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September 02, 2007

Happy Labor Day - Wall Street Style

It never fails.

This time of year (Labor Day weekend) the business press is always full of editorials and articles denouncing labor unions. Today's Wall Street Journal ( The Strange Career of Affirmative Action )dedicates half of a page to an op-ed on how labor union's introduced the concept of affirmative action in the early 1900's as a way of protecting white workers. Upon finishing the article one who did not know better would assume labor unions were one of the primary institutional players fighting against the civil rights of African-Americans.

While it is certainly true that some unions had a racist agenda the majority played a significant role in the struggle for racial equality and still play a progressive role to this day. I should not be surprised since this type of intellectual dishonesty is to be expected from the business press.

Yet even better are the op-eds that ignore economics and use simple arguments to draw erroneous conclusions. Such can be found ain today's Barrons.

Laboring in Liberty The ongoing weakening of union power continues to strengthen productivity

Thomas Donlan writes:

AMERICAN CAPITALISTS HAVE strong reasons to celebrate on Labor Day. The holiday has become a hollow celebration for organized labor, because the power of unions continues to decline in the private sector. Partly in consequence, American labor productivity continues to lead the world, and brings prosperity to Americans in just proportion to their achievements.

Productivity, after all, does not measure how hard workers work. It measures how well capitalists invest, and how well managers manage. The tools purchased by capitalists and the working conditions set by managers enable workers to turn out more product per work hour. When unions impose work rules in the name of job preservation and seek wages beyond the value of their members' labor, they strangle productivity increases.

Let's start with Donlan's suggestion that productivity is a measure of how well capitalist's invest. When union's raise wages within an industry or firm they provide incentives for firms to invest in labor saving technologies and for other firms to invent and produce such technologies. Firms that have a constant supply of cheap labor tend not to invest in innovative labor saving technologies that serve to increase productivity.

Another thought that comes to mind is if the productivity increases Donlan refers to are actually the result of the tools purchased by capital and lower wages? What about Multi-Factor Productivity? This type of productivity which is also sometimes referred to as "free-lunch" productivity typically counts for more than half of all productivity growth. The main component of multi-factor productivity is technological innovation. Of course the primary new technology of this economy is the internet (you know, that project born from bureaucrats in the government making R&D investments).

And what about the working conditions "set by managers" that Donlan suggests enables workers to be more productive? Human Resource managers have spent years trying to create workplaces which mimic unionized workplaces in that managers get open and honest feedback from the workforce in order to create these better working conditions but to do so without the workers actually having a union. These attempts are largely unsuccessful because of course who is going to give open and honest feedback without being protected from the arbitrary wrath of bosses and managers?

What worries me most is when the business milieu (and labor for that matter) begins to believe its own propaganda and the above two articles are indicative of that.

September 2, 2007 in Economy and Unions, Unionization/Deunionization | Permalink

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