In his free-market classic, Economics in One Lesson, Henry Hazlitt rightly points out that the fundamental driver of higher wages is the productivity of labor (basically, the ability of people to produce more with better capital), not unionization or labor laws. Yet Hazlitt also points out, “The central function they [unions] can serve is to assure that all of their members get the true market value of their services.” He notes that people are not always fully informed. An employee “is, individually, in a much weaker bargaining position. Mistakes of judgment are far more costly to him than to an employer.” Employers often hire hundreds or thousands of people. “But if a worker mistakenly refuses a job in the belief that he can easily get another that will pay him more, the error may cost him dear. His whole means of livelihood is involved. . . . When an employer’s workers deal with him as a body, however, and set a known ‘standard wage’ for a given class of work, they may help to equalize bargaining power and the risks involved in mistakes.” But when unions get special government-backed powers, Hazlitt continues, they tend to raise (nominal) wages above market rates and cause unemployment.
Tags: unions