Kaus’s Dilemma

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"Kaus’s Dilemma"

Mickey Kaus thinks he’s hit upon an argument to show that strong unions are unnecessary—counterproductive, even—to boosting broadly shared prosperity:

My crude default view: If we have robust economic growth, we don’t need greater unionization to boost low-end wages. If we don’t have economic growth, then greater unionization isn’t going to do much to boost low-end wages by itself. And greater unionization will actually make economic growth less likely.

You can offer some crude empiricism to the contrary. American growth was faster, and more broadly shared, in the post-war decades when we had stronger unions. Or observe that other economically dynamic societies all have higher rates of unionization and more equality than the United States.

But there’s an issue of theory here, too. In a basic model of perfect competition and perfect information, things would work as Kaus suggests—labor would earn its marginal product irrespective of the presence or absence of things like unions, and so unions could, at best, make no difference and at worst get in the way and ruin things. But in that same model, capital would earn its marginal product and there would be no profits. The model, in other words, doesn’t describe the real world. Which isn’t to say that it’s not useful. On the contrary, it’s very useful just as Galileo’s work about what happens to freely-moving bodies on frictionless planes is important even though the real world doesn’t contain any such planes. The world approximates how these models work, so they’re important to shaping our understanding. But the actual world features various sources of imperfect competition and firms can take advantage of those imperfections to earn real profits. Don’t take my word for it—read Tyler Cowen who observes that “the standard monopoly model explains much more of the economy than most market-oriented economists like to admit” since little barriers to competition are nearly ubiquitous. This generates a certain amount of economic surplus for well-situated firms. And that, in turn, creates space for conflict over how the surplus is distributed. One thing unions can do is effect the distribution of the surplus—somewhat less going to shareholders, the Board of Directors, and the top management and somewhat more going to unionized workers and to union officials. And that, in turn, has an important impact on the distribution of wealth and income in society at large.

Now, clearly, more growth is going to mean that on the one hand there are higher baseline earnings for everyone and also on the other hand that there’s more surplus to fight over. There’s no substitute for growth as a precondition to increased prosperity. But labor market conditions—unionization rates—are also very important to making that prosperity broadly shared.

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