Monday, April 6, 2015

Union contracts steer employees and consumers (not employers) towards mutual comfort(/discomfort) zone

Imagine a simple market where cloth weavers sell their wares to clothing sewers — many individual sellers, many individual buyers. Prices set at the mutually comfortable level — as in a level at which seller and buyer are equally happy/unhappy. At what other possible level?. Came the steam looms. …

… But wait. I heard a lecture today (by a Hathaway vice-pres yet) which described how investors in steam looms expected to recoup their money in three years and reap the bounty of mechanization for seventeen more. Only to discover of course that the bounty would be reaped instead by consumers — as competition drove prices down. …

… Back to the post-steam loom — separate employees from bargaining directly with the ultimate consumer — labor market. It’s almost too simple to describe. Steam loom operators did not — could not — set the price of their labor at the mutual comfort level with the ultimate consumers — who benefited from the price competition noted above and could surely have afforded to pay a few extra bob. Labor’s price was set instead at bare subsistence level — take it or leave it; we can hire the next starving sod who comes along (not very comfortable). Leaving loom operators families living on oat cakes three times a day because they could not afford wheat bread (forget about meat from my readings).

Unions in centralized bargaining labor markets tend to set labor’s price back at mutual comfort level with the ultimate consumers. There should be plenty of comfort to go around.

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