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March 21, 2005

When unions hurt the economy

I am posting here, in its entirety, an opinion piece in today's JoongAng Daily (Korea) on unions and the economy. The rise of Korean trade unions is a fascinating subject as is the rise of the South Korean economy. South Korea is one of the few countries to rise from thrid world status and join the OECD states within the past 20 or 30 years. Because of this we get to view how trade unions grow and become established and perhaps lose power and influence in a modern economy that is not Western. A comparative study on unionization/deunionization in South Korea and in Western countries would be a worthy project and  I would imagine provide interesting results.

Anyway here is the article:

                                                  When unions hurt the economy


There is a joke that God made the universe in six days, but that was before labor unions existed. The joke cynically says that even God would have difficulty controlling the power of labor unions and have to delay the scheduled creation of heaven and earth.
[Matthew Tubin adds: This is wrong, there must have already been unions, God rested on the 7th day because he didnt want to pay an overtime premium for Sunday work]
After reports about corruption at Kia Motors' Gwangju plant labor union, we hear news that the union for port workers in Busan has allegedly been involved in selling jobs while violence was used at the meeting of representatives of the Korean Confederation of Trade Unions. After hearing such reports, we seriously wonder what labor unions mean to us.

In "A Single Spark," a movie depicting the life of labor movement leader Chun Tae-il shown on screen a few years ago, the labor movement helped create humane conditions for young female factory workers, who had been suffering from starvation after days of endless work.
Mr. Chun, 35 years ago, set himself ablaze, shouting, "We are not machines. You must respect Labor Standard Acts." Because of his dedication to the protection of the basic human rights of young female workers in sweatshops, we remember Mr. Chun as a magnificent young man.
In contrast, the 1955 Academy Award-winning film "On the Waterfront" portrayed a labor union that was often engaged in corruption and violence toward its members to win the interests of workers at the port's loading docks.

According to empirical studies of economics, a labor union sometimes plays a positive role of representing laborers and lowering expenses of deals between the laborers and the employer. Sometimes a labor union, however, becomes the worst "economic criminal," causing a firm to collapse. The positive and negative roles of a labor union are decided whether or not a labor union's right to go on strike is exercised reasonably or not.
The labor unions of Kia Motors' Gwangju plant and the Port of Busan allegedly sold jobs after taking bribes. Because the power of this country's unions have grown enormously without any obstacles since democratization, they became corrupt. But, hardline labor unions are even a more serious problem of our society because they block the creation of new jobs, the most important task of our economy today.

When a labor union's power grows extremely strong such that the employer or the government cannot control it, the labor union uses their right to go on strike as a threat and makes their share far larger than the appropriate level of productivity. Then, the company's competitiveness goes down, and its ability to provide new jobs will decline.
When a labor union of a large business group benefits from wage hike, the expenses to do so go to contractors. Wages of workers at contractors will go down, or the contractors will reduce new hires.
An executive of an auto component maker at Ulsan's Hyomun industrial complex said, "Whenever the Hyundai Motor labor union and the firm undergo wage negotiations, prices of our components were mentioned. Eventually, we have to cut down the wage increase that we promised to our workers." Due to the activities of militant labor unions, a labor market becomes polarized.
When Kia or Hyundai motor companies see that some of its car models become unexpectedly popular, the employers must place more workers on the assembly lines of those models as soon as possible. But, the employers could not do so, because the labor unions reject such changes.
When workers change assembly lines, such reshuffles may change the number of representatives at the labor unions representing certain factions or interest groups, disturbing the power balance within the labor unions. Therefore, such position changes are often rejected by unions.
After the Kia Motors incident, labor unions have lost the public trust. To restore confidence, the labor unions must take initiatives in providing more new jobs, not taking bribes in return for giving existing jobs.

The job market has already entered the era of global competition; low-wage manufacturing jobs have been given to countries with cheap labor rates, while knowledge-based works with high wages were commissioned to countries where top brains were supplied.

To compete against China, where the wages are only 10 percent of those in South Korea, Korean workers must have 10 times more added value for their work. To this end, labor unions must lead to enhance the competitiveness of our workers through education and training. The Korean Confederation of Trade Unions must return to the negotiating table with the employers group and the government in order to create more jobs for Korean workers.

If labor unions of large business groups focus their energy and time to gain more power and ignore the need to heighten productivity, it is inevitable that our youth unemployment will become a more and more serious problem.

* The writer is a member of the JoongAng Ilbo Economic Research Institute.

by Lee Young-lyoul

March 21, 2005 in Comparative Labor Relations, Economy and Unions | Permalink

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