abhishreshthaa
Abhijeet S
Impact of unions
A union leader addressing the crowd.
Proponents often credit trade unions with leading the labor movement in the early 20th century, which generally sought to end child labor practices, improve worker safety, increase wages for both union workers, raise the entire society's standard of living, reduce the hours in a work week, provide public education for children, and bring of other benefits to working class families.
According to Ludwig von Mises belief that unions are responsible for higher standard of living is misconception. The height of wages depend on the marginal productivity of labor, which means that, other things being equal, the more capital is invested the higher wages climb.
The increase in the amount of capital invested is achieved by removing obstacles in the way of saving and capital accumulation and by letting market to set wage rates. If wages are affected by union pressure and set above market clearing rate, lasting unemployment is created.
Advocates of unions claim that the higher wages that unions bring come at the expense of profits. However, as Milton Friedman pointed out, profits aren't high enough. 80% of national income is wages, and only about 6% is profits after tax, providing very little room for higher wages, even if profits could be totally used up.
Moreover, profits are invested leading to an increase in capital: which raises the value of labor, increasing wages. If profits were totally removed, this source of wage increase would be removed.
Instead of harming profits, unions increase the wages of about 10 to 15% of workers by about 10 to 15% by reducing the wages of the other 85 to 90% of workers by about 4%.
Most economists now think that the wage increases unions can afford their members do not come at the expense of the owners of capital but at the expense of non-unionized workers.
As the price of labor increases, the demand for it will decrease. Unions targets of industry protectionism and limits on immigration also have this effect, benefiting unionized workers at the cost of those without union membership.
The effect of union activities to influence pricing is potentially very harmful, making the market system ineffective. By raising the price of labor, above the market rate deadweight loss is created. Additional non-monetary benefits exacerbate the problem.
"There can be little doubt that union activities lead to continuous and progressive inflation."
Austrian economists such as Robert P. Murphy, however, dispute this, arguing that the increase in the cost of labor simply means that less of other goods can be bought.
He writes:
If unions succeed in wage hikes, and employers raise the prices they charge consumers to maintain their own profit margins, and the supply of money remains the same, then something else has to "give."
Either the prices of goods and services in nonunion sectors have to fall and offset the union sector hikes, or people's cash balances need to fall, in terms of their purchasing power.
A union leader addressing the crowd.
Proponents often credit trade unions with leading the labor movement in the early 20th century, which generally sought to end child labor practices, improve worker safety, increase wages for both union workers, raise the entire society's standard of living, reduce the hours in a work week, provide public education for children, and bring of other benefits to working class families.
According to Ludwig von Mises belief that unions are responsible for higher standard of living is misconception. The height of wages depend on the marginal productivity of labor, which means that, other things being equal, the more capital is invested the higher wages climb.
The increase in the amount of capital invested is achieved by removing obstacles in the way of saving and capital accumulation and by letting market to set wage rates. If wages are affected by union pressure and set above market clearing rate, lasting unemployment is created.
Advocates of unions claim that the higher wages that unions bring come at the expense of profits. However, as Milton Friedman pointed out, profits aren't high enough. 80% of national income is wages, and only about 6% is profits after tax, providing very little room for higher wages, even if profits could be totally used up.
Moreover, profits are invested leading to an increase in capital: which raises the value of labor, increasing wages. If profits were totally removed, this source of wage increase would be removed.
Instead of harming profits, unions increase the wages of about 10 to 15% of workers by about 10 to 15% by reducing the wages of the other 85 to 90% of workers by about 4%.
Most economists now think that the wage increases unions can afford their members do not come at the expense of the owners of capital but at the expense of non-unionized workers.
As the price of labor increases, the demand for it will decrease. Unions targets of industry protectionism and limits on immigration also have this effect, benefiting unionized workers at the cost of those without union membership.
The effect of union activities to influence pricing is potentially very harmful, making the market system ineffective. By raising the price of labor, above the market rate deadweight loss is created. Additional non-monetary benefits exacerbate the problem.
"There can be little doubt that union activities lead to continuous and progressive inflation."
Austrian economists such as Robert P. Murphy, however, dispute this, arguing that the increase in the cost of labor simply means that less of other goods can be bought.
He writes:
If unions succeed in wage hikes, and employers raise the prices they charge consumers to maintain their own profit margins, and the supply of money remains the same, then something else has to "give."
Either the prices of goods and services in nonunion sectors have to fall and offset the union sector hikes, or people's cash balances need to fall, in terms of their purchasing power.