George McGovern: Unions Need to Settle for Less
Brian Doherty | May 23, 2006, 12:23pm
Nixon goes to China, McGovern goes to slap unions in the face. From an op-ed by the legendarily failed presidential candidate in today's L.A. Times:
I have been reminded of legendary union leader John L. Lewis, who was once asked what his miners were after. His answer? "More."
It was a funny answer, and perhaps it was honest too. But these days, it's not a very effective strategy.....
"More" has, unfortunately, become "too much" in a global and far more competitive economy.
Many of my friends will consider this view heretical. But it is based on stark reality.
It can be galling to hear companies argue that they have to cut wages and benefits for hourly workers--even as they reward top executives with millions of dollars in stock options. The chief executive of Wal-Mart earns $27 million a year, while the company's average worker takes home only about $10 an hour. But let's assume that the chief executive got 27 cents instead of $27 million, and that Wal-Mart distributed the savings to its hourly workers. They would each receive a bonus of less than $20. It's not executive pay that has created this new world.
......many large corporations operate with razor-thin profit margins as competitors, both foreign and domestic, strive to attract consumers by offering lower prices.
The current frenzy over Wal-Mart is instructive. Its size is unprecedented. Yet for all its billions in profit, it still amounts to less than four cents on the dollar. Raise the cost of employing people, and the company will eliminate jobs. Its business model only works on low prices, which require low labor costs. Whether that is fair or not is a debate for another time. It is instructive, however, that consumers continue to enjoy these low prices and that thousands of applicants continue to apply for those jobs.
Our own Nick Gillespie wrote on the War on Wal-Mart presciently back in 1995.
trollumination | May 24, 2006, 2:52am | #
I wonder why Nash theory is left out of from popular economic discourse. There could well be multiple Nash equilibria in a labor market. Stable situations, where were any one actor to change their strategies (like, say, doubling their lowly worker's pay), they'd seriously lose, would seem to agree with what conservatives are saying, that wages must fall and stay fallen. Yet that's not the only stable situation.
If Wal-Mart raised prices across the board by say 5% and gave the increased revenue to their workers, they'd take a real beating! Yet if Wal-Mart's competitors did the same thing, it is likely that the damage would be mitigated or even reversed. After all, they'd all be part of an economy where more wages would be paid out, but spent again, and total volume of goods produced might well even increase. This would be a stable Nash equilibrium also - were any one business to cut wages, they'd find themselves bereft of employees and that's that.
It is not seeing the whole picture, to make all one's economic arguments based on the current Nash equilibrium state. Not while others may well exist.
Although Nash got a Nobel for his work, you never hear an argument based on Nash equilibria in economic discourse. All mainstream popular economists keep pushing Adam Smith and the grain market as if it was all that anyone needed to know (although Smith's original claims were much more modest), just layer Keynes's central banking work on top of it and ignore everything he had to say about why labour is not like wheat - or if they wanna be extra cool they can talk some Austrian mumbojumbo - and meanwhile some scruffy fool will talk about surplus value -
but all those arguments, sound or flawed, still deny the existence of multiple Nash-stable equilibria. More than one way, on the macro scale, for supply to meet demand. Yet this is never admitted by anyone publically, and I for one think it's a shame.
Wal-Mart can't change things alone. But things could change.
lannychiu | May 24, 2006, 9:14am | #
trollumination,
I don't think people hear disregard Nash Equilbria, I believe we are all aware of them, but the outcome you are suggesting would likely require government (or union intervention/collaboration).
The suggestion you are making is that all workers could simultaneously demand higher wages, which the entire retail industry would then pass along to consumers in the form of higher costs.
What Nash also asked is, what would happen in such an instance if one firm cheated. Instead of keeping prices high, it cut them and stole all of their competitors business? Your claim is they would not be able to attract any workers, since they would be no employees willing to fill in at the lower wage.
My experience has been, in a variety of businesses, that it is always customers who are harder to get then employees. Even in my current field, which typically requires a lot of training, we can always find average to good candidates to work for us. Finding exceptional people is tough, but there are plenty of folks who can do the job.
Clients are much harder to come by, even crappy small ones.
I would imagine this would be even more true in a low-skill environment. Low-skill workers could collude to raise wages, but I don't believe that would be a stable equilibrium in the long-run. This is also what game theorists have showed in the famous Prisoner's Dilemma.
Both firms and employees could be better off (with consumers being worse off), if they colluded to raise prices and increase wages. But given the significant risk of cheating such an equilibrium point would likely collapse.
