of unions because they are good for the democratic party.
Posted by: TGGP at Mar 13, 2007 9:38:24 PM
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