I was just reading The Fellowship of the Ring, when something hit me: Unions suck!
So here's the deal, unions always try to keep wage rates higher than market value. The obvious consequence is a surplus of workers, or unemployment.
But then I started thinking about other possible consequences. Usually anti-union people say "Yo, even though these workers get higher wage rates, they get fewer hours." That's true. Typically someone might work 40 hours a week whereas a union worker may work 30 hours a week. But wage income in a week very well might be equal due to the higher wage rates of unions.
Isn't that great!?!
I don't think so. Sure, having more leisure time may be "nice" for an individual at first glance, but is it really?
Let's look at some possible unintended consequences, from the employer's perspective. A factory was just unionized. Now instead of a 5 day week, it is only open 3 days a week. It has a fixed income which it can spend on labor. Even with the higher wage rates, the payroll has remained the same by simply cutting hours.
But notice, production has now been cut by 2 days while maintaining the same expenditures as if production was not cut by these two days. That means production has just become that much more expensive. It also means that real wage rates actually have increased contrary to what the union worker will tell you. A consistent wage income does NOT mean that real wage rates have not increased.
Since production is so much more expensive, it can now produce much less.
Less production of goods means less wealth in the economy. Less wealth means that these businesses will now have less money to invest in capital, and will likely result in a multiplied increase in unemployment in the future.
In any market besides labor, this price fixing is seen as a bad thing. In Milwaukee they tried to try some price fixing on apartment complexes. Instead of a minimum price, they did a maximum price instead. The rent was fixed below market level so that the poor could get the apartments. What happened of course, was that there were massive shortages of apartments.
Instead of helping the poor, they were made off. A black market was created, and bids were made on apartments so that only the absolute wealthiest would get them. It was a disaster.
But when it comes to fixing wage rates, they don't consider it a disaster, even when it results in the same. As for a black market in labor, can you say mexicans?
The reason it isn't considered a disaster is because commodities can't vote in elections, people can. People know they are getting paid more, that's all they care about. They never consider the opportunity costs incurred both individual and in the aggregate.
Look at the opposite scenario.
What if lower wage rates were set rather than higher. Now the business has set the wage rate below market value and increased production to 6 days a week. The weekly income is still the same as it has been.
Now production has been made cheaper. More is being made for less and the economic pie is expanding. With some sound monetary policy, this could be the absolute best case scenario. If the money supply remains the same through this decrease in wage rates, production would be increasing but the money supply would remain consistent. This would infer that the real wealth of every individual would be steadily increasing, even those who took the wage rate cuts.
More wealth is created while the medium of exchange remains the same. The result would be a higher living of standard for all and overall awesomeness.
