Productivity, wages and unions

Thomas Sowell:

Senator Barack Obama recently said, "let's allow our unions and their organizers to lift up this country's middle class again."

Ironically, he said it at a time when Detroit automakers have been laying off unionized workers by the tens of thousands, while Toyota has been hiring tens of thousands of non-union American automobile workers.

Labor unions, like the government, can change prices -- in this case, the price of labor -- but without changing the underlying reality that prices convey.

Neither unions nor minimum wage laws change the productivity of workers. All they can do is forbid the employer from paying less than what the government or the unions want the employer to pay.

When that is more than the labor in question produces, some workers who are perfectly capable become "unemployable" only because of wages set above the level of their productivity.

In the short run -- which is what matters to politicians and to union leaders, who both get elected in the short run -- workers who are already on the payroll may get a windfall gain before the market adjusts.

But, sooner or later, the chickens come home to roost. They have been coming home to roost big time in the automobile industry, where hundreds of thousands of jobs have been lost over the years.

It is not that people don't want automobiles. Toyota is selling plenty of cars made in its American factories with non-union labor.

Some claim that it is automation, rather than union wages and benefits, that is responsible for declining employment among the Detroit auto workers.

But why are automobile companies buying expensive automated machinery, except that labor has been made expensive enough to make that their next best option?

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It is not just current wages that are driving down union labor and the productivity equation. Old labor contracts that require unsustainable pension and medical costs have added over a thousand dollars to the cost of each vehicle made by American companies. This added costs drives the companies to reduce current salaried employees in order to stay competitive. Acquiring these companies means acquiring these built in costs which makes a buy out unattractive to foreign companies.