Economics in One Lesson

Economics in One Lesson
professional thugs who themselves threaten violence, or who cannot in
fact do the work, or if they are being paid a temporarily higher rate
solely for the purpose of making a pretense of carrying on until the
old workers are frightened back to work at the old rates, the hatred may
be warranted. But if they are in fact merely men and women who are
looking for permanent jobs and willing to accept them at the old rate,
then they are workers who would be shoved into worse jobs than these
in order to enable the striking workers to enjoy better ones. And this
superior position for the old employees could continue to be main-
tained, in fact, only by the ever-present threat of force.
2
Emotional economics has given birth to theories that calm examina-
tion cannot justify. One of these is the idea that labor is being “under-
paid”
generally
. This would be analogous to the notion that in a free mar-
ket prices in general are chronically too low. Another curious but
persistent notion is that the interests of a nation’s workers are identical
with each other, and that an increase in wages for one union in some
obscure way helps all other workers. Not only is there no truth in this
idea; the truth is that, if a particular union by coercion is able to enforce
for its own members a wage substantially above the real market worth
of their services, it will hurt all other workers as it hurts other members
of the community.
In order to see more clearly how this occurs, let us imagine a com-
munity in which the facts are enormously simplified arithmetically.
Suppose the community consisted of just half a dozen groups of
workers, and that these groups were originally equal to each other in
their total wages and the market value of their product.
Let us say that these six groups of workers consist of (1) farm
hands, (2) retail store workers, (3) workers in the clothing trades, (4)
coal miners, (5) building workers, and (6) railway employees. Their
wage rates, determined without any element of coercion, are not nec-
essarily equal; but whatever they are, let us assign to each of them an
original index number of 100 as a base. Now let us suppose that each
group forms a national union and is able to enforce its demands in
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Do Unions Really Raise Wages?
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proportion not merely to its economic productivity but to its political
power and strategic position. Suppose the result is that the farm hands
are unable to raise their wages at all, that the retail store workers are
able to get an increase of 10 percent, the clothing workers of 20 per-
cent, the coal miners of 30 percent, the building trades of 40 percent,
and the railroad employees of 50 percent.
On the assumptions we have made, this will mean that there has
been an 
average
increase in wages of 25 percent. Now suppose, again
for the sake of arithmetical simplicity, that the price of the product
that each group of workers makes rises by the same percentage as the
increase in that group’s wages. (For several reasons, including the fact
that labor costs do not represent all costs, the price will not quite do
that—certainly not in any short period. But the figures will none the
less serve to illustrate the basic principle involved.)
We shall then have a situation in which the cost of living has risen
by an average of 25 percent. The farm hands, though they have had
no reduction in their money wages, will be considerably worse off in
terms of what they can buy. The retail store workers, even though
they have got an increase in money wages of 10 percent, will be worse
off than before the race began. Even the workers in the clothing
trades, with a money-wage increase of 20 percent, will be at a disad-
vantage compared with their previous position. The coal miners, with
a money-wage increase of 30 percent, will have made in purchasing
power only a slight gain. The building and railroad workers will of
course have made a gain, but one much smaller in actuality than in
appearance.
But even such calculations rest on the assumption that the forced
increase in wages has brought about no unemployment. This is likely to
be true only if the increase in wages has been accompanied by an equiv-
alent increase in money and bank credit; and even then it is improbable
that such distortions in wage rates can be brought about without creat-
ing pockets of unemployment, particularly in the trades in which wages
have advanced the most. If this corresponding monetary inflation does
not occur, the forced wage advances will bring about widespread unem-
ployment.
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