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Essay: Theory Functions as a Labor Cartel

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  • Published: 8 October 2015*
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  • Words: 948 (approx)
  • Number of pages: 4 (approx)

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Are Unions bad because they cost companies directly and indirectly? Labor unions functions as labor cartels. Government Unions argue that they can raise their members’ wages, but few Americans understand the economic theory explaining how they do this. Unions are designed as labor cartels. Cartels work by restricting the supply of what is produced so that consumers will have to pay higher prices for it. OPEC, the best known for the actions, attempts to raise the price of oil by cutting oil production. Unions attempt to monopolize the labor supplied to a company or an industry in order to force employers to pay higher wages. In this defense, they function like any other organizations and have the same effects on the economy. Unions benefit their members in the (Reynolds, 2015) short run and harm the overall economy. Unions work as a monopoly of power. Unions alone are able to adjust wages above the competitive levels. Union members dues are fixed at high rates that relax on privileges and immunities that are received from government, both by statute and by no enforcement of other laws. The purpose of these legal privileges is to restrict others from working for lower salaries (Reynolds, 2015).
General Motors, Ford, and Chrysler are based out of Detroit Michigan and have jointly agreed to raise the price of the cars they sold by $4,000 profits would rise as every American who bought a car paid more. Americans consumers would no longer be able to afford a car at the higher price, so the automakers would manufacture and sell fewer vehicles. Then they would need to employ fewer workers. The Detroit automakers’ stock prices rise, but the overall economy suffers. That is why federal anti-trust laws prohibit organizations and the automakers cannot conspire to raise prices.
Now consider how the United Auto Workers the union representing the autoworkers in Detroit functions. Before the spiraling of automakers, the UAW routinely went on strike unless the Detroit automakers paid their demands until recently, $70 an hour in wages and benefits. UAW health benefits for retired and active workers added $1,200 to the cost of each vehicle that GM produced in 2007 other benefits, such as full retirement after 30 years of employment and the recently eliminated employment banks which paid workers for not working, added more.
Costs of Company Directly and Indirectly
Unionizing organizations changed the workplace in addition to its effects on salaries or jobs. Employers are banned from negotiating directly with unionized employees. Certified unions become employee’s exclusive collective bargaining representatives. All discussions pertaining to performance, promotions, or any other working conditions must occur between the union and the employer. An employer may not change working conditions including raising salaries without negotiations.
Unionized employers contribute numerous amounts of dollars for representation by attorneys and spend months negotiating before making any changes in the workplace. Unionized companies often avoid making changes because the benefits are not worth the time and cost of negotiations. Both of these effects make unionized businesses less flexible and less competitive.
Union contracts give employee groups identities instead of treating them as individuals. Unions do not have the resources to monitor each worker’s performance and tailor the contract accordingly. Unions want employees to view the union not there accomplishments within the organization as the source of their economic. As a result, union contracts typically base pay and promotions on seniority or detailed union job classifications (Sherk, 2009). Unions rarely allow employers to base pay on individual performance or promote workers on the basis of individual ability.
Therefore, union contracts compress wages: They suppress the wages of more productive workers and raise the wages of the less competent. Unions redistribute wealth between workers resulting in employees receiving the same seniority based raise regardless of how much or little he contributes, and this reduces wage inequality in unionized companies. Increased equality comes at a cost to employers (Sherk, 2009). Some of the best employees will not work under union contracts caps have been placed on wages therefore; unions have a hard time maintaining employees.
Crippling the Companies with exuberant Wages
Unions organize workers by promising higher salaries for employees. Studies by economist effects of unions on wages exhaustively and have come to mixed conclusions. Numerous economic studies compare the average earnings of union and nonunion workers, holding other demographics. These studies show that the average union member earns higher percentage than nonunion workers. Research also shows that errors in the data used to estimate wages caused these estimates to understate the true difference. Estimates show errors and the average union member earns between 20 percent and 25 percent more than non-union members.
Individual workers do not prove that unionizing necessarily raises wages. Individual data do not account for specific factors, such as firms paying higher salaries and targeted more commonly for organizing drives.
Understanding the affect of organizing on salaries, researchers compare wage changes at newly organized plants with salary changes at industrial plants where organizing drives have been unsuccessful. Such studies look at the same workers and same plants over time, thereby controlling for many unmeasured effects. These studies come to the surprising conclusion that forming a union does not raise workers’ salaries. Wages do not rise in plants that unionize relative to plants that vote against unionizing.
The EFCA has been endorsed, researchers argues that expanding union membership will not raise salaries. Too many his is not a surprise. Unions today have little power within the competitive markets and little power to raise salaries because companies cannot raise prices without losing customers. In conclusion The Service Employees International Union have expanded by striking deals promising not to seek salary increases for workers if the employer agrees not to campaign against the union.

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