Economics Dictionary of ArgumentsHome
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| Trade unions: Trade unions or workers unions are organizations formed by employees to collectively advocate for better wages, working conditions, and benefits. See also Work, Labour, Economy, Society, Politics._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Trade Unions - Dictionary of Arguments
Rothbard III 565 Labour/unions/Rothbard: (…) there is no difference in kind between “workers” and “management.” The vice president of a company, if hired by its owners, has exactly the same amount of justification, or lack of justification, for joining a union as does a hired mechanic. Unions/Rothbard: For some reason, even the most ardent union advocate thinks absurd the idea of unionizing the vice presidents. Yet if there is no real dichotomy and all employees are labor, then our views on unions must be altered accordingly. Rothbard III 703 Labour Unions/Rothbard: It might be asserted that labor unions, in exacting higher wage rates on the free market, are achieving identifiable monopoly prices. >Monopoly price/Economic theories. For here two identifiable contrasting situations exist: (a) where individuals sell their labor themselves; and (b) where they are members oflabor unions which bargain on their labor for them. Furthermore, it is clear that while cartels, to be successful, must be economically more effcient in serving the consumer, no such justification can be found for unions. >Cartels/Rothbard. Productivity: Since it is always the individual laborer who works, and since effciency in organization comes from management hired for the task, forming unions never improves the productivity of an individual's work. >Productivity/Rothbard. Monopoly price: It is true that a union provides an identifiable situation. >Observation/Rothbard. However, it is not true that a union wage rate could ever be called a monopoly. For the characteristic of the monopolist is precisely that he monopolizes a factor or commodity. To obtain a monopoly price, he sells only part of his supply and withholds selling the other part, because selling a Iower quantity raises the price on an inelastic demand curve. >Elasticity/Rothbard. It is the unique characteristic of labor in a free society, however, that it cannot be monopolized. >Labour. Each individual is a self-owner and cannot be owned by another individual or group. Therefore, in the labor field, no one man or group can own the total supply and withhold part of it from the market. Each man owns himself. Cf. >Person/Philosophy, >Monopoly price/Rothbard. Rothbard III 705 Def Restrictionist price/wages/Rothbaard: If a union, in one way or another, achieves a higher price [wage] than its members could command by individual sales, its action is not checked by the loss of revenue suffered by the "withheld" laborers. If a union achieves a higher wage, some laborers are earning a higher price, while others are excluded from the market and lose the revenue they would have obtained. Such a higher price (wage) is called a restrictionist price. A restrictionist price, by any sensible criterion, is "worse" than a "monopoly price." Since the restrictionist union does not have to worry about the laborers who are excluded and suffers no revenue loss from such exclusion, restrictionist action is not curbed by the elasticity of the demand curve for labor. For unions need only maximize the net income of the working members, or, indeed, of the union bureaucracy itself.(1) Rothbard IIII 707 Laobur market/RothbardVsUnisions: Consequently, at best, a union can achieve a higher, restrictionist wage rate for its members only at the expense oflowering the wage rates of all other workers in the economy. Production efforts in the economy are also distorted. But, in addition, the wider the scope of union activity and restrictionism in the economy, the more diffcult it will be for workers to shift their locations and occupations to find nonunionized havens in which to work. And more and more the tendency will be for the displaced workers to remain permanently or quasi-permanently unemployed, eager to work but unable to find nonrestricted opportunities for employment. The greater the scope of unionism, the more a permanent mass of unemployment will tend to develop. >Unemployment. Degree of organisation: Unions try as hard as they can to plug all the "loop-holes" of nonunionism, to close all the escape hatches where the dispossessed workmen can find jobs. This is termed "ending the unfair competition of nonunion, Iow-wage labor." Rothbard: A universal union control and restrictionism would mean permanent mass unemployment, growing ever greater in proportion to the degree that the union exacted its restrictions (see below). Rothbard III 708 Membership: It is a common myth that only the old-style "craft" unions, which deliberately restrict their occupational group to highly skilled trades with relatively few numbers, can restrict the supply of labor. They often maintain stringent standards of membership and numerous devices to cut down the supply of labor entering the trade. This direct restriction of supply doubtless makes it easier to obtain higher wage rates for the remaining workers. Labour supply/Industrial unions: But it is highly misleading to believe that the newer-style "industrial" unions do not restrict supply. The fact that they welcome as many members in an industry as possible cloaks their restrictionist policy. Minimum wage: The crucial point is that the unions insist on a minimum wage rate higher than what would be achieved for the given labor factor without the union. By doing so, (…) they necessarily cut the number of men whom the employer can hire.(2,3) >Labour market. Ergo, the consequence of their policy is to restrict the supply of labor, while at the same time they can piously maintain that they are inclusive and democratic, in contrast to the snobbish "aristocrats" of craft unionism. Industrial unionism/Mises/Rothbard: In fact, the consequences of industrial unionism are more devastating than those of craft unionism. For the craft unions, being small in scope, displace and Iower the wages of only a few workers. The industrial unions, larger and more inclusive, depress wages and displace workers on a large scale and, what is even more important, can cause permanent mass unemployment.(4) >Strike action/Rothbard, >Economic ethics/Rothbard, >Free Market/Rothbard. Rothbard III 713 Costs/production costs/restrictionist wage: (…) a restrictionist wage raises costs of production for the firms in the industry. This means that the marginal firms in the industry - the ones whose entrepreneurs earn only a bare rent - will be driven out of business, for their costs have risen above their most profitable price on the market - the price that had already been attained. Productivity: Their ejection from the market and the general rise of average costs in the industry signify a general fall in productivity and output, and hence a loss to the consumers.(5) Unions/Rothbard: Unions are not producing organizations; they do not work for capitalists to improve production.(6) Rather they attempt to persuade workers that they can better their lot at the expense of the employer. Consequently, they invariably attempt as much as possible to establish work rules that hinder management's directives. These work rules amount to preventing management from arranging workers and equipment as it sees fit. In other words, instead of agreeing to submit to the work orders of management in exchange for his pay, the worker now sets up not only minimum wages, but also work rules without which he refuses to work. The effect of these rules is to Iower the marginal productivity of all union workers. The Iowering of marginal value-product schedules has a twofold result: (1) it itself establishes a restrictionist wage scale with its various consequences, for the marginal value product has fallen while the union insists that the wage rate remain the same; (2) consumers lose by a general Iowering of productivity and living standards. Restrictive work rules therefore also Iower output. All this is perfectly consistent with a society of individual sovereignty, however, provided always that no force is employed by the union. Rothbard III 715 Wages: Whereas wage rates on the nonunion labor market will always tend toward equilibrium in a smooth and harmonious manner, its replacement by collective bargaining leaves the negotiators with little or no rudder, with little guidance on what the proper wage rates would be. Even with both Sides trying tofind the market rate, neither of the parties to the bargain could be sure that a given wage agreement is too high, too Iow, or approximately correct. Wages/unions: Almost invariably, (…) the union is not trying to discover the market rate, but to impose various arbitrary "principles" of wage determination, such as "keeping up with the cost of living," a "living wage," the "going rate" for comparable labor in other firms or industries, an annual average "productivity" increase, "fair differentials," etc.(7) Rothbard III 715 Trade Unions/Economic theories/Rothbard: Arguments in favour of unions(8): Indeterminacy of wage rates: „(…) Wage rates are determined by marginal productivity in a zone rather than at a point; and within that zone unions have an opportunity to bargain collectively for increased wages without the admittedly unpleasant effects of unemployment or displacement of workers to poorer jobs." RothbardVs: It is curious that many writers move smoothly through rigorous price analysis until they come to wage rates, when suddenly they lay heavy stress on indeterminacy, the huge zones within which the price makes no difference, etc. (RothbardVsTrade unions). 1) (…), the scope of indeterminacy is very small in the modern world. We have seen above that, in a two-person barter situation, there is likely to be a large zone of indeterminacy between the buyer's maximum demand price and the seller's minimum supply price for a quantity of a good. >Barter/Rothbard, >Exchange/Rothbard, >Market/Rothbard. Within this zone, we can only leave the determination of the price to bargaining. However, it is precisely the characteristic of an advanced monetary economy that these zones are ever and ever narrowed and lose their importance. >Price/Rothbard, >Economy/Rothbard. The zone is only between the "marginal pairs" of buyers and sellers, and this zone is constantly dwindling as the number of people and alternatives in the market increase. Growing civilization, therefore, is always narrowing the importance of indeterminacies. 2) (…) there is no reason whatever why a zone of indeterminacy should be more important for the labor market than for the market for the price of any other good. Rothbard III 716 3) (…) suppose that there is a zone of indeterminacy for a labor market, and let us assume that no union is present. This means that there is a certain zone, the length of which can be said to equal a zone of the discounted marginal value product of the factor. This (…) is far less likely than the existence of a zone for a consumers' good, since in the former case there is a specific amount, a DMVP (discounted marginal value product) , to be estimated. But the maximum of the supposed zone is the highest point at which the wage equals the DMVP. Now, competition among employers will tend to raise factor prices to precisely that height at which profits will be wiped out. In other words, wages will tend to be raised to the maximum of any zone of the DMVP. Wages: Rather than wages being habitually at the bottom of a zone, presenting unions with a golden opportunity to raise wages to the top, the truth is quite the reverse. Assuming the highly unlikely case that any zone exists at all, wages will tend to be at the top, so that the only remaining indeterminacy is downward. Unions would have no room for increasing wages within that zone. Rothbard III 717 Monopsony and oligopsony: It is often alleged that the buyers of labor—the employers—have some sort of monopoly and earn a monopoly gain, and that therefore there is room for unions to raise wage rates without injuring other laborers. However, such a "monopsony" for the purchase of labor would have to encompass all the entrepreneurs in the society. If it did not, then labor, a nonspecific factor, could move into other firms and other industries. And we have seen that one big cartel cannot exist on the market. Therefore, a "monopsony" cannot exist. >Cartels/Rothbard, >Monopolies/Rothbard, >Monopoly price/Rothbard. Oligopsony: the "problem" of "oligopsony" - a "few" buyers of labor - is a pseudo problem. As long as there is no monopsony, competing employers will tend to drive up wage rates until they equal their DMVPs. The number of competitors is irrelevant; this depends on the concrete data of the market. Rothbard III 718 Competition/elasticity: Briefly, the case of "oligopsony" rests on a distinction between the case of "pure" or "perfect" competition, in which there is an allegedly horizontal - infinitely elastic - supply curve oflabor, and the supposedly less elastic supply curve of the "imperfect" oligopsony. >Competition/Rothbard, >Elasticity/Rothbard. Actually, since people do not move en masse and all at once, the supply curve is never infinitely elastic, and the distinction has no relevance. There is only free competition, and no other dichotomies, such as between pure competition and oligopsony, can be established. The shape of the supply curve, furthermore, makes no difference to the truth that labor or any other factor tends to get its DMVP (discounted marginal value product) on the market. >Supply/Rothbard. Efficiency/unions/Rothbard: One common prounion argument is that unions benefit the economy through forcing higher wages on the employers. At these higher wages the workers will become more effcient, and their marginal productivity will rise as a result. RothbardVs: If this were true, however, no unions would be needed. Employers, ever eager for greater profits, would see this and pay higher wages now to reap the benefits of the allegedly higher productivity in the future. As a matter of fact, employers often train workers, paying higher wages than their present marginal product justifies, in order to reap the benefits of their increased productivity in later years. >Ricardo effect/Rothbard. Ricardo effect: This doctrine holds that union-induced higher wage rates encourage employers to substitute machinery for labor. This added machinery increases the capital per worker and raises the marginal productivity of labor, thereby paying for the higher wage rates. RothbardVsRicardo/RothbardVsHayek/RothbardVsUnions: The fallacy here is that only increased saving can make more capital available. >Saving/Rothbard. Capital investment is limited by saving. Union wage increases do not increase the total supply of capital available. Rothbard III 719 Innovation/technology/efficiency: A related thesis is that higher wage rates will spur employers to invent new technological methods to make labor more effcient. Here again, however, the supply of capital goods is limited by the savings available, and there is almost always a sheaf of technological opportunities awaiting more capital anyway. Furthermore, the spur of competition and the desire of the producer to keep and increase his custom is enough of an incentive to increase productivity in his firm, without the added burden of unionism.(9) 1. A restrictionist, rather than a monopoly, price can be achieved because the number of laborers is so important in relation to the possible variation in hours of work by an individual laborer that the latter can be ignored here. If, however, the total labor supply is limited originally to a few people, then an imposed higher wage rate will cut down the number of hours purchased from the workers who remain working, perhaps so much as to render a restrictionist price unprofitable to them. In such a case it would be more appropriate to speak of a monopoly price. 2. Cf. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. p. 764. 3. See Charles E. Lindblom, Unions and Capitalism (New Haven: Yale University Press, 1949), pp. 78 ff., 92–97, 108, 121, 131–32, 150–52, 155. Also see Henry C. Simons, “Some Reflections on Syndicalism” in Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948), pp. 131 f., 139 ff.; Martin Bronfenbrenner, “The Incidence of Collective Bargaining,” American Economic Review, Papers and Proceedings, May, 1954, pp. 301–02; Fritz Machlup, “Monopolistic Wage Determination as a Part of the General Problem of Monopoly” in Wage Determination and the Economics of Liberalism (Washington, D.C.: Chamber of Commerce of the United States, 1947), pp. 64–65. 4. Cf. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprintd by the Ludwig von Mises Institute, 1998. p. 764. 5. See James Birks, Trade Unionism in Relation to Wages (London, 1897), p. 30. 6. See James Birks, Trades’ Unionism: A Criticism and a Warning (London, 1894), p. 22. 7. On the nature and consequences of these various criteria of wage determination, see Ford, Economics of Collective Bargaining, pp. 85–110. 8. See Ford, Economics of Collective Bargaining, See the excellent critique by Hutt, in: Theory of Collective Bargaining, passim. 9. On the Ricardo effect, see Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 767–70. Also see the detailed critique by Ford, Economics of Collective Bargaining, pp. 56–66, who also points to the union record of hindering mechanization by imposing restrictive work rules and by moving quickly to absorb any possible gain from the new equipment._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Trade Unions
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