Tuesday, August 17, 2010

Judge Posner on Unions

Judge Posner on unions:


A principal goal of unions of course is to raise wages, though in doing so it causes employment to fall by raising the cost of labor relative to the cost of capital. Keynes emphasized (though the point was not original with him) that workers strongly resist cuts in their nominal wages, where “nominal” means the dollar amount of the wages and is contrasted with “real,” which means the purchasing power of the wage. In an economic downturn, an employer who thinks it infeasible to reduce the nominal wages of his employees will have to lay off workers so that his costs of production are not excessive in relation to the diminished demand for his product. Therefore the higher the nominal wages of employees, the more unemployment will be generated by an economic downturn.

Judge Posner has brilliantly summarized a very difficult issue. More on unions here.

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