This is the essay for the 6th week of the Tom Woods Homeschool Government course. In this blog post, I will be discussing two things:
1. Working conditions.
2. Labor Unions.
If we look at the statement: “Government must intervene in the economy to bring about improved working conditions”, it has a hidden second message in it. This second message is that the free market can’t improve working conditions by itself. There are workplace improvements that pay for themselves. Like having electric lighting at the workplace. Workers can be much more effective when they can see what they are doing, which translates into more products that can be sold for profits. What about workplace improvements that don’t pay for themselves, like air conditioning. Nowadays air conditioning is a workplace guarantee in almost every country. However, when air conditioning was first invented, like with any other new invention, it started at a high price where only the rich could afford it. It would be ridiculous for the government to pass a law demanding that every workplace have air conditioning back then. Almost all businesses wouldn’t be able to afford the air conditioning and go out of business, leaving a lot of people unemployed.
Once a product becomes cheaper and a substantial number of businesses can afford them, why would they improve working conditions if the product doesn’t pay for itself? This is because some workers would be willing to have lower wages for the improved workplace. These lowered wages would pay for the cost of the product. Once the product’s price gets low enough the wages of the businesses with the product and the wages of the businesses without the product will be the same. How will the business without it keep its workers? This is done by offering a wage premium to the workers in exchange for the lower working conditions. This wage premium would be a higher wage that accounts for the lower workplace conditions that the workers will have to endure.
In this situation, workers can choose a lower wage with a higher working condition or a higher wage with a lower working condition. The workers are allowed to choose which they find better, instead of everyone being forced to choose one option by government regulations. If the government does this some workers will be worse off than they were before. Eventually, the wage premium that businesses will have to pay for the lack of a product that improves workplace conditions, will be higher than the price of the product, in which case they will get the product and remove the wage premiums.
Let’s look at another statement: “All workers have benefitted from the existence of labor unions”. Before we start analyzing modern labor unions let’s focus on old craft guilds. These didn’t allow any new members into their guilds, so they could keep the member’s wages high. This is obviously hurting non-members wanting to enter those trades. Modern labor unions do much of the same thing, but they hide the downsides of their practices. Labor unions allow anyone who works in the trade that the labor union is based around, to join. Labor unions bargain with employers to give the union members higher wages. These higher wages inadvertently mean that employers can hire fewer people. This means that labor unions have the same result as craft guilds.
If all labor unions do is take away money from someone who would’ve otherwise been employed and give it to union members, you might say: “The effect of labor unions is neutral, so what does it matter?”. The problem is that labor unions have other costs that make them a net negative. Unions inside trades that required skilled labor reduce the number of skilled laborers in those trades. This means that some skilled laborers will have to go into unskilled trades, which lowers the wages in those unskilled trades. This is the same thing I told you above, the difference is that market resources were used to train these people to become skilled laborers. If unions prevent them from getting into these skilled jobs, the result would’ve been the same if they hadn’t gotten all of the training needed to do so.
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