Walter Block lists a variety of negative effects of labor unions: they

distort wages and prices, curb production, decrease nonmonetary rewards, hinder labor/management relations, and have an overall detrimental effect on the economy.

He proceeds to give a masterful analysis of each.

Let me comment on one point, namely that strikers are hoping that “excess profits” will cover the wage increases demanded on pain of a strike.

There is a market process argument at the core here. There is no such thing as excess profits. Any monopoly price of an innovative product is temporary, because it immediately attracts imitators to the industry. These imitators lower prices by boosting production and increase costs as per the laws of diminishing marginal utility and increasing marginal cost. Some amount of time usually passes between the time when an invention or new production process is commercialized by the first seller to the market and when all profits are arbitraged away. Profits can be had but not for too long.

During the time of profits, workers are indeed not receiving the full product of their labor. This is because no other entrepreneur is offering them more money. How then do wages rise? Precisely when the process of imitation commences. Then, as other businessmen enter the industry and compete for labor, workers obtain a greater bargaining power. They see that a year after the introduction of a product, numerous close substitutes have appeared including those superior to the original product. They can tell their present employer: raise our wages or we’ll leave to work for those newcomers.

The social function of this process of innovations that bring about profits and imitation that demolishes profits is precisely economic progress. It’s the yang and yin of the economy, chasing each other and in uniting with each other, producing the fruit of growth and improvement of social conditions. The market flows and will flow swirling on forever.

Labor unions subvert this virtuous dynamics. They are not content to wait until imitators, by bidding up on labor, cut the profits of the initial innovator and offer higher money wages. They try to devour the profits directly and immediately by threatening their employer with great inconvenience of a strike. They say: we’ll shut down your company unless you part with your profits. Whether or not a strike is not immoral when carried out properly, unions wound the market process. They diminish the incentive to their employer to innovate, because what is the point, if he is given no time to enjoy his profits, because workers immediately eat them up, even despite the fact that they cannot find better jobs elsewhere? This behavior is disturbing and anti-social, and the economy is harmed as a result.


Leave a Reply

Your email address will not be published. Required fields are marked *