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Thursday, December 18, 2008

Labor Unions Are Market Failure

Reading this story about card-check, I'm struck by the idea that this is a rare example of how unions might hurt the individuals they represent. I disagree because labor unions are a source of market failure. Their purpose is to create a monopoly of labor, and in a monopoly, prices are higher than they should be for a perfectly competitive market. A corrective government should fix monopolies by breaking them up or setting prices. Our government, however, not only does not break up labor monopolies, they give in to rent-seeking and lend their power in the form of a minimum wage.

This is not only not Constitutional, it is bad for economies, industries and businesses and it is just plain wrong.

Market failures mean that the either we could be having more benefits for society without that failure or the costs to society are higher than the benefits. When people discuss labor they always focus on the workers who are "harmed" by low wages, but if wages were too low, people would not exchange their labor in the first place. And it's not even good for all the workers because when wages are raised artificially high, wages are cut and people are fired. If companies aren't allowed to do that, they eventually go out of business, putting all those workers out of jobs. One of the most striking examples is the auto industry, which has huge labor contracts that are part of the reason companies are failing.

And what about the owners of businesses, not just of big business but of mom and pop restaurants or small bookstores that go out of business or fire people when the minimum wage rises because they can't afford the labor costs. I guess it's okay to hurt them, as long as someone else is better off, right? In the long run, the only people labor unions help are those who get power from running them.

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