Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Pros and Cons of Unionisation

Written by johnleemk on 1:08:05 pm Jul 9, 2007.

Trade unions are one of the more controversial concepts in economics. As a general rule, those of the laissez faire position are ironically prone to oppose unionisation, while economic leftists are more likely to support it.

However, I don't think there is a clearcut absolute position worth staking out on this question. There are cases where unions are a good idea, and cases where they are a bad idea.

I think there is certainly no reason for unions to be outlawed or restricted, in most cases. I think the same approach applied to the issue of firms applies to unions.

A firm is a group of people who supply a particular product. A union is a group of people who supply a particular service — labour. I think there is typically no good reason to regulate firms' activities, nor to protect them, and so for the same reason I think that in most cases, governments should not intervene for or against trade unions.

The basic problem with trade unions, though, is that they often try to monopolise the supply of labour. While this is rational if they are faced with a monopsony (where one firm is the only consumer of labour), in the vast majority of cases, forcing those who enter a particular industry or firm to join a particular union is simply not tolerable. We take action against firms who violate anti-trust laws on monopolising products and services; why should we not do the same for unions?

You might argue that it's not fair — that this would prevent the unions from collectively bargaining with their employer. But that's the point — in most cases, allowing unions to monopolise the supply of labour and restrict competition benefits union members, but harms potential workers outside the union, and consumers who must pay higher prices. (Just as a firm monopolising, say, the supply of computers harms potential computer manufacturers and consumers.)

Another interesting question is what ought to be done for unions that go on strike. Should their employers be banned from sacking them or replacing them? (Contractual issues aside, of course.) I think the answer is very clear — of course not.

If the workers are truly essential to the company, but are not getting their fair share, they will be a scarce resource — their labour skills will not be easily replaceable. Because of this, the firm employing them will be unable to hire a sufficient number of replacements, and either go under or raise their wages.

If, however, there are others who are capable of and willing to perform the same job for the same or even less pay, then too bad for those going on strike for higher wages or better working conditions — you are asking for a wage that the labour market cannot bear. It's a signal that you need to improve your own skills, or otherwise somehow make yourself more valuable.

Of course, this may not be "fair" because the employer may be able to pay more — it's just that the labour market is so full of people willing to perform that same job for the same wage, that the employer doesn't have to pay a higher wage.

But let us take this argument to its logical end. Google could very well afford to pay its janitors much, much more than they are currently earning. Microsoft certainly has more than enough cash to make its few blue-collar workers very well off. So obviously, we should be making these greedy money-hoarding companies pay their janitorial staff a fair wage!

Have you seen the hole in the argument? People are rewarded for how much their contribution to society is worth — they are not rewarded according to how much their employer is worth. Unless you insist that the market's valuation of your contribution to society is completely wrong, you don't have much of a case for arguing that you should be allowed to cripple a company, let alone a valuable government-run service, for the sake of ripping off those who consumer the goods and services you provide.

Does this mean unions have no role to play? Of course not. They provide a way for workers to organise and co-ordinate their communications with management, and just as (if not more) importantly, they can be a way for union members to improve their skills and make their contributions more valuable and indispensable. Unions should focus more on protecting their workers by helping them become better, rather than by defending them for not improving.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.

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