Asymmetrical Information

I suppose you are saying that unions aren't good at raising standards of living *right now,* because it would be hard to argue that they have not served this function historically.

But I'm a little confused by your analysis. In Zwichenzug's analysis, labor doesn't require an oligopoly for unions to work... It simply requires that organization be done in all areas of a particular market at once.

I would argue that while unions indisputably raised the living standards of some workers, they did not do so for workers in general; at their peak, less than 1/3 of the workforce was unionised, and everyone who wasn't unionised was presumably paying more money for the goods produced by those who were.

Oligopoly is not quite the right word, but the description of the New Jersey janitor organisation implies that his mass unionisation essentially permitted competitors to engage in tacit price collusion for the purposes of raising wages and making the bosses lives easier by reducing turnover. Of course, those costs were paid by someone; the companies whose offices they were cleaning didn't have a magic money tree they went to when their cleaning costs went up. I have no idea what the cost of office cleaning is to firms; I imagine it's pretty trivial. But clearly if this was widespread, the costs would become non-trivial, and presumably would be born by the consumer, as were the costs of high union wages in industries like airlines and steel.

Seemed to me that Zwichenzug's analysis did require an oligopoly, as he specifically mentions an example that, under Stern's model, investors would not move their money from Manpower to Labor Ready because both would be trapped by the oligopoly (or whatever you want to call it) into hiring from the same union.

But Jane's point applies to unions in general. As she said, "When you raise wages across the board, I would think you would also see an increase in prices across the board, since all the employers know that their competitors' cost structures have also changed and it's safe to raise prices." This applies regardless of how a union achieves its ends.

Liberals like to think of corporations as "the bad guys," and their desire to "punish" them with regulations, taxes, and unions tends to be counter-productive because corporations are not people and thus don't react like them.

Doesn't this argument assume that prices will go up across-the-board in step with union wages? Say Joe Six-Pack joins a union, as does his wife Jane and every other non-professional/managerial worker in America. His income (and that of all other members of his class) goes up 30%. Non-professional/non-managerial labor costs go up 30% economy-wide, and prices respond.

But prices aren't going to go up 30%, are they? Costs haven't gone up 30% across the board -- it's just the labor portion of costs that have gone up; Joe's rent, e.g., should be fairly unaffected by the cost increase (not totally -- there's a portion of costs there attributable to organizable labor -- but it isn't a huge percentage).

And incomes haven't gone up 30% across the board -- professionals and managers have the same income as they used to. So it looks to me as though Joe's purchasing power, while it hasn't necessarily improved as much as the nominal increase in his salary, should have improved significantly.

LB: The main cost of everything is the wages paid to those who produce, distribute, sell and support it.

Unionization is only plausible in industries where the skill-to-muscle ratio is low. In a setting where employees are not to a high degree interchangeable, the union cannot offer the employer any value for the additional cost. Moreover, workers will naturally be more individualistically inclined in such a setting; they'll prefer not to have their fortunes tied to everyone around them by a union contract and union rules.

LizardBreath,

Has the worker's productivity gone up 30% as well? If not (and there's no reason to think this arbitrary wage change would have such an effect), then the number of goods on the market is the same as before. And labor is the largest cost for many, if not most, industries. So passed-on cost of manufactured goods will track that 30%.

But then you mentioned rents. If wages have gone up 30%, assuming no change in savings habits, the desire to upgrade apartments will cause bidding for apartments to raise the average rent.

If rents didn't go up, with the price inflation in the rest of the economy, the lower ROI of owning rental units would drive capital out of housing into non-housing markets.

Meanwhile, my fees as a consultant have just been devalued by the same 30% - my fees haven't gone up, but everything, including rent, has.

It's not that simple. It depends, firstly, on whether the working poor and working class consume more or fewer goods with a relatively high labor component; prices at Wal-Mart, for example, are extraordinarily sensitive to labour costs (and would be more so if all firms were bearing the same cost). Secondly, you have to remember that a large number of poor people aren't in the labour market; they're on fixed incomes, either pensions, SS, or disability. Those people would be crushed by, say, a 15% increase in prices across the board. Thirdly, unionising will change things; some firms will substitute capital for labour, making some workers unemployed. Even assuming they get new unionised jobs, presumably they will lose substantial wages because of the lost value of their experience.

Also, it's not like Andy Stern is actually going to unionise 100% of the labour force. If he only unionises part of it, the people at the bottom half of the other parts will suffer disproportionately from higher costs.

Finally, there are efficiency problems associated with unions; to the extent that they claim excess value for their workers, they are a drag on economic growth, particularly when that value comes in the form of featherbedding, slow work rules, more vacation, and so forth. Decreasing production hurts the poor the most, since they have the least margin between their current lifestyle, and a minimally acceptable standard of living.

I should say that economically, and in terms of reaching the stated goal of higher worker incomes, a progressive taxation system combined with some version of the negative income tax (such as the EITC) is the hands-down winner over promoting unionisation.

LB: The main cost of everything is the wages paid to those who produce, distribute, sell and support it.

This is, as a response to my post, pretty silly. To make it concrete -- what percentage of rent is attibutable to labor costs? It's non-zero, but the largest percentage is related to the value of the real estate, not to what you're paying the super. So raising labor costs 30% won't hike rents by 30%.

Generally, what does 'main' mean? Unless it means "So overwhelmingly the largest percentage of costs that all non-labor costs may be ignored" which I don't think it supportably can, my point still stands.

Lpdbw makes an excellent point as well. There are some goods, such as education and real estate in good, conveniently located neighbourhoods, for which the supply is limited; increasing worker incomes will not help them buy more of this. These are many of the goods that workers aspire to.

Consider what would happen if we magically raised the incomes of everyone in New York City who makes less than, say $50K, by 10%. Would they be able to buy 10% more stuff? Nope. In New York City, the most pressing place to put extra income is into a better apartment than the rat-trap you now occupy. But if you simply put 10% more income into everyone's hands, without increasing the supply of housing (and due to New York's unbelievably sclerotic maze of housing regulations, increasing hte supply happens in geologic time), you would simply see rents rise by something close to 10%. The bidding war over desireable real estate would consume most of the excess, increasing the standard of living of landlords, not the poor and working class. (This is observably what happened in the last decade, as the real estate market has sucked up an ever-increasing portions of people's incomes.) Moreover, the increase in real-estate prices has second-order effects which might see the costs to the poor go up still further.

This is basically what the recent book The Two Income Trap argues has happened to two-income couples (it's a liberal book, not a conservative one): the extra income, rather than increasing family's standards of living, has been largely funneled into a bidding war with other two income families over homes in good school districts. I don't buy the argument completely--the statistics she uses show, if you look at them closely, that living standards have improved--but I have no question that a majority of extra income has in fact been plowed into that bidding war, and the extra costs of working, such as child care.

Jane-

While the factors you note can certainly have some effect, my point was that it isn't a simple truism to say that "If wages rise, prices must rise in lockstep".

Also, it's not like Andy Stern is actually going to unionise 100% of the labour force. If he only unionises part of it, the people at the bottom half of the other parts will suffer disproportionately from higher costs.

Well, their wages are going to go up too -- that is, with higher-paying union employers in the market, non-union employers will have to compete for workers by raising wages.

On your housing post -- haven't you elided the difference between raising everyone's income 10% and raising the income of everyone who makes less than 50,000 by 10%? Obviously, if there's no increase in supply (which is a problem in New York housing, but not one related to this issue), simply increasing the amount of money in the system won't increase the number of people with decent places to live, but it will mean that workers are now in a better position relative to the bottom rungs of management in competing for those places.

But then you mentioned rents. If wages have gone up 30%, assuming no change in savings habits, the desire to upgrade apartments will cause bidding for apartments to raise the average rent.

Union wages -- non-managment/non-professional wages -- have gone up 30%. There are management and professional workers whose spending habits have a perceptible effect on the economy, no? And their wages didn't go up. So average rents will go up, but not by 30% -- the working class will see its purchasing power more closely approach that of managers and professionals.

Okay, so we have now displaced the very bottom tier of the white collar world, folks like me, to some crappier housing, while allowing some truck drivers to occupy a slightly higher grade of apartment. Is this really what unionisation is about? Making a bigger competing pool for housing at the bottom of the market?

I didn't say that prices would increase lockstep; I said they would increase. In some instances, such as retailers selling highly labor-intensive goods, they might increase more than 30%, due to the capital costs of higher float.

The basic point is that we can't confuse money with capacity to consume. Unless we can increase production, the poor and working class can consume more only if someone consumes less. And we can take that consumption from the wealthy only to the extent that the consumption we want to target is readily substitutable with something that the poor will consume; economically speaking, taking billions that the rich spend on boats doesn't increase the consumption capacity of those at the bottom by billions of dollars; it increases it by whatever we can now make with a bunch of shipyard workers and some fiberglass.

Also, that theory about unions pushing up wages in other markets is nice in theory, but I've never seen any empirical validation. It's just as theoretically possible that unionisation pushes wages down, since it encourages unionised employers to switch from labour to capital whereever possible, making workers redundant and thus increasing hte supply of labour seeking work in other sectors.

The basic point is that we can't confuse money with capacity to consume. Unless we can increase production, the poor and working class can consume more only if someone consumes less.

Yes. Back in the heyday of organized labor in the US, organized workers consumed at a level comparable to the lower ranks of management/professional workers. A journalist was poorer than a lot of factory workers. Now, organizable workers are much more likely to be poorer than pretty much any manager or professional.

Oh, believe me, an entry level journalist in New York still makes less than, say, an entry level machine operator.

The decline in unionisation doesn't track well with inequality, because the problem isn't decline at the bottom (other than for those without a high-school diploma, who haven't been the main union material since WWII), but rampant growth at the very top. There are a lot of theories for this, but unionisation levels have nothing to do with any of them. Meanwhile, the consumption of the bottom quintiles has increased dramatically, even though real incomes haven't.

Really? Lower wages (lower, that is, than they would be in an organized workplace) for the bulk of the workforce has nothing whatsoever to do with skyrocketing wages for management? I find it hard to believe that any connection between the two has been categorically ruled out.

And to the extent that consumption has increased to an extent greater than real incomes, we;re talking about a decrease in saving and an increase in borrowing -- leading to higher bankruptcy rates, and less security for workers. Consumption supported by unsustainable debt is not precisely the same, in terms of what it means to the consumer, as consumption within one's income.

Not as far as I know, Lizardbreath; unionisation doesn't seem to have stopped, for example, lavish renumeration to GM's engineers, much less its CEO. It's not a zero-sum game, with the "wage" pie being divided between management and labour. Senior management's share is as likely to come out of the shareholders' pockets as labours, and a huge portion of that growth is in the wages of people who work in industries where there's very little bottom at all, like software, investment banking, or consulting. What non-union workers are they stealing from?

Certainly, unsustainable debt is not good--but what evidence have you that that consumption is founded on unsustainable debt? A fork lift driver who now has a nice home, with two more rooms than his parents' rental had in 1970, and a 30-year mortgage, certainly has more debt, but does this make him worse off?

I don't deny that some Americans have unsustainable debts, or that our savings rate should be higher. But I don't buy the paternalistic view that the poor and working class were somehow better off when only the affluent had access to credit.

Unions are good for several things:

1) Serving as a mafia tool for extortion.
2) Locking African Americans and immigrants out of certain trades.
3) Increasing the rate at which employers substitute machines for low paid workers.

a huge portion of that growth is in the wages of people who work in industries where there's very little bottom at all, like software, investment banking, or consulting. What non-union workers are they stealing from?

'Stealing from' is awfully loaded, but all the industries you describe impose costs on firms that do emply organizable labor. Higher labor costs might easily produce pressure to spend less on software, consulting, and investment banking, and thus drive down high-end wages in those industries.

Mmm . . . seems more likely that it would increase the demand for these services, as firms substitute capital for labor. In that sense, one might argue that they're stealing from organised labor, but it's a pretty tenuous connection, plus it requires arguing that firms shouldn't be allowed to increase productivity so that their workers can have the same jobs always and forever. Moreover, labor costs don't drive marginal costs in banking or software, so the renumeration of engineers or bankers is much more likely to be determined by the supply of those workers than the labor costs of their clients.

Also, I would think the biggest economic impact of unions would be to incentivize industries to move production to countries which don't have such artificially increased wage levels.

plus it requires arguing that firms shouldn't be allowed to increase productivity so that their workers can have the same jobs always and forever. Moreover, labor costs don't drive marginal costs in banking or software, so the renumeration of engineers or bankers is much more likely to be determined by the supply of those workers than the labor costs of their clients.

Your first argument here seems to be an agument that unionizing is wrong, rather than that it doesn't work to raise workers' standard of living. Fine, but kind of off point.

The second argument ignores that increased labor costs for the customers of software, consulting, etc. firms can drive down revenue for those firms. If there's less revenue available market-wide in those industries, salaries are going to go down. To the extent that you can substitute more consulting for less unionized labor, this won't happen, but it isn't obvious to me that that's a substitution that can always be made.

I don't say that it's impossible, but it does seem unlikely. We're talking about Andy Stern's plan here -- unionising whole industries -- in which case my expectation would be that the costs would be passed on to consumers, not suppliers. It depends, of course, on the section of the software industry, but most large software firms have a fair amount of supplier power, and it seems unlikely to me that GM would be able to wring out significant discounts from Oracle on teh grounds that its labour costs had gone up. We're much more likely to see a hike in the price of cars. Your basic arugment seems to be that the autoworkers have shrunk because GM took the money they were paying them and gave it to consultants; most observers would say that the consultants, and the shrinking unions, were the result of greater competition. Which, I'd point out again, was a lot better for the working class than 50,000 autoworker jobs.

Your basic arugment seems to be that the autoworkers have shrunk because GM took the money they were paying them and gave it to consultants; most observers would say that the consultants, and the shrinking unions, were the result of greater competition.

Not exactly -- more that lower labor costs at the low end leaves more money to be spent on other costs, including high wage workers and services like consulting whose costs are accounted for by high-wage workers.

I'm not expecting to convince you here, but I think I've made the point that it's not a priori true, as your post implied, that industry-wide organization can't possibly do the organized workers any good. You need a lot of empirical data to show that, and it isn't empirical data I've seen.

(I don't purport to be showing the reverse, of course, just stating that this argument needs more data behind it on both sides than is really likely in the context of blog comments.)

But Lizard, I'm offering empirical evidence from unionised industries, where it's pretty obvious that strong unions meant good wages for a few at the expense of the many, particularly those in the bottom quintiles. You're just saying that theoretically it's it's possible that some industry would produce good wages for the workers at the expense of consultants and senior managers, which I grant you, but the empirical evidence largely seems to me to run the other way. I have no love for the obscene pay packets handed out by captive boards in the eighties and nineties, but I think that it was the captive boards, not the change in unionisation, that determined those packets. So to go back to the original point, no, I do not think that declining levels of unionisation were much responsible for the growth in incomes at the top, an opinion I got from left-leaning economists like Paul Krugman. I think it had to do mostly with changes in the relative productivity of skilled to unskilled labor (a change that unions, if anything, would have had a negative impact on), and somewhat to changes in corporation law which were originally aimed at stopping unpopular hostile takeovers, but ended up entrenching managers and their pet boards.

Going back to my larger point, it seems obvious to me that strengthening the progressive income tax (including rolling fica into the tax system, and SS into the general fund) are a much better way to achieve the purported goal of income redistribution. So why the focus on unionisation?

Jane Galt: why the focus on unionisation?

Purely partisan reasons, I suspect. Unionization creates more political clout for Dems than a more progressive income tax (which they have no ability to enact anyway). And the Dems sorely need more clout right now.

Or was that a rhetorical question?

BTW, Jane, I'm surprised you haven't said anything about Rand's 100th (I personally can't stand Rand, but given your moniker, I assume you feel differently).

But Lizard, I'm offering empirical evidence from unionised industries, where it's pretty obvious that strong unions meant good wages for a few at the expense of the many, particularly those in the bottom quintiles. You're just saying that theoretically it's it's possible that some industry would produce good wages for the workers at the expense of consultants and senior managers, which I grant you, but the empirical evidence largely seems to me to run the other way.

I don't mean to be snide, but what empirical evidence have you offered? I've seen sweeping generalities about what's likely to happen, and what you think probably caused the recent growth in inequality. I haven't done the work to look up the data either, but at this point we're both just bullshitting.

At the mostly-empirical-data-free level this conversation is being conducted at, I find the arguments that unionization can't possibly benefit the workers organized unconvincing -- when more workers were organized, salaries in their industries were higher, they were more secure, and they had pensions. Now that many fewer workers are organized, all those things are much less likely to be true. The changes could all be coincidence, or the result of other factors, but I haven't in this conversation seen any reason to believe that that's the case.

LizardBreath: when more workers were organized, salaries in their industries were higher, they were more secure, and they had pensions.

And then their industries (steel, textiles, manufacturing, what-have-you) had artificially inflated costs of production and with the resulting higher prices, they couldn't compete in the global marketplace. Which is the biggest reason union membership is down. The number of workers unionized is still pretty much the same. It's just that the sectors of biggest economic growth have been in our non-unionized industries.

So I'd hardly call that more secure.

"Going back to my larger point, it seems obvious to me that strengthening the progressive income tax (including rolling fica into the tax system, and SS into the general fund) are a much better way to achieve the purported goal of income redistribution. So why the focus on unionisation?"

Ummm...because the people you vote for are trying to eliminate progressive taxation? Could that be it, Jane?

Goodness, Jim, I didn't say I was in favour of more redistribution (although my opinions on this are rather heterodox)--I'm talking about people who are. The people I vote for also aren't particularly friendly to unions. Why this battle, and not the other?

In part, because it isn't either or -- you can favor both a more redistributive tax system and a more unionized work force, and most people who support one support the other. In other part, because our current batch of elected Federal officials is less than sypathetic toward redistributive measures, and organization is something that can be done outside the governmental context.

hi meagan,
two things. i like the oligopoly angle, so i just want to mention sweezy's kinked demand curve model. unions fight with firms to get a bigger chunk of the pie.
second, and relatedly, i wonder about industries that have a bilateral monopoly/monopsony feel to them. in those cases, unionism makes lots of sense (e.g., matewan type situations).

relatedly, why set this up as an either or situation (at least rhetorically): either it results in redistribution of income amongst workers OR it results in redistribution from companies to workers. it could be a spectrum. at one end, you have the crane workers in california ports; on the other ...

in any case i remember a rather long argument concerning the efficacy of unions in raising standards of living historically, so i will leave it at that.

Why this battle, and not the other?

I missed whether Stern's effort was meant to be primarily legislative, but if it isn't, the answer would be that it's easier in 2005 to try to unionize new companies than it is to convince the Republican-controlled Congress to pass the reforms you think would be a better way to improve worker incomes. The latter is simply a non-starter. Tom Delay doesn't care what Andy Stern thinks.

You fight the battle you have a chance of winning.

An example: I'm currently working for a local phone company. It's call center reps make $60K-80K a year, and the top van drivers make $180K-$200K a year. All unionized.

These costs go into the very high rates we pay for local phone service. My local, which I hardly use, costs more than DSL, long distance, and international.

I'm guessing that poor people use local more than they use DSL, long ditance, and international. So, the most expensive telecommunications service is the one most used by the poor.

Another win for organized labour and the Left!

It's call center reps make $60K-80K a year,

!!!

My friend's parents worked as phone company call center reps in Bangor, Maine and they were paid something like $7/hour. It's not much of a career.

What on Earth is keeping that company from shipping the work to another vendor? Call center work is a huge low-labor industry in some states.

Rising economic fortunes are tied to increases in productivity. This is why the standard of living remained essentially flat from Old Testament times up until the industrial revolution. Simply paying one person more for doing the same job will not increase wealth within that society, since total output has not changed. That money will come out of somebody else's paycheck.

Service occupations will invariably continue expanding as a proportion of union membership since we have not yet figured out how to have someone in Bangalore cleaning an office in Hoboken. However if labor costs are forced artificially upward, capital (i.e. robots) will eventually become cheaper and preferable. Union-led wage increases did wonderful things for previous generations of steelworkers, but today the Rust Belt is largely dead, its once-proud working class replaced by capital and foreign labor. What is left of the unions will become entirely parasitic, and eventually all the hosts will die.

-cwk.

Lizardbreath: There was a time when the UAW did get its workers a bigger piece of the pie, but that was when the UAW had a monopoly on labor for building cars to be sold in the US. That is, prior to 1973 over 90% of Americans wouldn't even look at foreign car, and every American-built car was built under a UAW contract. When contract renewal time approached, the UAW would pick the weakest American producer and concentrate on them. Once they got a good contract there, they'd force the others to match it. If GM (say) didn't play ball, their plants would be closed while Ford and Chrysler picked off their customers - so it was much easier to give the UAW what it wanted and pass the cost along to the customers, since you could count on the other companies being forced into paying just as much. in 1972, starting pay for an unskilled UAW worker was nearly the same as for a public school teacher in Michigan.

But American cars were overpriced compared to the world market. This lasted only as long as Japanese cars were both undersized and chintzy to American tastes, VW's were too small for anyone but hippies, Volvos were for weirdo college professors, etc. In 1973, OPEC got their act together and caused the price of gasoline to quadruple. People began to think that the funny little foreign cars with high gas mileage were worth another look. And then, once Toyota, VW, and other foreign companies got enough market share here to matter, they began to reshape their designs to sell better in the American market.

Ever since 1973, a UAW card has been a ticket to unemployment.

Color me naive, but increasing wages was not the primary driving force behind unions in the beginning.

The basic idea of unions was that by joining together, workers had more power against the unchecked power of management. That said, you can argue that government does a better job than private management or unions in protecting workers' rights (and I might well agree). You can argue that becoming too involved in pay issues is an ultimately losing issue for unions (and I'd probably agree, with some provisos).

As for why the left still by and large supports unions (apart from crass political patronage, in which they're hardly the worst offenders). The left generally worries about the abilities of the powerful to exploit and abuse those weaker than they are. The right, I generally notice, has very little interest in the issue.

LizardBreath: Higher labor costs might easily produce pressure to spend less on software, consulting, and investment banking, and thus drive down high-end wages in those industries.

I dunno about investment banking, but the immediate effect of higher labor costs is to incentivize companies to spend less on labor and more on its substitutes, like equipment or software. When you can get the same production from different sources, and the price of one source increases, you are better off moving to the other sources. Thus, any increase in labor wages (unaccompanied by an increase in the productivity -- or the value -- of that labor) will increase unemployment. Which just increases the overall effect of helping the few at the expense of the many (just like tariffs). Some numbers on that from the NCPA.

I do think that the decline in unions probably did have a significant role in the rise in inequality, though. But I'm not convinced that argues for a return to unionization. I think the answer to that is reforming corporate governance, as Jane hinted at earlier.

Michael Farris: The basic idea of unions was that by joining together, workers had more power against the unchecked power of management.

The basic argument against that is that the power of management is already checked by having to compete with management in other companies for the same workers. As cas noted, the main case where a monopoly of supply is needed to maintain balance is when there's a monopsony of demand for that labor. In most other cases, it causes an imbalance which is good for nobody but that industry's overseas competition.

It's call center reps make $60K-80K a year,

!!!

My friend's parents worked as phone company call center reps in Bangor, Maine and they were paid something like $7/hour. It's not much of a career.

What on Earth is keeping that company from shipping the work to another vendor? Call center work is a huge low-labor industry in some states.

A combination of union contracts and state government regulations keep them from moving work to another vendor or another state.

Union contracts keep the reps from having to mention the website where people could do the task themselves.

Union contracts prevent calls from New York going outside New York, but enable calls from Pennsylvania (for example) from going to New York. So, high cost New York gets more reps than low(er) cost Pennsylvania. So, money is transfered from poor people in Pennsylvania to well paid union employees in New York. Another win for organized labor and the Left!

"the power of management is already checked by having to compete with management in other companies for the same workers."

I'm talking about history in times a lot more brutal than our own. The union movement began to make working conditions more tolerable (job safety and security especially). You can argue if that's especially needed now but there was a reason for them to exist.

Well, sure I'll grant you that. I thought the topic was Andy Stern's current plan.

Second on the working conditions aspect. Say what you will about raising wages (thus making the end product more expensive), but improving working conditions (not just safety) has been a boon to western civilization.

I have worked in a UAW organized auto plant (Chrysler)and at the end of my first week (1970) was beaten in the parking lot. "We warned you not to work to hard. You're making the rest of us look bad". This was not an uncommon experience in a union shop. Perhaps what Veblen called the instinct of workmanship had something to do with the UAWs demise. BTW the Nissan plant rejected the UAW for the THIRD time despite massive $$$ and effort. Unions are all about protecting the worst worker at the expense of the best. People LIKE to work and have a feeling of accomplishment. In my current job building employees may NOT change a bulb only a union person can do it (better to be in the dark). The modern Left at its best.

Hey Jane--I did a little back of the envelope modeling, and it seems like unionizing isn't a complete waste from a distribution of wealth perspective. In a perfectly competitve situation (hundreds of firms selling a give gadget), it'd be just like you say--everyone's selling at cost anyway, so if costs go up, prices go up.

But a monopoly would eat about half the cost increase. Why? Because if prices go up too much, they lose customers--people stop buying whatever-it-is. (The monopolist's already gouging the customer as much as he can...)

And in an oligopoly...it'd be somewhere in the middle. Specifically, ?p = ?c - (?c/(n+1)), where ?p is the price rise, ?c is the (marginal) rise in costs, and n is the number of firms.

Anyhow (now that I've used numbers to show how smart I am), the point is that not all of the costs get passed through. A little strange, but good for unions.

Those "?"s are suposed to be deltas--silly me for not previewing.

Sorry. Every so often, I channel Lillian Hellman. But I've never hurt anyone.

Everything Jane Galt says is a lie, including . . .

Thought I'd pass on a timely observation of Germany's unemployment problem via the Economist.

Labour markets rarely function perfectly. But Germany’s labour market is not really a market at all. It abjures free competition, which it likens to the law of the jungle. Firing is a last resort. Wages are negotiated collectively. These clubby, consensual arrangements served Germany well for several decades after the war, winning the country an enviable industrial peace. But they have now become, in effect, a conspiracy of insiders against outsiders. The 5m outsiders, who lack a job, might be prepared to work for less than those who have a job. But employee protections and union rules insulate the insiders from any competitive threat the outsiders might offer. As a result, the insiders maintain wages above the level that would make it profitable for employers to hire those out of work.

And it goes on to quote rabid right-wing neocon Brad DeLong. :)

And I would say that the number one reason our economy has higher productivity and lower unemployment than Europe is that we have a much more mobile workforce. When there are so many obstacles to firing workers, companies are less eager to hire, and the whole system is inefficient and slow to react to economic change.

One issue in Germany is also the fact that Germans traditionally train for a single specific job and if that's not available don't work (or train for another specific job and hope something is available there).

There are definite upsides to this approach(general high level of competence and craftsmanship especially) but it can maladaptive in turbulent times where taking what you can get is a good idea.

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