Labor unions, like many other powerful organisations, contribute to inflation by using their position to expand government beyond the point where good financing is politically feasible.
Do labour unions lead to increased prices?
As their efforts to infuse hundreds of billions of dollars of credit into the financial markets collide with their desire to avoid major price hikes, central banks throughout the world have painted themselves into a corner. Rather than take responsibility for the situation, the financial central planners have started pointing fingers at others. The Wall Street Journal’s weekend edition of January 56 reveals that it appears that unions are now to blame:
For 2008, European trade unions are planning robust salary demands…. This will irritate President Jean-Claude Trichet, who has been increasing his warnings that a wage-driven increase in euro-zone inflation will lead to a hike in official interest rates. The ECB refers to this as the “second-round” inflation effect, in which existing inflation is effectively doubled as workers demand higher pay and businesses pass on greater costs to customers.
In this essay, we’ll try to sort out these perplexing concerns, but first, a refresher on monetary theory. Now, I warn you: the following section will be more tough to stomach than a Colbert Report episode, but we’ll make it as easy as possible. On the plus side, when it’s finished, the reader’s perspective on inflation will be considerably clearer.
THE PRICE OF MONEY
Money’s “price” is the number of units of commodities and services a person must forego in order to obtain one unit of money. It’s the inverse of what we usually conceive of as a price (quoted in money). For example, if an automobile costs $5,000, one dollar represents 1/5,000 of that cost. Alternatively, if a gumball costs 25 cents, one dollar equals four gumballs.
The strangeness underscores the immense benefit that money provides: by comprising one side of every transaction, the money good permits us to think of “the” price of everything else solely in terms of its money exchange rate. There would be no single exchange rate that everyone would agree on when quoting prices if there was no single item that everyone traded against in other words, if every seller didn’t first obtain money before searching out the things he or she eventually desired. People who were truly interested in gumballs may wander around thinking, “That thing is valued at 42 gumballs. I’d have to pay 3000 gumballs for that massage “and so on, whilst someone else would think of the economy in terms of automobiles.
Unfortunately, we can’t use the convenience of a single number to represent the “price” of money, simply because this is the one good that pricing in terms of money would be absurd. When we learn that a car costs $5,000 and a gumball costs 25 cents, we learn something about the state of the economy (i.e., 0.25 dollars). However, even though it is accurate, saying that one dollar has a price of one dollar doesn’t really tell us anything.
As a result, the price of money can be expressed as any of the millions of different exchange rates with other economic commodities. The price of money, in general, is its purchasing power, which is the inverse of what people understand by “price level,” though that is a sloppy expression. It would be more accurate to refer to the price range or price constellation. The word “price level” is misleading because we can only describe money’s purchasing power by stating the millions of exchange rates it has against every item and service in the economy, and there’s no reason for this list of numbers to fluctuate consistently over time.
So we see that money, like other things, has a price, but that expressing it is a little awkward, precisely because it is money that makes expressing the price of every other good (and service) in the economy a breeze. To put it another way, it’s not that expressing the price of money is difficult; rather, money makes expressing the pricing of all nonmonetary objects simple.
PRICE SET BY SUPPLY AND DEMAND
Money’s price is controlled by supply and demand, just like anything else. The supply side is straightforward; there is a finite amount of money in the world at any given time, both in people’s wallets and in their checking account balances. (A word to gold bugs: To avoid confusing the modern reader, I’ll refer to dollar bills rather than ounces of gold.) Naturally, I oppose the use of fiat money over the use of commodity money.)
But what about the supply side? Can economists examine the “demand for money” in the same manner that they examine the desire for plasma televisions?
The answer is yes, but first let’s clear up a frequent misunderstanding. Beginners should think in terms of stocks rather than flows when it comes to money. Every single dollar bill is owned by someone and is part of someone’s cash balance at any one time. There is no such thing as “circulating” money, as opposed to “hoarded” money. All money is hoarded, in the sense that every last dollar note is always held by someone who believes it is more profitable to keep the marginal unit of money rather than swap it for something else at that specific moment. (Of course, many dollar bills are held in the cash balances of grocery shop and bank owners, as well as in the tills of their businesses.) However, this money is included in cash balances as well; it is not “in circulation.”
In theory, there are a variety of reasons why people might want to keep their cash holdings. People who like the US presidency, for example, may be surprised at how little effort is required to obtain another another wallet-sized image of those gorgeous gentlemen.
However, the expectation of future purchasing power is the most important component of cash balance demand. As strange as it may appear, the cash in your wallet or pocketbook serves a purpose simply by being there. It gives you peace of mind, just like keeping a fire extinguisher under your kitchen sink does.
Let’s give it some more thought. It would be quite worrisome if your teenage son returned home from Sam’s Club with six years’ worth of bottled water and proudly stated that he had emptied out the family checking account since there was “such a terrific offer.” And keep in mind that the source of your rage would not be whether your son overpaid for the water, but rather that he depleted your cash balance by investing it in items that were significantly less liquid (in the economic, not the physical sense!) than currency.
People desire to have a certain level of purchasing power in the form of liquid cash at all times (or completely trustworthy checkbook deposits). This desire is the demand for money, which interacts with the supply of money to produce the current price of money. When the economy is in equilibrium, the available stock of money is distributed evenly across everyone’s cash holdings, and all of the money prices of various goods and services are at just the correct levels, ensuring that each person has the desired amount of purchasing power.
Let’s go over a popular thought experiment before we leave this part to make sure we understand how to use the framework we’ve created. Assume a helicopter dumps additional dollar notes in everyone’s back yard one day. What is going to happen?
The first and most obvious result will be that everyone who receives the new money will have a bigger cash balance (both in absolute dollars and purchasing power) than before. Let’s pretend that everyone started with $1,000 in cash and that the helicopter has now increased everyone’s cash balance to $2,000. If the prices of products and services (quoted in dollars) do not change, consumers will have more purchasing power than they wish. To be true, people constantly want more money, but they don’t always want to keep it in ever-larger cash reserves.
If cash demand remains unchanged, the only way to reestablish equilibrium is for (money) prices of goods and services to rise. If we ignore all the complexities of real-world time and so on, we can suppose that the dollar price of every commodity and service in the economy doubles as people rush out to spend their newly acquired cash. Then everything returns to normal after the helicopter drop. People now have $2,000 in cash on hand, but because prices have doubled, this amount has the same purchasing power as previously. The increased money hasn’t created any real wealth; instead, it has led prices to soar. (Once again, we’re disregarding all distortions caused by the adjustment phase.)
For those who like to think in terms of the dreaded graphs of freshman economics, the supply of money increased but the demand for money remained unchanged in the helicopter scenario. This implies that the price of money had to fall, i.e., dollar prices of products and services had to rise, making a specific unit of money less valuable in comparison to other items.
CAN UNIONS CAUSE PRICE INFLATION?
We can now return to the initial question: if union agitation results in pay rises, will this result in higher prices in general?
“No, not if the demand for money remains the same,” is the swift response. If unions succeed in gaining wage increases, employers raise consumer prices to maintain profit margins, and the money supply remains constant, something else must “give.” Either nonunion products and service prices must fall to counterbalance union sector increases, or people’s cash balances must fall in terms of their purchasing power.
Remember, it’s a fallacy to believe that workers are sucking money out of the economy; after all, they make up a sizable component of the consumer base. Instead, if the number of dollar bills stays the same but prices rise in general, cash balances (measured in purchasing power) must fall. This could be true even for those who received significant pay raises. They may think their financial situation is better than before, but the cash in their wallets and checking accounts may be uncomfortably low in comparison to the increasing prices of the items and services they wish to buy in the coming weeks and months.
As previously said, if the demand for cash balances continues unchanged, this situation will not persist. People do not have adequate purchasing power, therefore they limit their purchases to accumulate a larger stockpile of liquid funds. Merchants will see a drop in sales and will be forced to lower prices in order to stay in business.
To restate our conclusion, unions (or, for that matter, OPEC countries) cannot alter the supply of money. They definitely cannot impact the price of money if their activities do not change the demand for money in some way. To put it another way, unions cannot directly cause price increases. They are undeniably harmed the economy by distorting relative prices and pushing on wasteful working practices. However, blaming unions for increased costs is incorrect.
CONCLUSION
Finally, I should point out that the European Central Bank scenario can be made to work. The theoretical prospect that union activity leads to wage increases, which in turn leads to general price increases, and that a resigned populace shrugs its shoulders and accepts the decreased purchasing power of its cash holdings is not ruled out by the preceding framework.
However, I believe that in actuality, the population will “share the suffering.” People will cut back on discretionary spending rather than channeling the damage entirely into depreciating cash holdings. This significantly reduces the unions’ stated ability to raise prices in general, especially if the initial pay increases are limited to a few industries.
No, when it comes to the causes of rising prices especially when this price inflation occurs year after year the true culprit appears to be clear: central bankers who constantly inject additional dollars (and euros, and so on) into their individual economies. Rather than fretting about “second-round” inflation caused by unions, the ECB should concentrate on its own first-round inflation.
Is inflation a problem for union workers?
Dwight Lee is an Associate Professor of Economics at Virginia Polytechnic Institute and State University’s Center for Study of Public Choice.
It is a frequent misconception that labor unions cause inflation by raising workers’ wages. This isn’t the case at all. Labor union actions certainly contribute to inflation, but they do so by cutting rather than boosting workers’ real earnings. Understanding why this is true necessitates first a brief explanation of inflation’s source.
We are currently experiencing inflation for the same reason that each economy has experienced inflation at any period in history: the money supply has been expanding faster than production. Assume, for example, that the amount of items produced stayed constant but the amount of money we had to spend on them increased. We’d all be willing to spend around twice as much on each item as we did previously. However, this would double the price of commodities, as well as the overall price level. Inflation will happen if the money supply grows faster than the rate of productivity growth.
Because monetary growth is significantly more volatile than productivity growth, the majority of our inflation is explained by a quickly expanding money supply. Because the federal government is in charge of the money supply, the government can be held primarily responsible for inflation. However, labor unions exacerbate inflation by engaging in behaviors that reduce economic productivity.
A union can only provide an economic benefit to its members by imposing limitations on the economy that reduce production. In a free and open labor market, a worker will be able to earn a pay that is commensurate with his production and no greater than comparable skilled workers elsewhere in the economy. A higher wage would entice more people to join the workforce, lowering the wage to a competitive level. Of course, this competitive process boosts the economy’s output by guiding workers to jobs where they can make the most difference. And it is productivity, which has risen over time in response to the incentives and direction offered by competitive markets, that has made American workers the best paid in the world, at least until recently.
Union officials, on the other hand, cannot entice dues-paying members by offering them a wage rate that is lower than what they would earn if they were not in a union. In some occupations, the only way for unions to pay higher-than-competitive salaries to their members is to limit nonunion competition. While this may boost union salaries in the near term, it comes at the price of other workers’ wages. Lower wages and prices elsewhere in the economy effectively offset higher union wages and prices in one sector of the economy.
To achieve this relative pay advantage for its members, organized labor has continuously battled for legislation that limits, if not completely removes, nonunion employees’ access to occupations that would otherwise be open to them. The fight for a closed shop (where only union members can work) and its vehement resistance to state right-to-work laws (which make union membership a requirement for employment) are strong examples of organized labor’s attempts to shield their workers from competition. Other instances include union efforts to limit imports and pass legislation prohibiting large firms from moving from the unionized Northeast to the less unionized Sun Belt regions.
Economic rivalry and mobility, which are a primary source of enhanced productivity, have been curtailed to the extent that organized labor has been successful in these restrictive actions. And the featherbedding techniques that unions are able to enforce, tactics that would never survive open market, are significant evidence of their success in protecting their members against productive competition. The mandate that firemen remain on diesel locomotives is a well-known example of how unions have placed costly featherbedding practices on the railroads. The construction, theatrical, and ocean transportation industries, among others, are all affected by union featherbedding rules.
A common example is a building project that necessitated the use of multiple small gas-powered generators. Each generator required the presence of an operational engineer, an electrician, and a pipefitter due to union obligations. The engineer had to start the engine many times a day, the electrician had to shove wire plugs into the generator’s sockets if they were moved, and the pipefitter had to be there “just in case.” Clearly, such tactics exacerbate the detrimental impact organized labor has on the productivity of our economy.
This effect on productivity explains why organized labor has a net effect of lowering real wages. All income, including wages, is derived through productivity. The ability of a wage earner to purchase goods and services determines real pay. It cannot be purchased until it has been manufactured. Furthermore, the lower our productivity, the higher the inflation rate for a given pace of monetary growth. As a result, unions have an inflationary effect by lowering productivity and, as a result, depressing rather than rising the overall level of real wages.
Allowing competition in free and open markets is the best approach to enhance productivity, improve the living standards of all employees, and help slow inflation. Unfortunately, organized labor is unlikely to back us in this endeavor. Because what they have to offer their members comes on their capacity to limit others’ free market opportunities, union officials cannot tolerate the efficiency of competitive markets.
The ability of organized labor to use its political clout to disrupt the effectiveness of the free market system is essential to its survival. The market mechanism, if allowed to work freely, would simply defeat union efforts to impose inefficiencies on the economy. This would leave union officials not only with little capacity to defend their substantial salaries, but also with little power to impair productivity, exacerbate inflation, and therefore diminish, in the long run, the actual earnings of all workers, union and nonunion.
Why are unions on the decline?
As a result, the decrease of private-sector unionism is a classic example of “policy drift,” as defined by political scientists:
Drift happens when a policy or institution is not updated to reflect changing external circumstances, and the policy or institution’s outcomes shiftsometimes dramaticallyas a result of this failure to update. (2020, Galvin and Hacker)
In the case of labor legislation, support for employees’ rights to organize unions and engage in collective bargaining has waned over decades, and management began to exploit these flaws in the 1970s.
I
Except for a health-care expansion in the 1970s, all of the NLRA’s legislative amendments since its enactment in the mid-1930s have been ones that have undermined unions. Efforts to strengthen the NLRA’s protections of workers’ rights to collective bargaining during the Great Society period, when Democrats were at their peak congressional power, and under each successive Democratic presidentCarter in 1978, Clinton in 1993, and Obama in 2009were all defeated, despite majority support in both the House and Senate and by the president. The filibuster, led by a tiny group of senators who represent an even smaller percentage of the people, was used in each defeat. As a result, labor law policy has drifted, allowing results to favor corporate employers and their advocates.
We believe these explanations for union decline are more compelling than the popular narrative that unions are dinosaurs that don’t belong in today’s world of automation and globalization. Indeed, we show that automation and globalization have only a minor impact in the fall of private-sector unions. We quantify the impact of the drop in manufacturing jobs on union membership and coverage, and find that the loss of manufacturing employment accounts for less than a fifth of the union decline. Other advanced countries’ experience confirms that manufacturing’s degradation has a modest impact on union decline.
Another popular reason for the decline in unionization is that private-sector unions have outlived their usefulness because employees have decided they no longer need them, or that unions have become complacent and have ceased reaching out to organize new workers (Cowie 2010; Moody 1988; Davis 1986; McAlevey 2017). Though we cannot address this issue in depth in this restricted space, we have found compelling work that shows how union organizing and labor activism remained strong throughout the pivotal decade of the 1970s, despite lower success rates. Furthermore, the years 1973 to 1977 saw the highest number of NLRB elections (see the appendix), with women and people of color at the forefront of much of this labor movement. After more than a decade of powerful business opposition to organizing, unions began to draw back considerably from organizing campaigns in the early 1980s (Windham 2017; Brenner, Brenner, and Winslow 2010). In the final section of the paper, we examine recent studies that show that a significant portion of the nonunion workforce, particularly Black workers, desired collective bargaining during the pivotal 1970s, and that this unmet demand has risen in recent years to the point where nearly half of nonunion workers, including supervisors and ineligible workers, would vote to have union representation in their current jobs if given the opportunity.
We are also unable to fully investigate the claim that unions failed to take advantage of opportunities to diversify their ranks created by the civil and women’s rights movements, and that the individual rights framework that underpinned these movements proved stronger than the collective New Deal framework that built unions and labor law (Lichtenstein 2013; Frymer 2008). Many women and people of color were effectively excluded from the labor market since it did not cover the jobs they were most likely to hold, such as agriculture and domestic work. For decades, many unions refused to admit Black workers and were rife with sexism; men and women of color, as well as white women, had to use the Equal Employment Opportunity Commission to force numerous unions to open (Katznelson 2005; Kessler-Harris 2001; Frymer 2008). Recent study, on the other hand, appropriately highlights the richness and diversity of the working-class people who used the labor movement to improve their circumstances. Despite the racism and sexism of unions, women and people of color were the most likely to form unions in the decades following the Civil Rights Act’s adoption; they led numerous union organizing drives and urged others to join them. Though it appeared that the New Deal’s promise and labor law would be open to all, when these workers attempted to organize, they were met with corporate hostility and weak labor law, as we will discuss in the following pages. A key and often-overlooked element of the jigsaw of union collapse is the reality that a new wave of women and people of color desired unions but couldn’t effectively organize in the 1970s (Windham 2017; MacLean 2006; Jones 2013; Cobble 2004; Deslippe 2000).
This study does not account for the increased number of workers who may have lost union coverage as a result of their company’s relocation or closure, or because the collective bargaining agreement was terminated for other reasons. The ebb and flow of facility openings, closings, shrinkages, and expansions; faster-than-average growth in nonunion industries and occupations; and the anti-union animus of firms that increasingly ghettoized their organized operations by closing unionized units and opening nonunion ones are all contributing to the erosion of membership among already-represented workers. ii The fundamental rules of labor law, which establish representation at the individual-unit level of enterprises as a default rule and do nothing to facilitate representation rights at the occupation or industry level, make maintaining union coverage extremely difficult, are to blame for much of the erosion of currently represented union workers. We also don’t account for the rise in the number of employees in categories like supervisors and contingent, contractual, or temporary workers, which often fall outside of collective bargaining coverage.
- The big picture of union decline is the dramatic drop in new unionization in both the manufacturing and nonmanufacturing sectors between the late 1960s and early 1980s, owing to (1) fewer union elections, (2) lower union win rates in those that were held, and (3) the inability of newly organized workers to obtain a first contract.
- Over the course of the 1970s, employer opposition to union organizing grew dramatically, owing to active management opposition, some of which was unlawful, such as the termination of union activists; greater use of anti-union consultants; weaponization of shutdown threats; and delaying tactics.
- Court and NLRB decisions, many of which came after the introduction of the anti-union Taft-Hartley Act in 1947, diminished bargaining power. The prohibition of secondary boycotts; state bans on union security agreements; dramatically expanded management rights and curtailed unions’ ability to bargain with their employers about contracting-out decisions and plant closures; escalating use of striker replacements, especially after President Reagan normalized this employer behavior in the Professional Air Traffic Controllers Organization (PATCO) strike; the irrational use of striker replacements; the irrational use of striker replacements; the irrational use of strike
- Only a minor amount of the drop in unionization can be attributed to globalization and automation, as well as the accompanying decline in manufacturing. In nonmanufacturing, private-sector unionization fell swiftly in large sectors and many particular industries, often more so than in manufacturing, and thorough statistical analysis reveal that changing employment patterns across industries might explain for less than a fifth of union erosion. Furthermore, worldwide comparisons demonstrate that industrial decline explains relatively little of the variation in union loss among countries.
- According to polling data, there is a substantial unmet demand for collective bargaining, which refutes the claim that the fall of unions is due to a lack of interest among workers in seeking collective bargaining.
Are workers affected by inflation?
Inflation is defined as a steady increase in the price level. Inflation means that money loses its purchasing power and can buy fewer products than before.
- Inflation will assist people with huge debts, making it simpler to repay their debts as prices rise.
Losers from inflation
Savers. Historically, savers have lost money due to inflation. When prices rise, money loses its worth, and savings lose their true value. People who had saved their entire lives, for example, could have the value of their savings wiped out during periods of hyperinflation since their savings became effectively useless at higher prices.
Inflation and Savings
This graph depicts a US Dollar’s purchasing power. The worth of a dollar decreases during periods of increased inflation, such as 1945-46 and the mid-1970s. Between 1940 and 1982, the value of one dollar plummeted by 85 percent, from 700 to 100.
- If a saver can earn an interest rate higher than the rate of inflation, they will be protected against inflation. If, for example, inflation is 5% and banks offer a 7% interest rate, those who save in a bank will nevertheless see a real increase in the value of their funds.
If we have both high inflation and low interest rates, savers are far more likely to lose money. In the aftermath of the 2008 credit crisis, for example, inflation soared to 5% (owing to cost-push reasons), while interest rates were slashed to 0.5 percent. As a result, savers lost money at this time.
Workers with fixed-wage contracts are another group that could be harmed by inflation. Assume that workers’ wages are frozen and that inflation is 5%. It means their salaries will buy 5% less at the end of the year than they did at the beginning.
CPI inflation was higher than nominal wage increases from 2008 to 2014, resulting in a real wage drop.
Despite the fact that inflation was modest (by UK historical norms), many workers saw their real pay decline.
- Workers in non-unionized jobs may be particularly harmed by inflation since they have less negotiating leverage to seek higher nominal salaries to keep up with growing inflation.
- Those who are close to poverty will be harmed the most during this era of negative real wages. Higher-income people will be able to absorb a drop in real wages. Even a small increase in pricing might make purchasing products and services more challenging. Food banks were used more frequently in the UK from 2009 to 2017.
- Inflation in the UK was over 20% in the 1970s, yet salaries climbed to keep up with growing inflation, thus workers continued to see real wage increases. In fact, in the 1970s, growing salaries were a source of inflation.
Inflationary pressures may prompt the government or central bank to raise interest rates. A higher borrowing rate will result as a result of this. As a result, homeowners with variable mortgage rates may notice considerable increases in their monthly payments.
The UK underwent an economic boom in the late 1980s, with high growth but close to 10% inflation; as a result of the overheating economy, the government hiked interest rates. This resulted in a sharp increase in mortgage rates, which was generally unanticipated. Many homeowners were unable to afford increasing mortgage payments and hence defaulted on their obligations.
Indirectly, rising inflation in the 1980s increased mortgage payments, causing many people to lose their homes.
- Higher inflation, on the other hand, does not always imply higher interest rates. There was cost-push inflation following the 2008 recession, but the Bank of England did not raise interest rates (they felt inflation would be temporary). As a result, mortgage holders witnessed lower variable rates and lower mortgage payments as a percentage of income.
Inflation that is both high and fluctuating generates anxiety for consumers, banks, and businesses. There is a reluctance to invest, which could result in poorer economic growth and fewer job opportunities. As a result, increased inflation is linked to a decline in economic prospects over time.
If UK inflation is higher than that of our competitors, UK goods would become less competitive, and exporters will see a drop in demand and find it difficult to sell their products.
Winners from inflation
Inflationary pressures might make it easier to repay outstanding debt. Businesses will be able to raise consumer prices and utilize the additional cash to pay off debts.
- However, if a bank borrowed money from a bank at a variable mortgage rate. If inflation rises and the bank raises interest rates, the cost of debt repayments will climb.
Inflation can make it easier for the government to pay off its debt in real terms (public debt as a percent of GDP)
This is especially true if inflation exceeds expectations. Because markets predicted low inflation in the 1960s, the government was able to sell government bonds at cheap interest rates. Inflation was higher than projected in the 1970s and higher than the yield on a government bond. As a result, bondholders experienced a decrease in the real value of their bonds, while the government saw a reduction in the real value of its debt.
In the 1970s, unexpected inflation (due to an oil price shock) aided in the reduction of government debt burdens in a number of countries, including the United States.
The nominal value of government debt increased between 1945 and 1991, although inflation and economic growth caused the national debt to shrink as a percentage of GDP.
Those with savings may notice a quick drop in the real worth of their savings during a period of hyperinflation. Those who own actual assets, on the other hand, are usually safe. Land, factories, and machines, for example, will keep their value.
During instances of hyperinflation, demand for assets such as gold and silver often increases. Because gold cannot be printed, it cannot be subjected to the same inflationary forces as paper money.
However, it is important to remember that purchasing gold during a period of inflation does not ensure an increase in real value. This is due to the fact that the price of gold is susceptible to speculative pressures. The price of gold, for example, peaked in 1980 and then plummeted.
Holding gold, on the other hand, is a method to secure genuine wealth in a way that money cannot.
Bank profit margins tend to expand during periods of negative real interest rates. Lending rates are greater than saving rates, with base rates near zero and very low savings rates.
Anecdotal evidence
Germany’s inflation rate reached astronomical levels between 1922 and 1924, making it a good illustration of high inflation.
Middle-class workers who had put a lifetime’s earnings into their pension fund discovered that it was useless in 1924. One middle-class clerk cashed his retirement fund and used money to buy a cup of coffee after working for 40 years.
Fear, uncertainty, and bewilderment arose as a result of the hyperinflation. People reacted by attempting to purchase anything physical such as buttons or cloth that might carry more worth than money.
However, not everyone was affected in the same way. Farmers fared handsomely as food prices continued to increase. Due to inflation, which reduced the real worth of debt, businesses that had borrowed huge sums realized that their debts had practically vanished. These companies could take over companies that had gone out of business due to inflationary costs.
Inflation this high can cause enormous resentment since it appears to be an unfair means to allocate wealth from savers to borrowers.
Do labour unions contribute to unemployment?
In comparison to the prime-aged group, more union involvement in wage fixing lowers the employment rate of young and older people.
In 1973, most European countries had low unemployment rates, ranging from 2.0 to 3.2 percent, compared to 4.8 percent in the United States. By 1995, the European countries’ unemployment rates had risen considerably, to an average of 10.7%. However, by 1995, the unemployment rate in the United States had only risen to 5.6 percent, nearly half that of European countries. According to new research by Giuseppe Bertola, Francine Blau, and Lawrence Kahn, this reversal of fortunes was concentrated on youth, older individuals, and women, rather than prime age males: while employment-to-population ratios (employment rates) of all groups rose in the United States relative to other Western countries, the increases were especially large for youth and older individuals, and slightly larger for women. At the same time, the authors point out that in comparison to these other nations, unionization in the United States has decreased.
The study discovered that higher union involvement in wage setting lowers the employment rate of young and older people compared to the prime-aged group for both men and women (with no significant effects on the relative unemployment of these groups). A stronger role for unions, on the other hand, has minimal effect on male-female employment rate disparities but enhances female unemployment relative to male unemployment.
The authors speculate that when it comes to deciding their wage-setting strategies, unions weigh the benefits of increased pay against the costs of job losses. When people lose their jobs, those who have the most non-market possibilities to use their time constructively suffer the least. These are likely to be youth, older people, and women, who all have more non-market uses of time than prime-age males: home production for women (under a conventional division of labor in the family), schooling for youth, and retirement for the elderly. As a result, these groups receive the biggest salary increases negotiated by unions, resulting in bigger job losses. Alternatively, in highly industrialized societies, it may be more socially acceptable to focus job losses linked with unions on women, youngsters, and the elderly.
The authors’ data show that union wage-setting practices drive young and elderly people out of the labor force and into non-labor-force activities, while unemployment rates remain steady. According to the authors, a likely scenario for women is that high union pay motivate them to join the workforce, raising their jobless rates. Women’s employment reductions, on the other hand, do not occur because women who would otherwise be unemployed due to high union wage floors find work in an unregulated profession or in the public sector.
What is the relationship between unemployment and inflation?
The Phillips curve shows that historically, inflation and unemployment have had an inverse connection. High unemployment is associated with lower inflation or even deflation, whereas low unemployment is associated with lower inflation or even deflation. This relationship makes sense from a logical standpoint. When unemployment is low, more people have extra money to spend on things they want. Demand for commodities increases, and as demand increases, so do prices. Customers purchase less items during periods of high unemployment, putting downward pressure on pricing and lowering inflation.
Are union members slackers?
It’s hard to think they do if you’ve ever worked in a union shop, at least in America. It’s not that union workers are lazy, as the right likes to claim; union workers, at least in my experience, are of higher quality than you’d expect for the job they’re performing. However, unions frequently oppose new work practices that could improve efficiency, not just those that would reduce labor demand. A buddy whose brother works as an engineer for an auto parts supplier regularly entertains us for hours with tales of epic (and so far fruitless) efforts to install digital gauges or measure items in the metric system1. Unions also spend a lot of time attempting to incorporate featherbedding provisions into their contracts, which force employers to hire more workers than are required for a given job. From the union’s perspective, this makes perfect sense: more people working equals more workers paying dues. However, it should reduce overall productivity. Consider all the GM employees who are paid to sit in warehouses waiting for a job to become available.
What are the drawbacks of belonging to a labour union?
While unions benefit employees, they also have a number of drawbacks for employers, including tight federal labor laws controlling companies’ rights in connection to unions. Just because your employees may form a union does not mean your relationship with them has to be confrontational. Understanding some of the union’s drawbacks for businesses will help you avoid problems and collaborate more effectively with a unionized workforce.