A commenter asks an interesting question:
You're a long way from establishing your critical point, focusing only on the downsides of unionism to productivity. What about the downsides of focusing only on the next quarter's return? Any individual corporation would be best served by a return to servitude (company towns, anyone?). The system as a whole may well be better served by having a systematic counterweight to maximizing short-term profits.Just curious. Are you paid on a piece-work basis or do you draw a salary? Given what you do here, shouldn't you be paid on a piecework basis?
As you think about that, remember that there are other values in this world than maximizing short-term productivity, like treating people with dignity. Who knows, maybe the people who get paid a little more can actually afford to buy the products that the economy generates.
Actually, this is a series of interesting questions. I was going to respond in the comments, but then many of you would miss it.
So, first things first: alleged corporate "short-termism". There's very good evidence for certain kinds of managerial abuse that might fall under this heading. Earnings manipulation. Unnecessary mergers. Internal empire building. At a stretch, insider trading.
But the idea that companies maximize short term profits at the expense of long-term returns is, to put it mildly, unproven. Undoubtedly there are some companies that eat their seed corn, just as their are companies that could use a better focus on current performance--well-funded start-ups generally fall into the latter category. On the whole, though, companies pay attention to both long-term profits and short-term performance.
That's because everything these companies do is public. And the public--or at least the part of the public that managers care about, the investment class--is not completely moronic. Pfizer could maximize its short term profit by slashing its R&D to zero and firing its sales force. But investors would hammer the stock, because they can recognize that this means the stock will soon have no cash flow.
This is not to say that some companies do not err on the side of too little investment; only that as far as we can tell, there is no systematic bias towards doing so. Most research on mass layoffs focuses on the workers rather than the firms, but what little data there is suggests that on average, productivity rises after them. This is unsurprising unless you actually buy into the notion that companies have absolutely no idea who produces and who doesn't.
Companies are not the omniscient revenue maximizers that some conservatives like to claim, but neither are they the venal buffoons of liberal legend. Which should be obvious from the fact that much of the stuff we have works pretty well, and better every year.
On the second question, there's a pretty rich body of literature on when piecework rates make sense. I highly recommend the chapter on the subject from Tim Harford's thoroughly excellent book, The Logic of Life. Piecework makes sense when quality is readily observable and monitoring costs are low. The Atlantic wants me to maximize the quaity and readership of the blog, not the number of posts; that's why I don't get paid on piecework. Though of course I do, when I'm writing for other publications. But the question of compensation structure is not a matter of business being mean; most low-wage workers don't get paid on piecework, and plenty of highly paid workers do--solo lawyers and consultants, for example.
On the third point--well, sure. This is an empirical debate about productivity, not a philosophical debate about income redistribution. But biased reading of empirical data is one of the ways that people try to delude others into following their philosophical choices. I think lower taxes and less government spending are a good idea. That doesn't mean I can pretend, as some conservatives do, that lowering taxes raises revenue to the government.
On the fourth point, this is a silly canard. On an economy level, we cannot produce more by paying workers more, any more than you can increase the height of your house by calling the basement the first floor. The amount of stuff everyone has is determined (more or less) by the productive capacity of the economy. You can redistribute that stuff between people, and you can change the mix of stuff that gets made. But you cannot make more of it by changing the nominal price of labor. The only way to get more stuff as a society is to improve our productive capacity, mostly by research and capital investment.
Even redistribution is tricky, because the rich consume stuff with relatively high prices, because of scarcity and fashion. But those things consume fewer resources to make than the mass produced items that most people buy. You cannot turn a $20,000 Hermes handbag into 1,000 $20 Target handbags. Nor can you give everyone 1/1,000,000 of Donald Trump's awesome view. Our ability to redistribute is limited, at the very outside, by the number of resources put into the high price items that the wealthy consume.
Also, when you apply a "luxury tax" to the Hermes handbag, or the luxury yacht, etc. to expand redistribution, for example, the wealthy reduce their consumption of those goods; and, a lot of the not-so-wealthy lose their jobs because the demand for the products they produce declines. This may well be an unintended consequence, but it is certainly not an unanticipatable consequence.
You disappoint me. I think this is one of your posts that, while there is little to disagree with specifically, fails to see the forest for the trees. Look at some point libertarians and unfettered free marketers are going to have to confront the fact that it simply is not true to say that what is best economically for an individual or corporation is always going to produce justice, or human happiness, or dignity. Capitalism is an organic system; the profit motive often enough it works well in providing outcomes compatible with basic human morality. But it doesn't all the time. Life doesn't work that way. I know that libertarianism and the free-market fetish produce outsized, extreme opinions, and that often enough libertarian blogs are trapped in a death struggle of "callousness oneupmanship." But there is a religious faith in capitalism that is antithetical to any discriminating intelligence. Life does not produce perfect systems, and the absolute refusal to recognize the times when markets have produced outcomes undesirable or immoral leads many to talk about the world in ways that are frankly untrue.
I wish you could have taken this opportunity to concede that, yes, there is more to life than the production of capital and the consumption of goods, and that sometimes, those other considerations overwhelm the profit motive.
You cannot turn a $20,000 Hermes handbag into 1,000 $20 Target handbags. Nor can you give everyone 1/1,000,000 of Donald Trump's awesome view.
That depends. If a $20,000 Hermes costs that much because a worker spends half a year of painstaking labor to produce it, and the materials costs are negligible, then the same worker might be able to crank out, say, 10 bags a day with the right sort of automation. The Hermes bag may represent a rich person's monopolization of several man-months of work that might, instead, have produced large numbers of useful items for the rests of us.
Which is why it's one of those mysteries of life that lefties seem to love the idea of expensive handcrafted items and hate the idea of mass-produced items.
As for Trump's view -- actually it is possible to divide a NY high-rise view by thousands if not by millions -- they're called hotel rooms.
Shorter Freddie: I can't dispute any of Megan's points specifically, so excuse me while I really lay into this straw man I have in my basement.
I wish you could have taken this opportunity to concede that, yes, there is more to life than the production of capital and the consumption of goods, and that sometimes, those other considerations overwhelm the profit motive.
Freddie, people who live entirely in a world of philosophical moral abstracts certainly have their place in the vast framework of human perception, but they tend to be useless for any purpose other than a conference room doorstop when it comes time to sort through the objective evidence figure out what the cost of something is going to be.
Charity, as the saying goes, begins at home. You can do as much of that as you want, starting right now. However, when you want a large and disparate group of people who do not all see the world the way you do to voluntarily move in a particular direction, then you had best be prepared to run the numbers on the best available evidence and show them that it is in their individual interest to do so. If it isn't clear to you why this is so, go fetch yourself about fifteen cats and then attempt to herd them -- the lessons will come quickly.
"Look at some point libertarians and unfettered free marketers are going to have to confront the fact that it simply is not true to say that what is best economically for an individual or corporation is always going to produce justice, or human happiness, or dignity. Capitalism is an organic system; the profit motive often enough it works well in providing outcomes compatible with basic human morality."
I think you're confusing an absolute statement with a relative one.
Libertarians don't believe that free markets are 'always going to produce justice, or human happiness, or dignity'. They tend to believe that free markets tend to contibute to justice, and human happiness, and dignity more often on average than heavier-handed governmental intervention.
For that matter, would a corporation focused only on the next quarter's return build a company town? That strikes me as the sort of investment likely to pay off only over the longer term, if at all.
I am curious... then precisely how do you fit in labor concerns? If the question that is driving this is: "the role of unions in society and the market, the effect of unions on productivity." Then how do you adequately describe Unions and their effect?
It seems to me an exceedingly general argument. For instance in the absence of a union all benefits, pays, perks, all that a union deals with is negotiated on a case by case per individual, with regulation and industry norms as the start point. The business asking "Is this employee worth this?" The employee asking " How much can I get?" This assumes equilibrium at work, which does not have to be in play. One can never forget that some decisions need not be based on such a simple principle. Its quite possible that an employee would ask for something he is well worth. Only to be fired because it sends a message not to ask for certain incentives.
Unions can help business by basically standardizing the incentive package and freeing up resources spent on individual negotiation. I think what you really need to ask though isn't "is the union hurting productivity?" But "how much is the union cutting into optimal growth?" It seems a foregone conclusion to me that unionization will affect productivity. Only that productivity is not what really matters, a business's growing share of the market is where the real money is at.
Three points:
1) There seems to be much talk about the "dignity" provided by labor unions to their members. Excuse me, but which worker has more dignity: Mr. Smith who works his butt off each day and produces a high-quality product or service as inexpensively and efficiently as possible because he knows that he is competing with others that could replace him and thus earns his job every day, or Mr. Jones who joins a union and while he may produce a high-quality product or service generally has no incentive to produce it consistently because of his inflated salary or job-security benefit that shields him from always doing the best he can? Oh sure, the union may have "standards", but those standards are easily overcome by an old-boys network.
I'm sorry, but when I see union members who rely on their negotiated benefits rather than on their raw talent, I am left inescapably with the impression that union membership actually STRIPS its members of dignity. Unions can potentially turn excellent workers into loafers and malingerers. They change the dynamic from people earning a living, to people being entitled to one. It doesn't happen always and to every union member, but it certainly happens more with union protection than without it.
2) Why is it that unions don't have to abide by anti-monopoly legislation? If competition is good for corporations, and it is, why wouldn't it be good for unions? Imagine GM having the choice between offering contracts to Union A that has higher-skilled workers but demands better salaries and benefits, and Union B that has high-but-not-as-highly-skilled workers but demands lower salaries and benefits. Then, GM could choose one or the other over a contract period depending on how they wish to positiion themselves in the industry (Do we go the Nordstrom route or the Wal-Mart route?). Or, they may choose Union A for their top-of-the-line models, and Union B for their economy models. They'd have the choice.
Unions supposedly stand up for the "little guy" against the big, entrenched corporation. There was certainly a time when this was true. Nowadays, corporations must compete fiercely not just with the companies down the street, but the companies around the world. They have to be lean and agile or they'll die. There's nothing "entrenched" about them at all any more. The big entrenched entities now are the unions themselves. They have monopolies on labor for certain firms and industries and all of the inefficiencies that go with monopolies. If competition is good for companies, it's good for labor unions as well.
3) If a company really doesn't want to deal with unions, the answer is simple. It's used in Silicon Valley every day. Give employees equity in the company. Not just a token of equity, but enough that the employees really "feel" it when the company does well or poorly.
Labor unions have always set up this false dichotomy between "labor" and "management". The fact is that everyone from the CEO to the graveyard-shift, part-time, temporary, weekend, assistant to the assistant janitor should all be on the same page. They all need to be working toward one goal, the betterment of their corporation. Smart companies get this, and offer good equity compensation as part of their packages to their employees, even the "replaceable" ones. In this way, the dichotomy between labor and management disappears as it rightfully should. Stupid companies don't get this and are parsimonious with their equity. They often get the labor unions they deserve.
If a company can focus all of its employees on the same goal as the CEO, all striving for greatness together, and achieving success in the world economy both for the company and each individual, that's where you'll find REAL dignity.
"If a company can focus all of its employees on the same goal as the CEO, all striving for greatness together, and achieving success in the world economy both for the company and each individual, that's where you'll find REAL dignity."
And if the Yankees had the same goal as the Red Sox, they would all just try to hit the ball as hard as possible, without keeping divisive "scores."
But employees have different goals than CEOs. Employees wish for salaries that give their families a certain quality of life. CEOs wish for maximized profits.
Unions are the only power labor has over management. If you are a worker, support labor unions or suffer the consequences.
You're wrong; and in two different ways! The first way, which I'm guessing you will concede, is that you can get more productivity out of an individual worker through extra incentives. If I'm flipping burgers at Burger King, I might very well think that I don't have too much to worry about if I lose the job. Not that I don't care at all, after all, I went to the trouble to get the job. But, chances are, I can replace that job easily with another one down the street at In-and-Out, so if my boss gets to be too much of a pain, then fuck him, let him fire me. But, if Burger King decides to pay me three times to going burger-flipper rate, I'm going to extend myself further to keep the job, since it won't be such a trivial matter to replace it.
The other way in which you are wrong is on a macro level: the more that money rotates through the economy, the more that gets done. A recession happens when the movement of money slows down. A worker is just a consumer waiting for time off to go spend his earnings! The more money he makes, the more he spends. And for every consumer with some money to spend, there's a supplier saying come spend your money here, we're making what you want to buy.
The "short-term" oriented behavior of some company managers is real (as evidenced by the subprime bubble), and is driven by the incentives of the current accounting rules.
In particular, the accounting rules give managers wide leeway to decide how and when to report how income and expenses arise from changes in the balance sheet. Honest accountants and managers use this discretion to report earnings in ways that they believe more accurately reflect the intrinsic economics of the company. But once one dishonest manager persuades his accountant to goose earnings, a chain reaction of bad reporting is triggered -- and you see the result in the financial industry right now.
The solution is not to change the rules for how income statements are reported. That'd be like switching sides at half-time. The solution is to force the managers and accountants to play a different game, one in which the odds are more favorable to employees and investors.
Accounting standards should require firms to report not only the size of the balance sheet accounts on a particular date, but also the amount of average turnover in those accounts over a specified period of time.
Bear Sterns' CEO would not have been able to pretend like Bear Sterns was going to be just fine had he seen the numbers on outflow of brokerage customer accounts.
Megan notes that she's only discussing the economics, but the union question is primarily one about the kind of society we want to live in.
You can compare it to the child labor question - at some point we decided as a society that we could afford to forgo children's productive contributions in order to live in a society we liked better. (The fact that staying in school turned out to be much better for the economy in the long run is beside the point.)
So, we can accept that unions may be bad for productivity overall, and still choose to live in a society where workers have a little more bargaining power.
The first way, which I'm guessing you will concede, is that you can get more productivity out of an individual worker through extra incentives. If I'm flipping burgers at Burger King, I might very well think that I don't have too much to worry about if I lose the job. Not that I don't care at all, after all, I went to the trouble to get the job. But, chances are, I can replace that job easily with another one down the street at In-and-Out, so if my boss gets to be too much of a pain, then fuck him, let him fire me. But, if Burger King decides to pay me three times to going burger-flipper rate, I'm going to extend myself further to keep the job, since it won't be such a trivial matter to replace it.
But at an economy-wide level, what happens to all the other burger-flipping jobs? If Burger King is paying 3x the burger-flipper rate, then it hires all the really effficient burger flippers, all the less efficient burger flippers work at the non-Burger King places, they less incentive to keep their jobs (as they face less labour competition since Burger King has hired all the really efficient guys), and thus overall efficiency is the same.
Or, every fast-food company could pay burger-flippers 3x the current going rate and have a pool of unemployment. Yep, the employed burger-flippers may have one hell of an efficiency increase as they worry about losing their jobs and being unemployed, but the unemployed burger flippers have a productivity rate of zero.
The more money he makes, the more he spends. And for every consumer with some money to spend, there's a supplier saying come spend your money here, we're making what you want to buy.
By this logic, Zimbabwe should be the richest place on the planet. Zimbabweans have money coming out of their ears. In fact, Zimbabwe is poor because money is an accounting tool. What people want is not money but goods and services - food, warmth in winter, education for their kids, etc. The more a worker makes, the more goods the economy has. Hyperinflation is a bad thing for the economy, not a good thing.
Unions can help business by basically standardizing the incentive package and freeing up resources spent on individual negotiation.
But if the standard package doesn't attract the individuals the company wants, then the company will lose out overall. Standard packages may be efficient if a company has an ample labour resource (for example, if unemployment is very high), or if they don't need specific skill sets. But if you offer a standardised package and find your best employees being lured away by companies that offer them individualised packages, then it may well be more economic to spend those resources on individual negotiation.
"But the idea that companies maximize short term profits at the expense of long-term returns is, to put it mildly, unproven. "
I think you can prove or disprove this by looking at the incentives that corporate managers have (which naturally will vary from company to company). If their compensation packages (salaries, stock options, bonuses, golden parachutes, etc) are structured to reward them for short term profits at the expense of long term returns, then guess what those managers will do.
So, we can accept that unions may be bad for productivity overall, and still choose to live in a society where workers have a little more bargaining power.
Or we could not, and chose to live in a society where we have extra resources available to spend on environmental problems and taking care of the elderly.
On an economy level, we cannot produce more by paying workers more, any more than you can increase the height of your house by calling the basement the first floor.
This may be true when we're talking about actual production (as in widgets), but if we're talking service...
I'll take a union-represented "overpaid" grocery clerk at Safeway over a non-union minimum wage Wal-Mart slob.
Same goes for call centers. Do you get really get better service from talking to a guy reading from a script in broken English out in Bangalore? I don't think so...
Sorry, my comment on Zimbabwe was badly written. I should have said "In fact, Zimbabwe is poor despite Zimbabwe having absolutely incredible amounts of Zimbabwean money because money is an accounting tool."
On another level, Zimbabwe is poor because Robert Mugabe has policies that look like he pawed through history for a list of ways to destroy the economy and then implemented all of them.
Also a comment on this, expanding on my original point:
Mr. Smith who works his butt off each day and produces a high-quality product or service as inexpensively and efficiently as possible because he knows that he is competing with others that could replace him and thus earns his job every day.
I don't see this kind of high-quality competitiveness in many low-wage positions.
I don't even think most people even think that way.
I suspect that the average burger-flipper, if he does a good job, does it not because he "knows that he's competing with others" (in this case, the "others" would most likely be teenagers or migrant workers) but rather because a low-paying job is better than no job at all.
I assumed the standard incentive sheet would keep people at their employer's workplace. It would be foolish to maintain an incentive package that cannot attract and retain personnel. To me that just seems like common sense, or for all the economists here conventional wisdom.
As for this culture we live in... it is natural for an individual to desire stability, however, dynamic change is what maintains a nation, an economy and a culture. I find that many people would like to live in the suburbs unburdened by problems like health care, retirement, pay, and their children's safety. However, such complacent living seems a little meaningless to me. "A life unexamined is not worth living." To me a life where everything is not just done for you, but you never even realize its being done at all seems as synthetic and pathetic as it can get. The tranquility of a safe, unburdened, existence would amount to nothing more than the Ivory tower.
Quite frankly I am a little proud of all the complaining that occurrs in this country. We're arguing about how people are making too much money, and most of it by only not sharing (instead of corruption).
I won't push it to the kids starving in Africa conclusion because I am aware that there are people in this country for whom purchasing a washing machine is a great expenditure. Where yes starvation is occurring. So while I don't agree with some of the principles of unions, or for that matter wealth redistribution. To be the richest nation ever, and have people losing limbs to infection, starving because milk is $3.20 a gallon (Oregon prices)rice and pasta are about $2.00 a pound. I don't care if many of these people made poor decisions. It shouldn't be allowed to occurr here.
Ultimately a good union and a good business would do well to actually work together to accomplish goals not hassle each other over who ought to get what percentage.
Freddie deserves a bit more credit than Horatius gives him. He does recognize that, on the question of efficiency and productivity, Megan is simply right and the commenter is simply wrong. That's a good deal more reason than a less gracious opponent could muster.
It's true that rapacious capitalism doesn't produce the "[social] justice, or human happiness, or dignity" to which Freddie aspires.
The trouble is that unions do a rather piss-poor job of that, too. On aggregate, they perhaps re-distribute from rich to poor, not because they are actually designed to do so, but because labor-sellers happen to be, on aggregate, poorer than labor-buyers. But because they are actually designed to re-distribute from outsiders to insiders, there are a lot of times that the re-distribution flows in the wrong way. When the consumers of the products of their labors are poorer than them, and the demand for those products is elastic, which happens often, they definitely re-distriubute in the wrong way. And since their impact on aggregate production is negative, there are additional marginal cases for which their positive distributional impact is outweiged by their reduction of the size of the pie to be distrubuted.
Government is in a slightly better position to actually target re-distribution at the poor, and indeed most libertarian thinkers (e.g. Hayeck) have advocated that it do so, via a simple, predectible, and transparent monetary transfer. Even with this potential advantage, though, government has done a terrible job, measured against your goals. It has created a morass of complex programs that do a much better job of handing out advantages to the well-connected and money to middle-class voters than actually transfering much wealth to the poor. (Public choice theory explains why pretty well.) And of course, to the extent that they do succeed in transfering wealth, their net impact is blunted by the reduction in the size of the pie to be distributed that dead-weight losses impose.
The institutions that really do a good job promoting social justice, happiness, and dignity are charities and community organizations. So why not let different institutions do the work they do best? Government to enforce property rights (and make a simple, predectitable, and transparent transfer from rich to poor, if we can get it to do so), capitalism to create the biggest possible pie from the available resources, and civil society to promote social justice, happiness, and dignity.
I find that many people would like to live in the suburbs unburdened by problems like health care, retirement, pay, and their children's safety. However, such complacent living seems a little meaningless to me. "A life unexamined is not worth living." To me a life where everything is not just done for you, but you never even realize its being done at all seems as synthetic and pathetic as it can get.
Yes, because the most rewarding times in life are the hours spent poring over deductibles, pre-existing condition rules, lists of doctors who are part of the group etc. in different health care and HMO plans. I feel like very Socrates himself as I contemplate the options between different budget airline flights to Albuquerque, whether they allow enough time to make the connection in Dallas, and whether the baggage allowances match. And when I go to my grave, I shall have no regrets, for I shall know that even if I ended up spending a quarter of my waking hours while alive on mindless drudgery trying to thread through systems deliberately designed to confuse me and bilk me out of my money, the choices I made were mine -- and mine alone!
When the consumers of the products of their labors are poorer than them, and the demand for those products is elastic, which happens often, they definitely re-distriubute in the wrong way. And since their impact on aggregate production is negative, there are additional marginal cases for which their positive distributional impact is outweiged by their reduction of the size of the pie to be distrubuted. - David Wright
See, this is the part of your argument that you can't actually make unless you have some data. And Kathy G.'s argument, like it or not, is that you don't have any. You may disagree with her, but then you need to produce your data. She's saying unions' impact on aggregate production is not negative -- that the literature shows unions have an extremely small effect on productivity which may be positive or negative depending on the study.
The "raising average workers' salaries increases the size of the pie" argument is that when you take a bunch of profit away from the top 0.5% of society and redistribute it across the middle 40-50% of society, not just giving it away but paying it out as wages (i.e. continuing to reward productivity), then demand for most kinds of goods goes up much faster, leading to more employment and more production. That's what economists like Blinder, Baker, Krugman etc. are saying happened in the '50s and '60s. Maybe you disagree, but then you need to show why you disagree, not just argue based on these unsubstantiated laissez-faire assumptions.
And incidentally, I shouldn't have said "when you take a bunch of profit away", because that's not what's happening in a unionized economy. It's really "when you have an economy where workers form big groups to negotiate their salaries together, allowing them to get better deals".
http://equityprivate.typepad.com/
Brooksfoe:
Since I was responding to someone who had already granted that part of the argument, I didn't think it necessary to support it. I could dig up emperical and theoretical work, I could poke holes in the methodology of the cited study, but others have already done that. Instead, I'll just throw away the point. It's just a pile-on argument, not a necessary link in my argument that unions are not about progressive wealth redistribution.
By the way, the neo-Keynsian point you make in your second paragraph doesn't quite cut the way you want it to. All the cannonical models of economic growth tie growth to savings, not consumption. You may be able to buy a temporary boost in economic activity by transfering money from those with a propensity to save to those with a proensity to consume, but you have to pay the piper back via a reduction of future consumption. The way to engineer a sustained, long-run increase in economic activity would be to transfer wealth from those with a proensity to consume to those with a propensity to save.
Re: a lot of the not-so-wealthy lose their jobs because the demand for the products they produce declines.
Because these are niche products rather few people are employed in their manufacture and sale, and far fewer people suffer any loss as a result.
Re: Employees wish for salaries that give their families a certain quality of life. CEOs wish for maximized profits.
???
You seem to be imputing a degree of selfless virtue to CEOS when experience has shown that CEOs mostly just wish as well for salaries that give their families a (very high) quality of life.
Hmmmm...that's sort of funny, Freddie. I've always found that the quasi-religious faith is more common among those advocating an increased role for government. How there can be some sort of transfer from ignorant, petty and ill-informed individual decision makers operating in direct proximity to events to a supposedly all-wise and all-benificent central authority making decisions at a distance is not entirely clear to me.
Which is understandable, so long as you aren't claiming your argument is one of "justice". By definition, the just outcome is precisely that which is consistent with the subject's decisions. The desire to impose hardships on those who make better decisions (under the guise of the unexamined life...) is necessarily one of abrogating justice.
Hi -
I see a number of assumptions that really need to be thought about.
1) Labor is not fungible beyond unskilled labor. The greater the labor qualifications, the more difficult it is to replace that worker. The pool of qualified workers shrinks as you get into greater skill qualifications, and it is largely unrealistic to expect that employers will train to skill levels that are needed, as this is then an incentive to leave the company to take a job elsewhere (simple logic: if company A is training their people, company B should offer a sign-on bonus for those employees that is equal to a discounted value of the training.)
2) Almost all representations here of both workers and employers are caricatures of reality that do injustice to both. The real world is vastly more complex (I'm an industrial economist by trade) and more difficult to analyze.
3) Unions had a place and continue to have one. The problem is when unions represent a hindrance to productivity improvements, rather than facilitate them (think seniority rules that result in the oldest worker getting the job, rather than the most qualified).
4) Productivity is everything. The poster who wouldn't leave a burger-flipping job paying three times as much as the competition must also ask himself how that company can afford to pay their burger-flippers triple the going rate and continue on in business. Many unskilled labor jobs exist because it is too expensive to buy machines to do the work: increase labor costs, and someone will find one or the service or good will no longer be made when it is not profitable to do so...
Companies exist because there is a demand for a product that can be made or service provided for a profit. Remove that motive - by raising wages to minimize profits - and there is no real reason for anyone to set up a company. Fame and glory is for movie characters.
when you apply a "luxury tax" to the Hermes handbag, or the luxury yacht, etc. to expand redistribution, for example, the wealthy reduce their consumption of those goods; and, a lot of the not-so-wealthy lose their jobs because the demand for the products they produce declines. - Ed Reid
...until the government spends the luxury tax on something, perhaps something useful - say, repairing bridges - at which point the not-so-wealthy get new jobs repairing bridges, which everyone uses, instead of making a couple of unbelievably expensive handbags or yachts, which only a couple of people use.
If we're going to reason simplistically, let's at least get our equations to balance out.
Except, of course, brooksfoe, for the fact that there is a deadweight loss in the taxation process. This means that the revenues generated from taxation are less than the damage done to the goods producing industries themselves.
3) Unions had a place and continue to have one. The problem is when unions represent a hindrance to productivity improvements, rather than facilitate them (think seniority rules that result in the oldest worker getting the job, rather than the most qualified).
This is fine. There won't be much disagreement with this point from most Democrats, and certainly not from the Obama crowd. In this thread there hasn't been anyone claiming no aspect of unions ever brakes productivity; the question is whether, overall, having a union shop generally makes your shop less productive. There doesn't seem to be any real evidence for that. It's well known that expensive labor leads managers to invest more heavily in labor-saving technology and to seek organizational efficiencies.
Companies exist because there is a demand for a product that can be made or service provided for a profit. Remove that motive - by raising wages to minimize profits - and there is no real reason for anyone to set up a company.
Respectfully submit that given record profits in American industry in recent years and stagnant wages, US economy does not seem to be tipping in the direction of too-high wages and too-low profit, but rather the opposite.
"Look at some point libertarians and unfettered free marketers are going to have to confront the fact that it simply is not true to say that what is best economically for an individual or corporation is always going to produce justice, or human happiness, or dignity."--freddie
freddie, here: "what is best economically" is where your construct falls apart.
you, as many others, conflating 'economically' with 'financially'..
I agree that the pursuit of maximizing Financial Profits often leads to Economic folly, though, your construct has it backwards.
Simply, if each, and every, strove to maximize Economic Profits, you'd the World evolve, closer, to your, seemingly, desired outcome..
The biggest problem of the 'Left', and, really, most of us, is their Ignorance of Economics..
Pfizer spends roughly 2x on sales as on R&D. Sales expenses help to maximize current revenue, while R&D is their future. What does the 2X ratio say about Pfizer? They aren't unusual in the pharma industry, so what it says about pfizer would apply to the all big-cap pharma.
What does the 2X ratio say about Pfizer?
That they know where the funding for their future comes from?
Your fourth point is not necessarily correct. Employers can pay employees so-called efficiency wages so they don't shirk. So if an employee is shirking to any degree and the employer then pays an efficiency wage so he doesn't shirk, the employees marginal product increases because he is no longer shirking. Firms do this instead of having a monitor around. For example, a firm could pay me more money to not play on the internet at work instead of buying (relatively) expensive software to monitor my keystrokes.
"It's well known that expensive labor leads managers to invest more heavily in labor-saving technology and to seek organizational efficiencies."
It's also well known that if you seek to replace union jobs with machines they will work to prevent it or strike. As an example see this article that details how the Comcast Tower in Philadelphia uses flushless toilets but has pipes like any skyscraper except they aren't connected to anything. Fewer pipes means less work for the plumbers union.
One can easily see the effect that unionization has on productivity of corporations. Just look at the present state of the US automakers, US steelmakers, and the airlines. These were traditional union shops, and all three businesses have been nearly, or completely, unprofitable for decades. In businesses were there is a competition between union and non-union labor, those businesses with non-union labor win far more often.
One can easily see the effect that unionization has on productivity of corporations.
Giving corporations free money would probably improve productivity, too; the question is the degree to which corporate productivity is a quantity we, as a society, privilege over quantities.
No corporation is entitled to be profitable, or even in business at all.
That's "other quantities", above.
Chet,
You do, of course, realize how that applies to employees as well, don't you?
Bill, it has nothing to do with justice, you are correct. It is only about the fact that in this country to have these defects is more about pride and shame.
I won't get drawn into debate about how hard it is to pour over mutual funds to ensure a happy retirement. Or even better the wait in line at the airport. To have those problems ought to be a cause for a smile, albeit as your smashing your brand new Iphone into the ground, cursing the man in front of you that somehow forgot to take his belt off at security.
As for Yancey Ward's observation on the auto, steel, and airline industries. I don't disagree, I would only submit that the unions in each of those instances have only been a burden. The real culprit being sheer front office ineptitude (auto industry and their brilliant forecast of SUV's for all), foreign competition muscling in on the market and the quietest response to such a situation (steel). And aviation well they get a pass, 2001 is about the worst year that industry could have had.
"But employees have different goals than CEOs. Employees wish for salaries that give their families a certain quality of life. CEOs wish for maximized profits." --ignatov
You take my point out of context. As I said in my previous post, the way you harmonize the goals of the executives and the employees is to give the employees a stake in the same profits that the CEO's have. And again, not just a "token" of equity, but enough that the employees "feel" it when the company's performance improves or declines. This is why we have stock options in Silicon Valley. It works very well. And, no, it's not just the highly-skilled specialized workers that get equity. Even, the "replaceable" workers get it. That's why Silicon Valley is (thankfully) one of the most union-free areas in the country.
"I don't see this kind of high-quality competitiveness in many low-wage positions.
I don't even think most people even think that way.
I suspect that the average burger-flipper, if he does a good job, does it not because he "knows that he's competing with others" (in this case, the "others" would most likely be teenagers or migrant workers) but rather because a low-paying job is better than no job at all." --Herb
It's a fair point that the competitiveness is not as high at a low-paying position, but if a burger-flipper does a poor job and has a crummy attitude, he can be replaced quite easily. Conversely, if they're very good, they'll probably get promoted into higher paying positions, and probably out of any stratum of labor that unions would be targeting.
It's unlikely a worker would want their burger-flipping job for the long term, and if they do, ...well, that's their choice. But, making that choice does not entitle them to some special union-forced altering of the supply or demand curves for their talent; a shift that could potentially shut off the availability of these jobs to other individuals wanting them as a stepping stone to greater things, or even just to help them get by for a while.
"Pfizer spends roughly 2x on sales as on R&D. Sales expenses help to maximize current revenue, while R&D is their future. What does the 2X ratio say about Pfizer?"
Your link goes to something about the I-40 closing. But if you are linking to reports about the Pfizer 10-K filings with the SEC or other such reports, you should note that it is roughly 2x on sales, marketing and *administrative*, and *administrative* includes almost all non-capital overhead, like secretaries, pens, toner for the printers, having a finance department, etc.
Sebastian - 12:39
Excellent observation. A second factor in the cost of sales of Pfizer is the nature of pharmaceutical sales. Sales costs include the costs of educating doctors on the uses, limitations, etc. of their medications. To the extent that any doctor might prescribe one of Pfizer's products to me, I would consider that as much, or even more, an added value to the product than R&D.
Sales costs include the costs of educating doctors on the uses, limitations, etc. of their medications. To the extent that any doctor might prescribe one of Pfizer's products to me, I would consider that as much, or even more, an added value to the product than R&D. - Bill Dalasio
Yes, much as the sales costs of McDonald's include educating the customers in the deliciousness of special sauce. In fact we should be grateful to McDonalds who, in addition to selling us fine hamburgers, provide us with endless hours of fine television commercials to watch absolutely free! Not to mention beautifying the landscape with their lovely signage for all to benefit from.
Employers can pay employees so-called efficiency wages so they don't shirk. So if an employee is shirking to any degree and the employer then pays an efficiency wage so he doesn't shirk, the employees marginal product increases because he is no longer shirking.
On the other hand, efficiency wages only work because an employee doesn't shirk as they are worried that they will lose their well-paid jobs and not be able to get another well-paid one. So, if everyone pays efficiency wages either you have structural unemployment, or there's no incentive to avoid shirking.
If you have structural unemployment, then the ex-employee's marginal product falls to zero because they aren't working at all. It seems unlikely that the lucky buggers who remain in their jobs will be so motivated as to make up for all the loss from the unemployed people, so it's quite plausible that economy-wide production could go down.
brooksfoe,
Despite your snide commentary, out of my own personal sense of decency, I'll hope you never, ever, have a course of prescription treatment from a doctor who has not been visited by pharmaceutical reps.