[yummyfajitas]

A union: some sellers of labor merge into a single legal entity, and it becomes illegal for some purchasers of labor to buy from alternate suppliers. To translate to another field: Apple and MS merge, and now consumers can't use Linux.

Laws enforcing a requirement to purchase from a cartel are about as far from a free market as you can get.

Saying free market supporters should favor unionization is like saying free market supporters should oppose net neutrality. In a free market, net neutrality is certainly something to oppose, but in the world we live in it's necessary to counteract the government granted duopoly held by Verizon/Cable.

[dalke]

At issue is the part "laws enforcing a requirement."

I'm hard pressed to think of any advocate of a free market who wants this law in place.

But a closed shop arose not from legal statute but by an agreement between the company and the union. There's no need for government involvement, except to settle contract disagreement.

In fact, it's quite the opposite! Closed shops are illegal in the US, under Taft-Hartley Act, though they are legal in some other countries. Union shops are legal, except where the states have prohibited that practice.

The question to the audience is, shouldn't a free market advocate want to reduce both the laws which give unions specific power AND those which take power away from unions?

If your concern is about monopoly powers, well, 1) that's a restriction of free trade, so our hypothetical free market advocate might not want those restrictions either, and 2) why aren't they regulated under anti-monopoly laws, rather than specific anti-union laws?

As to the net neutrality issue, well, that's a mixture of morality and an abuse of monopoly power. I believe you're only focusing on the latter issue for now. (And I think our government is and has been entirely too closely intertwined with business, and especially big business, for too long, which has allowed these abuses to grow.)

Is an employer a sort of monopolist? I believe they are. While there are exceptions (IT in the Bay Area during the dot-com era being an obvious one), for many people it is not easy to quit and easily find new employment. Otherwise Nevada wouldn't have a 10% unemployment rate. The problem with monopolies though isn't that they are monopolies, but that they can abuse their monopoly power.

You rightly pointed out that unions can abuse their monopoly power. But so too can companies.

So the modified question to the audience is: shouldn't a free market advocate want to reduce both the laws which give unions specific power AND which take power away from unions, so long as there is no abuse of the monopoly power?

Unfortunately, the easy answer by an anti-union person is that unions are, by definition, an abuse of monopoly power, so this question has no real utility. And I can't come up with a better phrasing.

[yummyfajitas]

The question to the audience is, shouldn't a free market advocate want to reduce both the laws which give unions specific power AND those which take power away from unions?

Yes. I'd love to scrap all laws relating to unions and have the law treat them as worker-owned consulting companies.

Is an employer a sort of monopolist? I believe they are. While there are exceptions (IT in the Bay Area during the dot-com era being an obvious one), for many people it is not easy to quit and easily find new employment. Otherwise Nevada wouldn't have a 10% unemployment rate.

Can you explain this claim? What prevents any employee from leaving and selling their labor to another willing party?

Many people find it difficult to leave and find higher paying work, but that just means their current employer is paying them at or above market [1].

Unemployment is (according to Keynesians at least) a mismatch between employee's desired wages and market wages. It has nothing to do with monopoly power. A simple way to test this - is unemployment higher in sectors with a smaller number of firms?

[1] A common reason for this is the accumulation of firm-specific knowledge. That is to say, an employee's value to the employer is X+Y, where X is general knowledge (useful to all employers) and Y is useful only to the current employer. I.e., X is general programming, Y is knowledge of a specific legacy system. This is a situation with both a monopoly and a monopsony - the employer can't find outside employees with legacy system knowledge and the employee can't find outside employers with that specific legacy system.

[dalke]

"worker-owned consulting companies"

There are many organizational forms. I wouldn't choose a company. It should be a cooperative, as described at http://www.sba.gov/content/cooperative . "Not all cooperatives are incorporated, though many choose to do so." And "Democracy is a defining element of cooperatives. The democratic structure of a cooperative ensures that it serves its members' needs."

"Can you explain this claim? What prevents any employee from leaving and selling their labor to another willing party?"

Sure. You mentioned Keynesians. Quoting the Wikipedia section about cyclical/Keynesian unemployment: "With cyclical unemployment, the number of unemployed workers exceeds the number of job vacancies, so that even if full employment were attained and all open jobs were filled, some workers would still remain unemployed."

In that scenario, there are few willing parties to sell one's labor to. How is that not structurally similar to a monopoly? An employer in that situation can abuse their monopoly power, and take advantage that the switching costs for the employee to get another job are so high. In short "you take a 5% cut in pay or I fire you and hire the next person who walks in that door." It doesn't even need to be said: "you will take a 5% cut in pay" implies "or you'll have to quit and find another job."

We don't need to be in a Great Depression for that to happen. Or do you think the 2009-2010 spike to 14% unemployment rate for Michigan was all due to people deciding to stay unemployed while holding out for higher paying work?

Using a similar calculus to your model, the switching cost for an employee includes [1] the difficulty of finding a nearby job, or moving and feeling uprooted (and finding new schools, new job for the spouse, etc.), [2] potentially being called a 'complainer' or 'quitter' or labeled 'unable to handle heat' by members of the community or black-balled by industry, [3] the lost wages/opportunity cost between quitting one job and starting the next, [4] the basic stress of having to get up to speed with a new job, meeting new people, and understanding the new social environment, [5] the emotional impact of looking for a job and getting a bunch of 'no's (My Mom got her EE degree, as a 50 year old woman, and tried looking for a job. The many 'no's she got became quite discouraging. People may stay with a job, with its external torments, than deal with the internal.)

You may object, and saying that if a person stays after a 5% pay cut then it shows that the job was priced above market rates. However, I would consider that practice an abuse of monopoly power.

Further, there's a Gambler's ruin issue to quitting, with the employer taking the role of the casino. It might be that a person has a job lined up, moves across the country, only to find that the position is soon no longer there. If that person's unlucky (as what happened with my Dad when I was little), then that could happen twice in a year. (We moved in with his parents for a few years while my parents built up savings again.)

When someone quits, they take the admittedly small chance that they may end up sleeping in a car or other situation drastically worse than what they would had had, should they stayed. While the likelihood that the employer will have correspondingly large negative impact when an non-key employee quits is significantly, even laughably, smaller.

This too makes the employer/employee relationship more unbalanced, and so open to abuse by the side of the employer.

[yummyfajitas]

First of all, your selective quote deeply misrepresents Keynesian economics. I suggest you go educate yourself in more detail on the theory.

Or do you think the 2009-2010 spike to 14% unemployment rate for Michigan was all due to people deciding to stay unemployed while holding out for higher paying work?

Nominal wages have increased during the recession. If employees were willing to take a pay cut to become employed, that shouldn't have happened.

http://research.stlouisfed.org/fred2/series/ECIWAG

http://research.stlouisfed.org/fred2/series/ECICOM

I'm not actually a Keynesian myself - I tend to subscribe to recalculation theories for this particular recession, though I definitely believe sticky nominal wages definitely play a role. But I appeal to Keynesian theories in this discussion since many union supporters tend to profess support for Keynesian economics (while oddly supporting institutions which create wage stickiness).

An employer in that situation can abuse their monopoly power, and take advantage that the switching costs for the employee to get another job are so high.

Your theory yields no reason an employee can't do the same thing. Replacing a worker also involves transaction costs, and rather high ones (look at the price of a recruiter).

Once a person is hired, there are switching costs on both sides. You have yet to demonstrate any structural difference between them.

[dalke]

My understanding is altogether biased towards the personal and emotional. I am influenced by the ideas behind "Gross National Happiness" and similar harder-to-quantify measures. I've read first person accounts of people during the Great Depression. (Eg, Studs Turkel's "Hard Times"). There were no jobs for some people. Any analysis which says "Unemployment is .. a mismatch between employee's desired wages and market wages" must be wrong, or at least simplified, because it assumes either that there is a market for jobs, or that the market wages are enough for basic survival.

For "basic survival" I mean "under our cultural expectations." I don't want the US to be 80% Hoovervilles, even if that does get us to near full employment. That's the extreme conclusion, but is it not fully justified by that simplified analysis?

I am quite of the view that we should first decide what we want to get from our economy, and adjust the market rules to improve the changes of reaching that goal and to minimize the changes of catastrophe.

My observation is that people want security, expressed monetarily as reduced personal or family risk. Sticky wages reduce risk. Health insurance reduces risk. Protection from capricious management decisions reduces risk. Higher wages reduce risk by being able to build up a larger savings, though in practice few do that so this isn't all that secure. I believe the risk issue here is analogous to the Gamblers Ruin, in that people with low income and low savings are more at risk to statistical fluctuations which can expose them to greatly reduced living conditions.

Then, as a moral question, how do we use Keynesian economics (or any other economics model) to reduce the risk? We can have legal systems to review contract violations, we can have wage freezes (both up and down), we can have increased worker protections, etc.

Okay, so the Keynesian model says that this increases unemployment. So what? One response is that we shouldn't have these restraints on the market. Another response is that we have increased government support, to minimize the sharp edges of being unemployed. A third is that we look to the churches, or other NGOs, to provide the social safety net, and a fourth is to look toward unions or unemployment insurance. A fifth says to look towards extended families and friends.

The Keynesian model says nothing about the morality of the choice. It only suggests the likely consequences.

"Your theory yields no reason an employee can't do the same thing."

I didn't say they couldn't. I was elaborating on why an employee couldn't easily quit and move to another job. Stories abound about people using their employment position to get special perks. I got basement parking for one job, with the management cars, rather than parking with the rest of the employees in the lot 3 blocks away because I complained and because I wasn't trivially replaceable. Then again, I complained because management decided to move the company to a place further from where I lived, and I had no part in that decision. So it's a complicated issue.

But my theory says that I have less power over the company than they have over me, because I am closer to living out of my car, should my personal decision to quit prove disastrous, than the company is in going bankrupt because they decided to fire me.

[yummyfajitas]

Any analysis which says "Unemployment is .. a mismatch between employee's desired wages and market wages" must be wrong, or at least simplified, because it assumes either that there is a market for jobs, or that the market wages are enough for basic survival.

Agreed. As I said, I'm not a Keynesian. I'm glad you agree that monetary and fiscal stimulus will often be ineffective.

If employees want to reduce risk, why would they want sticky wages? Sticky wages increase risk of having your wage cut to $0.

I'm also curious - you acknowledge that given higher wages, employees choose to spend the money on consumer goods rather than mitigating their risk. Why would they do this if risk reduction is their primary goal? It seems as if you are incorrect about what people actually want.

But my theory says that I have less power over the company than they have over me, because I am closer to living out of my car, should my personal decision to quit prove disastrous, than the company is in going bankrupt because they decided to fire me.

This is true, but irrelevant. To determine "market power" in any model I've seen, the correct comparison is dollar amounts on both sides.

Also, your point about transaction costs does show that there is wiggle room (for both employees and employers) on wages/benefits. That's a far cry from monopsony or anything even remotely close. Perhaps you can clarify your position - how large (in $) do you think transaction costs of changing jobs actually is?

[othermaciej]

> In short "you take a 5% cut in pay or I fire you and hire > the next person who walks in that door." It doesn't even > need to be said: "you will take a 5% cut in pay" implies "or > you'll have to quit and find another job."

In practice this almost never happens. Employers are very reluctant to cut nominal wages, even if they could afford to hire more workers that way and get a more economically efficient outcome. This phenomenon is called "sticky wages" and is believed to be a significant cause of unemployment in recessions.

In summary, the relationship between unemployment and labor pricing power is believed, by many economists (most notably Keynsians but also e.g. market monetarists) to be about the opposite of what you said - stickiness of wages causes greater unemployment, rather than unemployment causing downward pressure on wages.

[dalke]

"In practice this almost never happens"

I was using that as an example. It could be "work fewer hours", "reduce health care", "have no chance for promotion", "laid off" or other things where the employer has control over an employee's future.

However, as to "almost never happens", here are some recent examples:

- In the recent Hostess/Twinkie news, "Though he imposed an 8 percent pay cut for all Hostess workers, Gregory Rayburn’s monthly $125,000 pay — or $1.5 million a year — will remain unchanged" http://thinkprogress.org/economy/2012/12/04/1278131/hostess-...

- An undated article but likely from 2008 (not recent, but I wanted the last quote): "The company will slash executive compensation up to 50%, cut many employees' pay as much as 15% and offer voluntary buyouts to its 25,000 workers.", "Ohio-based AK Steel, aks for instance, said on Dec. 3 it would implement an indefinite 5% pay cut for salaried workers, including the CEO and executive officers. ", ... ""It's not common, but in each recession it seems to be picking up speed … as proactive employers figure out that it's very expensive to lay people off and then go back and hire them," Lingle says." ( http://abcnews.go.com/Business/story?id=6514494&page=1#.... )

- more about the steel industry: "the world's largest steelmaker and among the largest in the U.S., has told the union it wants to cut wages and benefits for all workers by more than $28 an hour, or 36%, from an average $77.40 in 2011 and eliminate retiree health care for anyone hired after Sept. 1. The steelmaker also wants the "unilateral right" to cut wages during periods of reduced operations and to schedule 32-hour work weeks." http://online.wsj.com/article/SB1000087239639044409790457753...

- (Ireland, 2012): "The Labour Court has recommended that construction workers should accept a pay cut of 2.5%. It comes on top of a 7.5% pay cut introduced some years ago.". I believe the pay cuts would have occurred earlier had the unions not been involved, but that's conjecture.

- 2012: "Scranton, Pa., slashes workers' pay to minimum wage" and in defiance of a judge's order: http://www.nbcnews.com/business/scranton-pa-slashes-workers-... .

- 2012: "Muskegon school employees take pay cut to save their jobs", http://www.mlive.com/news/muskegon/index.ssf/2012/10/muskego...

- 2012: "Madawaska School Committee backs off teacher pay cut decision". The school board decided to make the cuts, then "general counsel warning that the proposal could “constitute an unlawful refusal to bargain in good faith” and open the school department up to litigation" caused the board to reverse their decision.

- 2012: a first account of how the person adjusted to a spending cut: http://finance.yahoo.com/news/first-person-pay-cut-taught-pe...

- 2012: "Detroit police see pay cut in checks despite judge's order" http://www.freep.com/article/20120826/NEWS01/120826033/Detro...

I think this is enough to establish that, while uncommon, it is no hen's tooth.

My thesis is that some employers can be viewed as a monopoly provider of jobs. But monopolies in and of themselves are not a problem - it's the abuse of monopoly powers which is the problem.

"Abuse" is almost by definition a question of morality, not of economics. It may be better for the economy (more prosperous, shorter recessions, or some other measure) should we once again allow child labor. Indeed, I've heard more than one person argue that a reason for banning child labor was to raise wages for adults by introducing a shortage of workers. But the bans stay because of moral reasons, and we export our morality to other countries when we demand that our clothes and other items not be made with child labor. Even if the economics of that country would be better with more local child labor.

The morality comes into play here because part of the reason people work for a company is to reduce personal economic risk. As a consultant, my income is highly variable, and it's stressful when that income is low. Even when my income is high, I can't make the same economic decisions as someone who is salaried and with the same monthly salary as my average, because of the Gambler's Ruin issue I mentioned. There can be and have been times when my savings became quite low, and I was seriously considering getting a salaried job. While now, my income is quite above my average.

A salaried job is an exchange of services for money. The general expectations are given in the contract, the law, and the general culture. One of the employee expectations is that the salary will generally be stable, and it will be more stable for government jobs than at a company. People will go into civil service for that increased (perceived) stability, even though it doesn't pay as well.

But unlike, say, overtime pay, this stability is not usually part of the contract nor (in the US) the law. A company can unilaterally decide to cut wages and/or benefits on employees. I've shown examples where that has happened this year. The abuse comes in when companies start breaking both the explicit and implicit promises which are part of the employer/employee relationship. If pay cuts becomes more frequent, then there will be increasing outrage, and the implied stability will be made explicit in either the law, or the contract, ... or people will accept that they have no control over their month-to-month wages. I think the latter is bad for us as a culture.

You and the economists may be perfectly correct in saying that "stickiness of wages causes greater unemployment." What action should be taken from that observation? Should there be laws which prevent stability clauses in a contract, in order to reduce unemployment levels? Or should there be a basic stipend so people can be unemployed for longer while they search for a job with higher stability levels?

This thread started in part because of an observation that in many places in the US there is a broadband duopoly with AT&T and Comcast. In and of itself, this is okay, so long as they don't abuse those power. The recent "Data Caps Help Carriers Rake In Huge Profits" (e.g., http://techcrunch.com/2012/12/19/report-data-caps-help-carri... ) gives an example of what I would call an abuse of that duopoly power.

I've carefully said "broadband duopoly." There are other ways to get access to the internet, including some 3 million people who use dial-up for AOL. Monopoly law is careful about defining a market before looking to see if there is an abuse of monopoly powers.

I assert also that employment should also be subject to a similar market segmentation analysis. If there's only one factory in town, paying $45/hour, and the other jobs are retail and fast-food paying $10/hour, then those are different employment markets. Yes, someone could quit the factory and start working at the DQ, but someone could also quit with AT&T and switch to AOL dial-up. The local factory has a monopoly on high-paying jobs for the area, and can (and does!) use that market advantage.

My thesis is that the same analysis used to identify monopoly abuse in the market should also be used to identify monopoly abuse in employment relationships. No, employers aren't necessarily monopolies, nor do they necessarily abuse their monopoly if they have one. But I think the parallels between monopoly abuse and unilateral change of employment conditions are close enough that the former has bearing on the latter.

[yummyfajitas]

The fact that wage cuts occur does not prove your case about using transaction costs to cause wage cuts occur. They appear to simply be cases of market rates dropping, in most cases due to a decrease in demand for labor.

This has nothing whatsoever to do with monopsony buying power - there is nothing preventing Hostess employees from finding alternate employment except the fact that Hostess still pays them more than their next best alternative.

If your theories about employer monopsony power had any relation to the real world, then we would simply not observe wage stickiness.

Your claims about a monopsony on "high paying jobs" is also nonsensical - by this logic, walmart has a monopoly on "low priced goods". You are conflating price point with category of good, which is incorrect.

Now, you might have an argument if you actually want to discuss specific specialized jobs - e.g., statin chemist or algebraic topologist. An argument about monopsony power might actually apply here. But applying it to drivers, machine operators and burger flippers is silly.

Besides, if Hostess cuts wages from $40 to $10 and gives up their monopsony power, isn't that a good thing? By definition, they no longer have the ability to abuse their monopsony.

[othermaciej]

Yes, "almost never" - it's rare enough that it makes the news when it happens.

The action that should be taken based on the fact that wage stickiness causes unemployment is at minimum to avoid making them more sticky, e.g. by regulating wage cuts as if they are "monopoly abuse".

[rayiner]

This is a dishonest characterization of the law in most states re: unions.

[cfn]

"A union: some sellers of labor merge into a single legal entity, and it becomes illegal for some purchasers of labor to buy from alternate suppliers."

I have seen references to this many times. Is this true in the States? I was once a teacher (not in the States) and did not have to sign up to any union. Apart from lawyers and medical personel and maybe a few other "special" professions you don't have to belong to a union to offer your services - at least here in the EU.

[yummyfajitas]

Yes. It is illegal for the employer to fire union workers and replace them with non-union workers. It is illegal to hire new workers at wages lower than the union wage, and in many states to even hire non-union workers.

Unionization is by employer, not by profession, though a few professions (e.g. managers) do lack the ability to gain legal protections by unionizing.

[eli_gottlieb]

Unions don't have a legally enforced monopoly on labor. They obtain a monopoly or oligopoly through market power.

The problem being that without unions, labor becomes subject to oligopsony buying power and Ricardo's Law of Rent kicks in.

[yummyfajitas]

They obtain a monopoly or oligopoly through market power.

So if a union lacks market power, an employer is legally free to fire the union employees and replace them with non-union employees at market wages?

The problem being that without unions, labor becomes subject to oligopsony buying power and Ricardo's Law of Rent kicks in.

Can you explain this claim? While it's certainly true in a few narrow fields (chemistry/biotech, various specialized corners of academia), it's hardly true in the economy at large. In what fields do you believe an oligopsony is present?

[dredmorbius]

In any field in which there is a concentration of employers relative to employees. Which is to say: most of them.

Quoting from Wikipedia: "The Law of Rent states that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use, relative to the advantage obtained by using marginal (i.e., the best rent-free) land for the same purpose, given the same inputs of labor and capital."

Where "land" is taken as capital, equipment, and/or alternate business opportunities, the employee's wage-bargaining leverage, in the absence of collective bargaining, is what s/he could make by going elsewhere and starting up a new firm. Where no new business opportunities exist, wage bargaining falls to subsistence levels (employers will pay employees the bare necessities for staying alive).

In the economy at large, the situation still remains true. An employer need pay an employee no more than that employee could claim at another job (or by going into business for him or herself), given the employee's skillset.

Given that skills tend to wed to experience, should the employee transition to a different line of work (at which they are less skilled), unless there is a peculiarly high demand for that work, their wages will fall. Also, the employer's surplus (that is, productivity above wages) is governed by the Law of Rent.

Given collective bargaining, through the threat of withholding labor (with skills that, collectively, the employer would be hard-pressed to replace), a negotiation for total compensation (wages, hours, benefits) in which more of the employee's surplus is distributed to the employee may be arranged.

[yummyfajitas]

In any field in which there is a concentration of employers relative to employees. Which is to say: most of them.

This is true not just of the employment market, but of most goods markets. There are far more buyers of cars/computers/cheese than sellers. Does this mean that pizza producers have oligopoly selling power?

Your theory is too broad. It applies to virtually everything.

In the economy at large, the situation still remains true. An employer need pay an employee no more than that employee could claim at another job (or by going into business for him or herself), given the employee's skillset.

Conversely, an employee needs to accept as wages no less than the wage he could get from another employer. This is true of any market - a purchaser needs to pay no more than market price, and a buyer needs to sell for no less than market price.

All you are describing is market pricing. Are you claiming all markets are oligopolies or oligopsonies?

[dredmorbius]

The distinction between employment and sellers markets is that an employee typically has a (mostly) exclusive relationship with a single employer, and relatively high switching costs (interviews, unemployment), particularly for more advanced / skilled professions.

A buyer usually has very low switching costs between merchants. That said, yes, there is a great deal of concentration in retail, especially as you go back up the supply chain. For electronics and other advanced goods, there is typically one or a very small set of manufacturers (at least at the component, if not the finished product scale), e.g.: Foxconn for laptops and mobile devices, a handful of disk drive and memory manufacturers, etc. For food, there's a huge level of concentration at the mid-market, through Monsanto, Tyson, Cargil, Con-Agra, etc., despite the huge number of individual food outlets.

While I don't claim that all markets are oligopolies/oligopsonies, a great many are (or exhibit a great deal of concentration, or of market distortions such as healthcare) including many of those comprising a large share of the US economy: health, finance and insurance, utilities, retail. Enough so that what we consider to be the conditions of a free market: economically small buyers and sellers with equivalent information and low switching costs meeting in an open marketplace, are actually met in only a small portion of the economy as a whole.