Thursday, January 08, 2009

Trade union policies for increasing unemployment

The Whitlam-inspired wage breakout in the 1980s drove unemployment to 10.4%. Another Labor-driven wage breakout in the 1990s exacerbated the recession we 'had to have'. This was Labor's economic legacy. I remember my left-wing mates at the time telling me that 30% wage increases given to metal workers would boost purchasing power and stimulate the economy! They didn't - these sorts of decisions created high unemployment and high inflation - stagflation.

But from December 1995-December 2005 the Howard Government created 1.7 million jobs. In the 18 months to September 2007 another 500,000 jobs were created in an astonishing burst. Inflation was almost eliminated. Howard's reward was to be voted out of office.

Now the Labor Party is at the helm again and, in the face of a looming recession, the real contribution John Howard made to reducing human misery in Australia by driving unemployment to a 33 year low faces the prospect of being destroyed not, in the main, by economic circumstances as much as by idiot trade unions.

According to The Age:

"The union movement is pushing ahead with wage claims despite the Rudd government calling for restraint in difficult times.
The slowing economy will suffer further if the real incomes of workers are not protected, the ACTU says.
Unions are under pressure to moderate their positions during bargaining negotiations with employers after it was reported the CFMEU will ask aluminium giant Alcoa to strike a new deal giving power plant workers at its West Australian operations an immediate pay rise of up to 33%.
ACTU president Sharan Burrow defended the union saying the claim amounted to annual pay rises of between 5-10% over several years.
It was important real incomes were maintained because the economy would suffer if workers could not pay their bills.
"If you don't protect incomes, then that's a negative for the economy as well," she said.
"If working people can't pay their bills, if in fact their mortgage is threatened ... then that's not going to help the economy survive, nor indeed recover."
Apparently Burrows sees the role of wages as a source of aggregate demand but does not want to understand that they constitute a cost for firms and will influence employment because they are a cost. The Burrows policy position is that in times of emerging unemployment wages should be prevented from falling. Her claim is that wage reductions to reflect reduced demands for such things as our mineral exports will damage Australia! This is precisely analogous to the remarks of my friends in the 1980s on the metal worker wage claims.

If anything real wages need to fall in industries experiencing hard times and reduced demand just as they rose during the good times. This flexibility is the best guarantee we have against another emerging unemployment catastrophe. 5-10% wage claims in a time of depressed demands when productivity growth is less than 2% is a recipe for disaster.

The contrary suggestion that higher wages act only to boost aggregate demand is really too stupid to warrant serious analysis but it does show the forces that our intellectually-challenged Treasurer Swan is up against in trying to manage the economy. It is not just a few CFMEU ratbags but the ACTU - those dinosaurs whose contributions funded the current mob of nitwits into Federal power and whio are now baying for payback - who endorse this sad idiocy.

Watch the left of politics duck this issue! Silence will prevail! They cannot challenge this stupidity even though they recognise its craziness because of their blinkered ideological priors and hypocrisy. Their integrity is close to zero in these areas.

Richard Posner recently made the following remarks about US trade unions – they are appropriate to Australian unions as well:
"The goal of unions is to redistribute wealth from the owners and managers of firms, and from workers willing to work for very low wages, to the unionized workers and the union's officers. Unions do this by organizing (or threatening) strikes that impose costs on employers. ... Because the added cost to the employer of a unionized work force is a marginal cost (a cost that varies with the output of the firm), unionization results in reduced output by the unionized firm and, in consequence, benefits nonunionized competitors. Unless those competitors are too few or too small to be able to expand output at a cost no higher than the cost to the unionized firms, unionization will gradually drive the unionized firms out of business.
Unions, in other words, are worker cartels. Workers threaten to withhold their labor unless paid more than a competitive wage (including benefits and work rules), but unless their union is able to organize all the major competitors in a market, the cartel will be eroded by the entry of nonunionized firms, which by virtue of not being unionized will have lower labor costs. The parallel to producer cartels is exact--workers are producers.....
I don't think there's much to be said on behalf of unions, at least under current economic conditions. The redistribution of wealth that they bring about is not only fragile, for the reason just suggested, but also capricious, as it is an accident whether conditions in a particular industry are favorable or unfavorable to unionization. By driving up employers' costs, unions cause prices to increase, which harms consumers, who are not on average any better off than unionized workers are. Unions push hard for minimum wage laws and for tariffs, both being devices for reducing competition from workers, here or abroad, willing to work for lower wages.....And by raising labor costs, unions accelerate the substitution of capital for labor, further depressing the demand for labor and hence average wages. Union workers, in effect, exploit nonunion workers, as well as reducing the overall efficiency of the economy".
Indeed this describes what happens in normal economic times not in the current severe economic situation. Alcoa, the firm subject to the above-mentioned 33% pay claim, is already planning to cut 15,000 jobs. The union stance is madness. Unemployment will be much higher than it would otherwise be because of union and complicit Labor Party stupidity. Without wage restraint now we will have an appalling recession with hundreds of thousands of additional people on the dole.

And chardonnay socialists will declare Kevin Rudd a Great Leader because he has apologised to aboriginees on behalf of us all for claimed sins we had no part of and ratified the impotent Kyoto Protocol but done little to address climate change. November 2007 was an eventful moment in Australian history.

11 comments:

Tim Curtin said...

Dear HC: you can be very annoying! You are absolutely right about trade union policies for increasing unemployment, but equally wrong about everything to do with alleged but non-existent climate change. I worked in the City (of London) from 1973 to 1976 when the unions successfully got Wilson and Callaghan to endorse (after much handwringing and exhortation plus not a few beers and sandwiches at No.10) 30% wage hikes; this resulted in inflation of, guess, 30% pa, tough on all (i.e. executives etc)for whom the Labour Party's Income Policy disallowed such increases for any of them earning more than 7,500 pounds p.a. Result, in addition to CPI of c30%, massive unemployment, and the election in 1979 of Margaret Thatcher on a platform to end rule by the TUC and the UK equivalents of Sharon Burrow. Unfortunately here in Australia, we have no Maggie only Maurice, who will urge the Burrow rank and file to demand 50% "to save the economy". When will the Sharons here and in the US wake up that to compete with Chinese labor, you will have to accept wage cuts, not hikes, especially when the hikes come on top of the Garnaut-Wong ETS? Good-bye Alcoa BHP and Rio!

rabee said...

Take a look at the new US jobless claims. They have fallen for the second time in a row now; and it's the third time it has surprised forecasters. Today's figures are particularly good.

This is a funny US recession Harry. I can't understand the relatively less than disastrous jobless claim figures.

I brought it up with a couple of US academics. I guess that's what you get when wages are flexible.

Anonymous said...

Harry there was NO wage breakout in the 90s.

too much chardonnay I think.

Moreover employees must VOTE on a new EBA.
Given that the old last in first out is long gone I very much doubt such a EBA would be approved.

hc said...

Thanks for that Homer.

Rabee, I think the US employment effects are seasonal at least in part. Auto worker wages are not flexible.

Tim, Glad we agree on something.

observa said...

Had to chuckle at Burrows change of tack to wedge the Rudd Govt but where were the journos asking the obvious like- So you think the Fair Pay Commission should give 30% wage rises to all workers for the good of the economy then...?

derrida derider said...

Calls for wage restraint now might be a bit more effective if people hadn't boasted of the record profits made during the boom (along, of course, with obscene growth in executive's wages) while still calling for wage restraint from the mug punters. The profits share of GDP reached an all time high.

The unions suspect, rightly, that for business and its fellow-travellers like yourself its always the right time for a wage cut.

That said, this is not a good time to be making large wage claims. The time to do that was a couple of years ago.

hc said...

DD, I am not a 'fellow traveller for business' - I am a fellow traveller for jobs.

I oppose the corporate excesses, the massive payouts to managers and the ludicrous incentive schemes that business schools teach as wisdom.

I prefer high wages because I am 99% a wage earner myself.

But I do like to see large wage demands when the demand for labour can be expected to contract.

And that's why I endorse the last sentence of your comment which reverses the thrust of what came before it.

hc said...

There should be a 'not' before the like in the second last sentence.

melaleuca said...

Well I'm a lefty and I see your point, Harry. We aren't all the same.

jc said...

Good call Harry. if we find Labor is complicit in this act of stupidity they deserve to lose every seat in the house and then some.

I really can't believe how economically illiterate burrows actually is. Surely she herself doesn't believe that crap. I hope.

Anonymous said...

"The Whitlam-inspired wage breakout in the 1980s drove unemployment to 10.4%" ????

Obviously, Whitlam was even more inspirational than I thought given that he lost office in 1975.

I would have thought that it was the Fraser/Howard inspired wage breakout given that there was a mineral boom they had been extolling.