Justin Campbell discusses the role of unions in our economy:
In a recent blog post Jessica Irvine (Economics writer for the Sydney Morning Herald) wrote the following:
"In a perfectly competitive market, there'd would be no point in unions because employers wouldn't underpay workers. They couldn't. Competition would drive them to pay workers a wage representing the value of their marginal product. If a company failed to, there would be no shortage of other firms willing to pay more. Wages would equilibrate.
In such a model, companies are price-takers, not price-makers. But, unfortunately, this is far from the reality in which many industries are dominated by one or a handful of sellers. And because workers take time to train, many are, in the short term at least, limited to a particular industry, or set of industries, to which they can sell their labour.
The result is that it is possible for certain companies to underpay their workers - that is, pay them less than the value they have created, plus compensation for inflation."
While this is certainly the public imagine the unions like to foster using examples such as, "workers that empty bedpans." The reality is organised labour is far more likely to be skilled workers who are in a position to seek economic rents for their labour by withholding it. The union member is far more likely to be a public servant, teacher, skilled tradesman or a member of a professional association such as doctors.
Where Irvine's analysis is largely wrong is that the less skilled the labour, the more competitive the labour market. Take for example workers in disability support work (an industry I use to work in), new workers regularly enter and exit the industry. After receiving their induction and shadow shifts the new worker is fully productive within a week. Of course the worker continues to learn after a week, but largely they are able to perform their duties after a week of training. If they feel they are not able to earn the income they wish or do not enjoy their work their labour is highly substitutable to other industries. The worker can switch to childcare work, retail or hospitality ect. So regardless of whether the industry is dominated by a handful of employers, the worker has little fixed costs preventing them from retraining and enter another industry. Equally the employer is able to find other workers with no previous experience in the industry and within a week have a productive worker. It is precisely the competitive nature of the labour market in such industries that keeps the price of labour low. I would argue the monopsony market Irvine describes largely doesn't exist.
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