Unions–some theory

If you’ve followed the news in Guam, you’ve undoubtedly caught the “right to work” controversy. The issue is being brought to the voters, who will determine if it’s legal to require workers in unionized shops to join the union.

That’s right–require. No union card, no job.

The arguments around labor issues are always heated, and such topics are never, ever, addressed with an objective eye on the streets. Folks are generally “pro union” or “anti union,” “pro labor” or “pro management.”

The whole union enchilada can be divided into two realms. One is the concept of collective bargaining…and here we have to cross the analytical lines from labor theory to price theory and delve into a couple of two-dollar words, “oligopoly” and “oligopsony.”

An oligopoly is an industry in which companies have enough muscle in the market place to influence prices by adjusting output. The automobile industry is a good example. If Toyota was to cut its production in half next year, the price of cars–Fords and Chevies and Subarus and, yes, Toyotas, too–would go up.

That’s easy enough to see. Toyota, as a seller, has oligopoly power. So consider the flip side of the coin now: Toyota, as a buyer (of steel and of labor, say) also has power. This “buyers power” is known as an oligopsony. If Toyota was to cut its output in half next year, the value of steel and of labor would go down, since the demand for those items will have been reduced.

An individual laborer, by contrast, yields no such power. If Joe Sixpac, who works on the assembly line, quits his job, it won’t affect the overall value of labor. He’s just one small, insignificant speck of dust in the cosmos of labor.

Enter the idea of a union. If all the Joe Sixpacs are lumped together into one bargaining entity, then they can have their own little oligopoly rolling along, and can influence the price of their labor by adjusting output (the most dramatic example of which would be a strike.) The oligopsony power of the employer, then, is counteracted (to some degree) by the oligopoly power of the union.

If you’ve followed this explanation this far, you now understand more about labor economics than 99 percent of world does.

Which brings us to the second aspect of unions, and that’s the whole government angle. Unions wield a lot of power in political circles, and have the power to influence laws. Government muscle can be put on the union’s side. Industry, of course, seeks political influence as well.

Which brings us full circle to Guam’s situation, where the issue of collective bargaining will be strongly linked to the political/government realm as the “right to work” idea is debated. We’ll hear a lot of huffing and puffing and emotional arguments being made, but I doubt you’ll see a coherent economic analysis of the issue (my humble screeds notwithstanding).

I was once caught in the trench warfare of a union vs. management scrap, and I’ll relate my war story to you tomorrow.