Monday, July 14, 2014


From an econoblog:
You might wonder how the cross-country evidence shows a positive correlation whereas the cross-workplace evidence generally doesn't. Here's a theory. People will always want better pay and conditions. This is simply because they are human. If they can't achieve these through unions they will try to get them through the ballot box, in the form of legislation.
This is actually an odd finding, as I would normally prefer to ascribe the ecological data to the ecological fallacy and stop there.  But the discussion of mechanism is interesting, plausible, and might actually explain some odd paradoxes -- but it also explains other oddities like German productivity.

So why are unions so hated:

Which poses the question: if unions are good for productivity, why have bosses traditionally been opposed to them? The answer, I suspect, lies in this paper, which finds that unionization "is significantly associated with lower levels of total CEO compensation."
If this explanation is true, we have a classic principal agent problem.  If the pay of a CEO is related to breaking unions, one can imagine that they will try to do so even if it hurts the overall profitability of the company.  Classic misaligned incentives, really.

It's not that I see an immediate return to a pro-union environment, but it does point out that we might actually have a case where markets aren't necessarily going to maximize efficiency.  And that is worth keeping in mind during these discussions. 

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