PG on Unions
paulgraham.com
paulgraham.com
The great union boom of the postwar era came about because labor was relatively the scarcest factor of production. Millions of people had been killed by WW2; billions more were locked up behind the iron curtain or stuck in third-world post-colonial nations, and hence unable to contribute to the global economy. Meanwhile, the U.S. had a huge capital stock leftover from WW2, and plenty of new innovations to develop. High supply of capital + high demand for products + low supply of labor = rising wages.
The nifty thing about this model is that it can explain virtually all economic history from the past millenia. For example:
Around A.D. 1000, the population of Europe began rising, marking a slow trend out of the Dark Ages. As labor became more abundant, land became scarcer (capital was not much of a factor in those days). This led to the glory days of feudalism: serfs would be bound to the feudal estate, since land was dear and labor cheap.
This continued until 1347, when Black Death hit. Within a few years, 1/3 of Europe's population was wiped out, leading to large-scale chaos in the social order. When people recovered, wages started rising. Feudalism collapsed, as there were not enough workers left to work the field, and surviving laborers began demanding more rights. The new entrepeneurial spirit led to innovations, particularly the development of modern finance, Medici-style banking. As capital became progressively more important and labor more abundant, returns to capital increased (the speculative booms in the late 1600s) and wages dropped.
Colonialism also opened up large new land areas during this time period, dropping the returns to land and increasing the returns to labor and capital. This sounded the final death knell of feudalism: you really don't hear about many knights in shining armor after the 1600s.
As labor expanded across the new continents, it eventually reached a point of diminishing returns. It's no coincidence that the industrial revolution kicked into high gear just as the Americas and European-habitable parts of Africa and Australia became fully settled. With no more land for the taking, people had to turn to machinery to increase their returns. And once the machinery had been invented, wages dropped as labor became less necessary.
This reached a head during the Great Depression, when capital outpaced what labor could buy. The immediate cause of the Great Depression was a major contraction in the money supply. This, in turn, was caused by the bursting of a major credit bubble that had inflated throughout the 1920. Credit is a way for rich people to give poor people money, so that poor people can continue to buy the products that rich people make. Unfortunately, creditors generally expect to be paid back, so it sucks when people find out that's impossible.
The Depression led to the political unrest that eventually led to World War 2. WW2 had four major effects: it killed a lot of people, it made the U.S. build up a huge industrial base for war production, it destroyed the capital stocks of most European countries, and it led to the Cold War and rise of communism. The net effect is detailed above: labor became scarce, capital became abundant, and that lead to a large increase in wages and general prosperity.
That changed in the 1980s. People generally attribute the change to Ronald Reagan and Margaret Thatcher, but it's worth asking how they came to power. In the 1980s, the peak of the baby boom generation was just entering the workforce. The increased labor supply drove wages down ("jobless recovery", anyone?) and returns to capital up.
The pendulum should've started swinging the other way around 1990, when the relatively small Gen-X started entering the workforce and the 1920s-born Silent Generation started retiring. And that's what happened among skilled professionals: wages for the top 20% of the population have increased significantly lately.
But the end of the Cold War put a kink in a more broad-based prosperity. When Communism collapsed, lots and lots of additional workers entered the global labor pool. And with Y2K and outsourcing and the Internet, we found out how to put them to use. So the global supply of labor has been increasing and increasing fast, which keeps real wages down and returns to capital up. Hence the booming stock market of the last 10 years, amidst fears that Main Street USA is missing out on the party.
In the last 3-4 years or so, a new wrinkle has been added. The new Asian workers are voracious savers, which means that the supply of financial capital has been high along with the supply of labor. That's why real interest rates are fairly low, and stocks are trading at valuations higher than their historical norms.
It also means the relatively scarce factor of production is innovation: the ability to take available capital and make something people want. That's why the returns to entrepreneurship have been so high for these past couple years, and why so many people have been starting startups. We're attempting to fill a supply/demand imbalance and turn all that free money floating around into useful products for people. When YouTube gets bought for $1.6B despite having little revenues and no profits, it's not because Google is stupid. It's because Google stock has been bid up to stratospheric heights by large influxes of money, and so the rational thing to do is trade it away to make life a bit better for its customers.
So PG's wrong when he says unions are a historical anomaly. (Well, the particular organization of a "union" is a historical anomaly, but the general phenomenom of labor making greater demands in times of scarcity is not.) Labor will have its day again, when a war or famine or plague kills off large numbers of people. Similarly, the startup ecosystem isn't a brave new world that'll last forever: rather, it's a reaction to the particular economic conditions that exist on earth at this time. As long as capital and labor both remain abundant, though, startups will continue to be a profitable career path.
So labor unions were a historical anomaly, because they happened at a time when, uniquely in history, single organizations needed to hire large numbers of people and didn't need to be too careful about how much they paid them.
Now what public policies would you advocate for based on your previous thesis ?
Can you give an example of where the free market and current laws prevent voluntary group negotiation?
Anyhow your defining the free market wage, as the wage the get paid if the have no legal help in there negotations. And then your defining the appropriate wage as the free market wage.
So you are basically stating that by definition the appropriate wage for people to be paid is the wage they could negotiate if they have no laws to help them negotitate.
Basically your conclusion is the axiom you start with.
The problem there, of course, is that it becomes harder to hire and fire, thus it becomes harder to maximize the skill of your workforce. Which is why employers really need to think about the consequences of being evil.
The companies themselves are one thing. I mentioned the practice called blacklisting above. If employees attempt to organize, the company fires the leaders and prevent them from being employed anywhere else in the industry. This, so far as I know, is currently very illegal because of the laws protecting Unions.
Once the workers are disorganized, they're at a big disadvantage. If we assume that individuals are unable to organize because employers use unethical tactics to keep them that way, knowledge and input on company policies becomes much harder to fight for.
Suppose top executives want to "cash out," and pursue a deal that is bad for the long term health and stability of the company but good for short term revenues and stock price. Normal workers are generally too busy with their jobs and families to spend time investigating that sort of thing. By the time the peons find out that a deal has been made, it's way too late to do anything. One of the things Unions theoretically do is ensure the workers have a voice. A Union leader would be involved somehow in the writing of the contract, and when they started talking about sending valuable training personel to a direct competitor he'd be able to fight it with the leverage of the entire Union.
But I am not a lawyer and not an expert on Union law, so I cannot give a complete example.
The issue about executives destroying a company is an issue for the board of directors, who fire and hire the executives. If the board agrees to sell their company and the shareholders agree, etc, that is their prerogative as they own the company, not management or the employees. Unions are powerless in this context, which is a good thing.
But I guess the reality is that unions in the US are shrinking fast as they are becoming increasingly irrelevant.
You say organizing is easy with the internet, but sites like overhear.us only just launched, and we really have no data about how effective they will be. Secret organization is not effective either, because in order to actually negotiate anything serious they would have to come out, at which point they'd be vulnerable.
And my example is about arriving at the best possible economic solution for everyone, not simply assuming that the way company ownership works is perfect and therefore any consequences of that are Good Things. My example is about making sure the workers can excercise their economic power. I am most definitely not saying that a Union should be able to prevent a Board from selling the company, nor even entering into a bad deal. I'm saying that a company should not be allowed to use threats of force to influence the labor market (eg keep it disorganized by blacklisting leaders).
You are also neglecting the fact that many of these manufacturing jobs pay a wage that is typically barely enough to support a family. What's to stop management from suddenly cutting workers' pay? Even in the presence of unions, many workers are forced to "grin and bear it" when certain changes are enacted, because they cannot afford to stop working there (their family would go without). In a market with no union protections, management would be free to jerk workers around at will... when the market goes a little sour, they could just lower pay, some workers would quit, others would stay and pick up the extra available hours so that they could still get by, and the company would do fine. When the market improves, management could advertise positions and temporarily raise pays in order to get more people working there. This may seem fair from a supply-demand economics perspective, but when you're talking about the lives of the workers who are not far from poverty, a slight change in pay leads to a dramatically different quality of life. Unions help to deaden this "yo-yo effect" and make the condition of the worker a little more livable and realistic.
It may be easy to simply view laborers as commodities (in fact, pg compares them to servers), but it's important to remember these are human beings with lives to live. Before the era of unions, these people were treated as tools, and unions forced companies to recognize that they need to actually give their workers livable working conditions.
So I would like to submit that one reason for the decline of unions today is that government regulates companies much more tightly. Organizations like OSHA and the Workers' Compensation Fund ensure that workers have reasonable demands placed upon them, and if they get hurt, they will still have enough money to live on.
No web consultant ever had to worry about getting electrocuted by the machine he or she uses, or about passing out from excessive heat and falling into dangerous machinery. To compare the union movement of the early 1900s to the boon of web developers in the 90s is absurd, in my opinion. The people who were part of the union movement were heroic, in a way, by forcing faceless companies to recognize the health and humanity of their workers.
First, I think Henry Ford deserves a lot of credit for recognizing that manufacturing workers are people, not servers. He was the one who discovered the benefits of the 40-hour work week. I'm not sure how Unions factor into that, but treating workers like people does make economic sense (even if many managers even today still do not recognize this).
In any case, in addition to working for better conditions, Unions grew to combat corruption. Blacklisting, for example: One manufacturer fires an employee for trying to organize workers and puts him on a blacklist, preventing him from being hired by anyone else. This is a fear tactic that has a large destructive power in an economy where collective bargaining is not protected.
Recently, I heard from an acquaintance. He is a manager at a corporation that was putting on presentations about preventing Union organization. During the presentation, they shared a list of reasons employees form unions, and salary was _dead last_. I don't remember all the reasons, but mostly the issues were related to blatant Management disregard for(or mistreatment of) employees.
Oh, wait...
http://killercoke.org/crimes.htm
http://www.wakeupwalmart.com/facts/#anti-union
An article about the double standard applied to unions vs. corpoartions:
http://www.tpmcafe.com/blog/coffeehouse/2006/sep/24/biased_anti_union_reporting
Sure, in a field where there is a high demand for workers, unions are unnecessary, because any deficiencies in pay will be punished. In manufacturing and retail, however, where the demand is not as high, there has to be someone out there establishing a minimum standard for their employees to receive in compensation for their work. Since minimum wage in the U.S. is not enough to live on, the only other groups with the possibility to enforce such standards are unions.
I think that the recent trend (as in the last couple decades) of discounting the importance of unions is in large part due to comparing dissimilar organizations. Manufacturing and retail is a completely different beast from the service industry, and to lump them all into one "unions fight for overcompensation" group is shameful.
1) Isn't it more efficient to mandate minimum safety standards through the government/OSHA than through unions?
2) When you took the job, did you know about the conditions there? If so, why did you take it? I can't speak for you, but I want to guess the money made up for the suckiness, right? So, it seems like if people know what the conditions are in a job before they sign up, isn't it up to the individual to decide whether the money is enough to get them to put up with the sucky conditions?
Just curious.
That's an interesting question. My initial inclination, however, is to answer "no". The conditions and safety issues associated with different jobs vary so greatly that it would be quite difficult for any general organization to encompass and mandate all relevant standards. Unions can be much more specific, even taking care of issues like, "Workers working in location X should receive extra pay because it is 15 degrees warmer than the rest of the plant." (That's a bad example, but I hope you get what I mean.)
2) When you took the job, did you know about the conditions there? If so, why did you take it? I can't speak for you, but I want to guess the money made up for the suckiness, right? So, it seems like if people know what the conditions are in a job before they sign up, isn't it up to the individual to decide whether the money is enough to get them to put up with the sucky conditions?
The 3 summers were actually 3 different jobs. The first one I took, I didn't know much about the conditions. My uncle got me the job (he's a boss there), and the experience turned out to be a very eye-opening one. This was actually the one with the worst conditions: the company I worked for that summer was hired to do the things that their client companies' (unionized) workers wouldn't want to do. This meant that we were in places with high carbon monoxide, extreme heat, excessive dirt (I crawled around in grease on several occasions), and so on. This company was not unionized, and its workers received abysmal pay... anywhere from $9.50-13.50 per hour, with only a couple guys getting more than $11. On one occasion, I worked 11 straight 13-hour shifts, and the full-time guys were frequently expected to work a month or so at a time (8+ hrs/day) without a day off.
The reason the company could go on like this is because work in my area is at a premium. I live in the steel manufacturing area of northeastern Ohio, and since the early 90s, plants have been slowly laying off workers and closing down. There are so many people without jobs that places like the one I worked for can pay ridiculously low amounts for very dangerous work, and they are bound to get someone to take the job. I guess if you've always lived in a place with plenty of jobs, this situation is hard to envision, but sometimes when you have a family to support, you'll take whatever work you can get.
The following 2 summers, I managed to get a job in one of the steel mills, instead of the company I had worked for before. For me, the situation improved dramatically, largely because it was a union job. The pay was better and the demands were much more reasonable. There were still some jobs, however, that if someone asked you to do them, your first reaction would surely be, "Are you serious?" One of the summer workers' duties was basically to work these jobs that the more tenured workers would never do on a regular basis. At least for us, we could look at the end of the summer as the light at the end of the tunnel. For the guys who worked there full-time, many had 30+ more years to go. So I didn't complain too much regardless of what job I was given.
In all cases, I worked the jobs because they were the best money I could get close to home. This does not mean that the money even comes close to making up for the actual value of the worker or the peril of the job (although in the case of the union job, the situation was markedly improved). This is where unions become very important: to ensure that even in a poor job market, workers get their due compensation for the work that they perform.
However, it's very shortsighted to solely blame the unions. A contract is a contract, and if an employer made a bad one, they are still bound to uphold it.
b) Reddit did exactly what you're saying, and now look where it is.
b) Excuse me? Nothing is off topic on Reddit.
- Who here is creating or has created a web page for their startup? Did it use some CSS?
- Who here has dealt with unions for their startup?
PG's article is not even practical in its treatment of unions, something that is a highly political topic. I guess politics is where I would really start to draw a line... some economics is ok, but PG isn't an economist, and this article, right or wrong, has little relevance for most of us here.
I'm not judging the article itself, but I hope in the future that that sort of discussion can be left to reddit. I sympathise with the point that "it's a tight community", but these things usually start to head downhill. I like to talk politics and economics myself, and would certainly enjoy doing so more here than on reddit, but if we all started posting articles about those sorts of things, I could see it becoming a bit too prevalent...
The auto business was enormously profitable for GM and Ford, but there were thousands of equally promising auto startups at the same time. Most of them built prototypes bespoke for rich people; none of them are still around.
[1] And cars. They used to own about a fourth of GM, until they were forced to divest.
I think it is better to think of labor unions themselves as startups that eventually consolidated. They gained control of a resource that was in demand by a growing industry, manufacturing. They grew by competition and consolidation (as did their most successful customers) They supplied that resource at a price negotiated with their customers. Manufacturing prospered, and so did it's suppliers, including the labor unions.
The labor unions failed to adapt to a changing market (as did many of their customers), which is why they are on hard times.
That they failed to adapt says little or nothing about the considerable, commitment and sacrifice it took to found them. I agree though, that the presence or absence of those attributes in modern day union organization and membership isn't the whole story about why they are throughly failing today.
They don't make something people want. They take something people want and jack up the price to make them pay more for it. They're as much of a startup as OPEC -- the only difference is that they're cartelizing labor instead of oil.
So I guess YC.News has become a cult.
Do workplaces need democratic practices? I've never worked for a company that threatened my life, liberty, or pursuit of happiness -- mostly, they tend to secure the blessings of (financial) liberty to myself and my posterity by paying me an amount that I find satisfactory. If they didn't, I could always cry oppression, but it would be more mature for me to just find a better job. And if I had a higher estimation of my worth as an employee than any employer, I might consider my own estimate incorrect.
It's a fallacy to apply your political principles to anything outside of politics. If you want to work for a business that runs itself like a country, work for GM (and pray for your pension).
Granted, switching jobs isn't a simple thing to do, mainly because our labor market is so inefficient. There are other things attached to having a job, like healthcare, that complicate things. If only we separated healthcare from employment somehow...
Out of curiosity, what gains did you get from forming a union?
You're confusing actions and goals. If we pass legislation banning unsafe environments, all we're saying is "Dangerous work should only be done by criminals." If you think coal mines and slaughterhouses are bad now, just imagine how much worse they'd be if they were run by the mob.[1]
They might even be as dangerous as mines in the kind of country that does try to guarantee workers' safety and happiness through legislation ( http://www.chinadaily.com.cn/english/doc/2004-11/13/content_391242.htm )
[1] We've passed laws that say "Nobody should smoke pot," but the effect of those laws is, essentially, "People should only buy their pot from someone who has little to lose from committing additional crimes, such as someone already involved in illicit traffic and already able to extralegally enforce illegal agreements.
Regulators have less information than entrepreneurs. Regulators have a bias towards caution; entrepreneurs would suffer for it. So you're advocating a system in which uninformed people with a vested interest in my failure are responsible for choosing whether or not I have a chance to succeed. I'm afraid you need more of a defense for that than a smug smattering of "should"s.
But in reality I imagine your talking about coal miners, who are not in the coal mining for the thrill of the mine, or the thrill of fame and money. But are in it to make ends meat.
This is a classic argument you are making. It makes me richer to exploit workers. But if i don't exploit my workers than I will be denying my workers their economic right to be exploited.
So you see I am only exploiting my workers to help my workers, because my workers want to have the freedom to be exploited, really they want to be exploited, it makes them feel more free.
Wow I am such a nice guy. I am spreading freedom.
If they were worth any more money than they were getting paid then they would change to a higher paying job.
It all depends what you mean by the word "freely". But unless you are actually rich, you don't really have the freedom to not get a job. So I would not describe this as purely a contractual agreement entered into by parties freely.
However, I would also note that since what people get paid depends on the existance of Unions, and is also effected by the law and certain legal regulations. Then the value someone is worth changes depending on what the laws currently are.
So in any case I am in favor of trying to increase the worth of people.
(Not that this is really relevant, but most people who lead companies actually do not need their workers, they often can afford for the company to fail, and still live a comfortable life...)
I'm defining what someone's labour is worth as what employers are willing to pay them. (That may differ from what they are getting paid right now, but they can always change jobs.)
It might help for you to understand that "worth" is defined as what people will pay for something. It's subjective. There's no absolute value that someone should be paid in exchange for labour. It depends on what employers think they are worth,
"However, I would also note that since what people get paid depends on the existance of Unions"
False. Most people aren't in Unions, and the average wage has risen faster than the wage demands from unions. People get paid based on their worth to employers. (Productivity etc)
"So in any case I am in favor of trying to increase the worth of people."
The only way to increase the worth of people is to make them more productive. (Skills, investing in machinery etc.) If you force employers to pay them more you will just cause anyone not worth that amount to become unemployed.
"Not that this is really relevant, but most people who lead companies actually do not need their workers"
So why do these money grabbing capitalists employ them then? Wouldn't they make even more money by getting rid of them?
And you still haven't shown me how employing someone exploits them.
But in reality I imagine your talking about coal miners, who are not in the coal mining for the thrill of the mine, or the thrill of fame and money. But are in it to make ends meat.
You keep on talking about regulators making a certain line of work illegal, but that's not what I'm suggesting. All work should be made as safe as possible.
Maybe to YOUR work environment, but not all.
What gains did we get? Well, for one, a voice so that we could communicate with management in an orgainzed way, just as management generally do with the labourforce. Before, each person who had a problem was isolated and dealing with it alone.
Then add in the free legal representation, negotiation advice, free training etc etc
What kind of issues were there that the union dealt with?
And "free"? Aren't there union dues?
Wow. Free? Really? Where do you think the money comes from? The union has operative expenses that it pays for with the dues you pay. You PAY for those things and the overhead it takes to support them. Your employer probably pays a bit for them too, and as a result probably increases prices or decreases employee benefits to compensate.
Try owning and running a business sometime and tell me how much you think it would benefit you (and your business) to be "democratized".
The best manager I've ever worked for once told me that he believed in treating people fairly, but definitely not equally. I think he had a good pont.
Of course there may be the concern that you would have no opportunity to find another job. However, then I don't understand why it is deemed fair for society to dump the social responsibility on the enterprises. Is it the companies fault that you cannot find another job, or is it maybe your "fault" that you lack the qualifications?
Ultimately society pays anyway: if the company has to overpay the inefficient workers, it's products will get more expensive, rest of society pays. I think it would be cleaner to just have society pay directly, which might enable economic pressure against the inefficiency, too (if society pays, the problem is open and can be tackled). Worst case is the whole company goes out of business because it cannot compete anymore.
But I certainly do not think it is moral for unions to be weak.