We’d all like for wages to go up-if people make more money, the economy has a better chance of humming along. Good wages for thee are good for me.
We also want more people employed-that’s necessary not only for individuals directly involved-i.e., the job holder and family-but for the economy. If more businesses fail, there will be fewer jobs. UCLA economics professor Lee Ohanian had a great piece yesterday in the Wall Street Journal that shows how the current administration’s fealty to a core constituency, unions (or should we say union bosses?) can lead to unemployment:
Those want more unionization claim it is necessary to raise wages. Instead it will further depress the economy. My research suggests that if unionization rates returned to 1970s levels (roughly in the mid 20% range of the private work force), and if new unions could achieve the same wage premium as existing unions have achieved over nonunion workplaces, then employment could decline by about 4.5 million and real GDP could fall by about $500 billion per year.
Why? Unions raise members’ wages by restricting competition, much as a business monopoly raises prices by restricting competition. Economists criticize business monopolies for raising prices above what they would be in a competitive marketplace, which reduces employment and output. Unionization reduces employment and output much the same way by raising wages above underlying worker productivity.
Particularly hard-hit are small businesses (more than half union elections occur at businesses employing fewer than 30 people) and people with low educational levels, who will bear most of the brunt of lost jobs. Ohanian is a big believer in more money for community colleges-a subject I’d like to see debated more-but he’s excellent on how to attain a higher level of employment for more citizens.