A nice, quick little blog post on The Economist:

THE American public has become disillusioned with organised labour. Increased levels of unionisation came out of the Great Depression. Yet it seems that unless special interests have their way, the power of labour will only decline into the recovery. Recently, unions were vilified for crippling the auto industry with exorbitant wages, benefits and self-serving union bosses.

The decline of unions is a long time coming. Labour unions introduce rigidity into labour markets. Larry Summers reckons increasing wages above the market rate actually increases long-term unemployment. Indeed, it is the oft-cited culprit for higher rates of unemployment in Europe compared to the America. It is difficult to fire incompetent workers and reward ones who perform exceptionally well. This can distort incentives in the labour market. It also means firms must offer higher than market wages, which may be good for union members but can harm unaffiliated workers.

All the more curious then is former secretary of Labor Robert Reich’s post claiming the best route to recovery is to revive labour.

At the center of this virtuous circle were unions. In 1955, more than a third of working Americans belonged to one. Unions gave them the bargaining leverage they needed to get the paychecks that kept the economy going. So many Americans were unionized that wage agreements spilled over to nonunionized workplaces as well. Employers knew they had to match union wages to compete for workers and to recruit the best ones.

I am curious what evidence Mr Reich has to support that argument. Most economists point to insider/outside models which show unions can depress wages of outsiders and often leads to long term unemployment.

Read the rest at The Economist:.

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