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Thursday, September 29, 2011

The Monopolization of the Economy

So, I was talking to someone today about the role that Government plays in the marketplace, and made the assertion that labor phenomena like forced union membership, minimum wage laws, and other 'pro-worker' legislation actually ends up hurting the employees and consumers in the overall market, rather than curbing the illegitimate or immoral behaviors of employers.  There are several good arguments that support this assertion, I think, but a couple points come to mind immediately.

'Big Labor':  The idea behind labor unions is an incredibly important one.  I fully support any group of individuals who want to get together and advocate for better pay, safer work environment, and good benefits from their employers.  We need to understand a couple of important concepts though, to realize that requiring union membership by law to work a given job is counter-productive, and ends up preventing these goals from being realized in the labor market as a whole.

First of all, employers and businesses almost ALWAYS pass on the costs associated with regulation to the customer via increased prices (we have seen this more and more recently, as prices continue to rise across the board). This means that when the government forces businesses to hire from union labor pools, at a wage that is fixed by that union (and thus protected by law), that business has to recoup those losses.  They will do this in several different ways.  

The first way is to lay off workers.  Unfortunately this doesn't defray the costs all that much because of the requirements for laying off union workers, such as having to pay unemployment at a wage much higher than they would pay a minimum wage worker to work.  A perfect example of this is the grocer's union in some areas.  Those who work in groceries and stock shelves can make up to 14 dollars an hour.  Unemployment pays a significant portion of their wage, up to 70% in some cases.  70% of 14 dollars is over 8.55 an hour (which is the minimum wage in my state).  Therefore, instead of the company being able to pay someone minimum wage to stock shelves(which is certainly a low skill job), that person places a burden on society of over minimum wage. 

Remember, we can't just look at the individual grocer and employee involved, we have to consider the labor market as a whole, across industries, and the grocery market as a whole, including things like the food manufacturing industry which is so closely tied to it.  As a result of these increased costs, both in keeping an overpaid workforce, and in laying off excess workforce, the prices of the goods and services that the business provides will necessarily increase.

 In the face of increasing prices or failing, obviously a business will try to increase prices first.  This has a cascading effect on the rest of society.  As prices increase, both on the prices the grocers have to pay and the prices the consumer has to pay, more workers have to be laid off, and prices continue to rise.  It's a never ending circle.  We are experiencing this phenomenon as I write this, in every arena from the cost of tickets to sporting events to the cost of airline tickets to the cost of something so basic as milk and eggs. 

This is an example of how forced union membership hurts businesses, who are required to only hire persons from unions at the union mandated wage, rather than hire from the entire labor pool for significantly below the mandated wage.

Obviously the relationship between legislative protection of unions and a decrease in price stability along with an increase in joblessness is not the only relationship we need to consider when examining how government regulation in the labor market cause the very problems the legislation allegedly tries to prevent. 

In the next installment we will examine how minimum wage laws destroy jobs and small businesses, and favor big business (especially those businesses with close ties to the government).


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