Tuesday, 28 October 2014

National are “seeking to undermine collective bargaining” aka the strike-threat system

National are “seeking to undermine collective bargaining,” say unionists.

Even if that were true, which is arguable, would that be a bad thing?

In his tightly-argued classic The Theory of Collective Bargaining, William Hutt argued otherwise.

The Theory of Collective BargainingIn 1930, W.H. Hutt demonstrated several spectacular points: labour unions cannot lift wages overall; their earnings come at the expense of the consumer; their effect is to cartelize business and reduce free competition to the detriment of everyone. He demonstrated these points with intricate logic that took on the main economic arguments for labour unions. In 1954, this little volume was published in the United States, with a very complimentary essay by none other than Ludwig von Mises, who saw Hutt's work as valid for the ages. Now this great essay is back in print, and all his points still hold true, particularly the least intuitive one that unions actually benefit some producers at the expense of others, and always harm the consumer. The brevity of this essay is as notable as its power to persuade…

Hutt demolished two long-standing myths about the labour market that were tirelessly propagated by late-19th-century socialists and trade unionists, and accepted even by market-oriented economists. These involved the assertion that "collective bargaining," compelled by law or induced by the threat of legally sanctioned union coercion, was necessary in the case of labour, because the competitive market process placed the labourer at a disadvantage vis-à-vis the capitalist employer and/or generated a wide margin of indeterminacy for the price of labour.
   
In a later work, Hutt rigorously demonstrated that, contrary to prevailing belief, collective bargaining, or "the strike-threat system" as he labelled it, cannot succeed in increasing the aggregate income share of labour at the expense of the share of capital. Rather, as Hutt showed, the wage gains of unionised labourers come at the expense of non-union workers and consumers in general.
    Non-union workers suffer a decrease in their incomes because some of the labourers who lose jobs in those industries where collective bargaining forces wage rates above market-clearing levels will swell labour supplies and drive wage rates down in nonunionized industries and occupations. Consumers, including union members, experience an erosion of their real incomes, as consumer goods become more scarce and expensive in response to the increased unemployment in unionized sectors of the economy, and to the diversion of labour to less-productive employments in non-union industries.
    Capital is misallocated, and consumer sovereignty and satisfaction further impaired, as investors seek to inure themselves against strike-threat exploitation by reducing their investment in unionized industries and changing the form of their remaining investments to less-productive assets that may be quickly and easily converted to uses outside unionized industries in the event of a strike-induced rise in costs.

If National really were weakening the strike-threat system, that would be a bonus for everyone other than union leaders.

Would that be a bad thing?

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