Today, Big Ideas…Hang on to your hats

1. Capitalism & Free Markets

2. The “Labor Problem” 3. Exit vs. Voice

Unions, Labor and Society

To start…we have to consider how our economic system works…

So…what is capitalism?

What comes to mind when I say the word?

What are some characteristics of capitalism?

What are the rules…how does it work?

Capitalism

a form of economic activity in which the means of production (factories, mines, hotels, software companies etc.) are privately owned and in which others, lacking access to the means of production, are forced to sell their labor power for a wage in a labor market.

Production is geared toward the pursuit of profit and is regulated through market competition.

Profits that are generated belong to the owners of the means of production.

I know…that’s a mouthful…more in the reading for next week…but lets explore…

Capitalism. Not that Old……

France, 1666…Tailors vs. Button Makers

Tailors Learn to make buttons Button makers complain to King King tells tailors to stop Button makers pleased…Tailors gasp in

disbelief…

Enter Adam Smith Anyone know who this guy was?

Adam Smith

In 1776 writes, “Wealth of Nations”

Get rid of Kings and crazy rules

Give business people the freedom to compete with one another in a free and open marketplace

If this means some win (tailors) and some lose (button makers)…too bad for the losers

Just let individuals pursue their own self interest in a free market, and all of society will be better off…

Adam Smith

Self-interest, individual action and selfishness as core value for society

“Greed is Good” Gordon Gecko, Wall Street…if you haven’t seen this movie…see

it..

“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own interest.”-Adam Smith

Lots of Questions Emerge

If every individual pursues their own self interest, what will hold society together?

Consider Eimer’s Blanket Factory Read my Adam Smith See Opportunity in New World Decide to pursue my self interest & enter the

blanket market

With no King to set prices, what will keep me from gouging people by charging very high prices?

Regulating Self Interest

With no King to set prices, what will keep me from ripping people off?

Competition in a free marketBusiness against Business

Regulating Self Interest…

With no King to give orders, what will keep me from making things nobody wants…or that might be dangerous, like Fiberglass blankets?

Regulating Self Interest…

With no King to give orders, what will keep me from making things nobody wants or dangerous things?

Consumer will make Choices in line with their self interest Don’t want itchy dangerous blankets so choose not to buy them Supply will be regulated by demand of individual consumers

And again…Competition between Businesses “Look at that ass making fiberglass blankets…let’s try fleece!”

“…the market will arrange for production of the goods that society wants, in the quantities that society wants- without anyone ever issuing an order of any kind.”- Adam Smith

A Self Regulating System… Bottom line: No need for a central authority like

King or Government to regulate economic activity… just let individuals pursue their own self interest in a free market…

The “Invisible Hand” will organize society Individual businessmen & consumers pursue their

own self interest Markets will develop in many goods and services

Paradoxically, selfish behavior will lead to a happy society “The pressures of the marketplace direct the selfish activities of

individuals as if by invisible hand into socially responsible paths.”- Adam Smith

A Laissez faire society…?

idea that government should limit itself to the maintenance of law and order, and remove all legal restraints on trade and prices.

From the French “Leave us alone”

Emphasis on “Free markets” with little or no government or outside regulation

Market Society…

In many ways markets are an astounding new system of social coordination Pursuit of profit and competition spurs new

inventions & innovation

Market Society…

Markets coordinate complex relationships between people without anyone ever issuing an order

Buy a chocolate bar instead of pretzel…and your sending a message to a farmer in Brazil…pretty cool!

Here’s one of the catches…The “Labor Problem”

In a capitalist free market, human labor power (a person's ability to work) becomes something that is bought & sold, just like blankets, coal or steel…

Just as farmer sells cocoa beans or chickens to gain money…Workers sell their ability to work to gain $“Labor for sale…Labor for sale!”

So how will the price of labor be determined in a capitalist free market society?

Let’s look at a concrete example…

Markets in human labor…

I need ten unskilled workers for your blanket factory Ten minutes training

Will invest $1000 and would like to make 10% profit

Analyze situation and decide I’ll need 10 workers and will offer $5 a day

Advertise my need to buy some labor and 1,000 people show up at factory gate…all with hungry families to feed, rents to pay, clothes to buy…

In a free labor market, how will I decide who to hire?

Markets in human labor…

$5…$4…$3…$2…$1…

What’s happening…How is price of labor being determined?

Markets in human labor…

$5…$4…$3…$2…$1…

Competition between workers in a free market for labor sets the price

Each individual is pursuing his/her own self interest

Employers cut individual deals with each worker

The lower the wage paid, the more the employer will make

Markets in human labor…

$5…$4…$3…$2…$1

Cheapest workers that can do the job win…

Cheapest workers who can do the job win…

Cheapest workers who can do the job win…

Cheapest workers who can do the job win…

Cheapest workers who can do the job win…

Cheapest workers who can do the job win…

A Free Market in human labor…

Wages, Hours and Working Conditions should be set the same way the price of any commodity is set: in a free market through competition

Do these rules seem to favor owners or workers?

Who seems to have more power in this relationship?

A Free Market in human labor…

Do these rules seem to favor owners or workers?

Who seems to have more power in this relationship?

Note video clip on work in NYC’s garment industry…who do rules favor…who has power?

Try to note some concrete examples (NYC clip 2)

A “Free Market” in human labor?

Development of labor markets generate a simple, but very important question:

“Can human labor be treated just like any other thing we buy and sell in a free market?”

So…let me ask you…in what ways is the experience of selling your ability to work different from selling a ton of coal?

The “Labor Problem”

Unlike other commodities sold in a free market, labor power is attached to a human being with feelings, emotions, interests, needs…

Can’t hand over labor power like you hand over ton of coal & then go home to watch TV… you must accompany your labor power to work

Selling labor power brings HUMAN BEINGS into an ongoing relationship of authority and subordination

A relationship marked by inequality of power Some are bosses…some are bossed

Labor Markets Create Conflict in a way that other markets don’t…

Wages vs. Profits How will the economic pie that a company bakes

be divided?

Hours Length of day? Will there be bathroom breaks?

Coffee breaks? Paid Vacations? Sick Days? Maternity leave? Paid Maternity Leave? Easter Sunday?

Labor Markets Create Conflict What type of working conditions?

Speed of assembly line? How many rooms will a janitor clean? How many students in a class-room? Patient to Nurse ratio? One or two officers to a car? Scaffolding? Toilets? Emergency exits? Fire alarms?

Questions of power and dignity? How will people be dismissed? Will the manager

check the toilet to see if you took a crap? Will the work environment be one of fear or respect? How will problems be solved?

Labor Power as Different…

Selling labor power brings people into relationships marked by inherent conflicts of interest

Conflict is economic, not pathological …not due to bad apples or mean people

Owners and/or Management must generate a profit

Workers must secure a livelihood Concerned with wages, hours, job security, working conditions,

dignity…

This Conflict is universal …though methods for dealing with it vary widely…

Markets in human labor power develop…

Sociologist argue that buyers of labor have more power than sellers…

“The formal right of a worker to enter into any contract whatsoever with any employer whatsoever does not in practice represent for the employment seeker even the slightest freedom in the determination of his own work conditions…It rather means, at least primarily, that the more powerful party in the market, I.e., normally the employer, has the possibility to set the terms, to offer the job ‘take it or leave it,’ and given the normally more pressing economic needs of the worker, to impose terms on him.” - Max Weber (quoted in Streeck, p. 41)

Markets in human labor power develop

From the start, people will suggest that labor markets are different from other markets, primarily because both parties are not on an equal basis

Inequality of power…

“Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be necessary to his master as his master is to him, but the necessity is not so immediate.” Adam Smith, (p.41of Heilbronner)

Markets in human labor power develop… Buyers of labor have more power than

sellers…

“If one class of society is obliged, in order to live, to take any price for its services, while another can abstain from such action thanks to resources at its disposal…the second has an unjust advantage over the first…” Emile Durkheim(quoted in Streeck, p. 41)

Next

Labor Markets, exit and voice…

Outline

1. The “Labor Problem” 2. Exit vs. Voice

• Change in Readings for Next week…

• Will begin Zieger book American Workers, American Unions

• Chapter 1 and 2

Extra Credit Option: NAACP event

on Dr. King and Poor People’s Movement

UC Room A @ 4

2 points on review questions

Markets in human labor are different from other markets

Participation in labor market is “voluntary,” but only formally A person with no access to land or water has few options

Competition may regulate market, but outcomes may not be socially acceptable Children in factories; High rates of injury; Low wages;

Long Hours

Some members of society will argue that moral concerns require the development of institutional mechanisms to regulate wages, hours and working conditions Minimum wage laws; maximum hours; child labor

laws…Unions

Free Market in Labor or Regulated Market in Labor? A Social Choice

$5…$4…$3…$2

Competition between workers in a free market for labor sets the price

Each individual is pursuing his/her own self interest

Employers cut individual deals with each worker

$5….Unionize

Cooperate with other workers to limit competition)

Collectively demand that wages, hours and working conditions be subject of negotiation

Replace Individual Bargaining with Collective Bargaining

Unions and Labor Markets

Builds on Albert Hirschman’s book Exit, Voice and Loyalty (1971)

“…societies have two basic mechanisms for dealing with social or economic problems” (Freeman 1984: 6)

Can anyone explain what these mechanisms are and how they operate?

Exit

“Classic market mechanism of exit and entry, in which individuals respond to divergence between desired and actual social conditions by exercising freedom of choice or mobility…” (Freeman 1984: 6)

Unhappy with some aspect of a market…exit Coke is involved in the murder of unionists in

Columbia, switch to Pepsi; Joe’s Diner seems dirty, switch to Pete’s Diner; Widener tuition seems to high, switch to Temple

Unhappy with a job…quit.

If everyone exits, how will this regulate the overall economy?

Individual Self Interest Regulates the System

“By leaving less desirable for more desirable jobs, or by refusing bad jobs, individuals penalize the bad employer and reward the good, leading to an overall improvement in the efficiency of the economic system” (Freeman 1984: 9)

Same logic that kept my fiberglass blankets out of the market…

Potential shortcomings of this logic from the individual workers perspective?

An Alternative to Exit… Voice

“…refers to the use of direct communication to bring actual and desired conditions closer together” (Freeman 1984: 8).

Voice “refers to participation in the democratic process, through voting, discussion, bargaining and the like.”

Talk about problem…Tell Coke to stop harassing unionists in Columbia; tell Pete that his diner is too dirty; tell Widener that tuition is too high.

Unhappy with a job…speak to manager or owner.

Potential shortcomings of this logic from the individual worker’s perspective?

Individual Voice Inadequate: Need Collective Voice

1) Fear of being fired “The danger of job loss makes expression of

voice by an individual risky” (Freeman 1984: 9)

2) Free Rider Problem results in undersupply of public goods

Translation of #2?

Collective Voice

2) Free Rider Problem results in undersupply of public goods

Translation: There is little incentive for individuals to take action in order to gain something that s/he will be able to benefit from whether or not s/he takes action

Another translation?

The “Free Rider Problem”

Famous idea developed by Mancur Olson that we will deal with throughout the semester

Can anyone explain the problem?

“Free Rider Problem”

If a member of group can acquires a good, service or benefit without risking any personal costs or contributing anything in return.

It becomes rational to Free Ride…let someone else work to secure the good, service or benefit, and then take advantage of it…

Common when something is Non-Exclusive: people get to use or benefit from a good, service or

benefit regardless of whether they’ve contributed to its creation

Think Public Television…only 10% contribute…but we all watch… Examples from the workplace?

“Free Rider Problem”

“Safety conditions, lighting, heating, the speed of the production line, the firm’s formal grievance procedure, pension plan, and policies such as layoffs, work sharing, cyclical wage adjustment, and promotion all obviously affect the entire workforce …” (Freeman 1984: 9)

“Without a collective organization, the incentive for the individual to take into account the effects of his or her action on others, or to express his or her preferences, or to invest time and money in changing conditions, is likely to be to small to spur action. Why not let “Let Harry do it” and enjoy the benefits at no cost. The classic “free rider” problem lies at the heart of the so called “union security versus “right to work” debate (Freeman 1984: 9)

“Free Rider Problem”

“Safety conditions, lighting, heating, the speed of the production line, the firm’s formal grievance procedure, pension plan, and policies such as layoffs, work sharing, cyclical wage adjustment, and promotion all obviously affect the entire workforce …” (Freeman 1984: 9)

“Without a collective organization, the incentive for the individual to take into account the effects of his or her action on others, or to express his or her preferences, or to invest time and money in changing conditions, is likely to be to small to spur action. Why not let “Let Harry do it” and enjoy the benefits at no cost. The classic “free rider” problem lies at the heart of the so called “union security versus “right to work” debate (Freeman 1984: 9)

Unions Solve these Issues/Problems

2) Free Rider Problem results in undersupply of public goods A) Unions provide an institutional mechanism that

links individuals together to solve free rider problem

1) Fear of being fired “The danger of job loss makes expression of voice

by and individual risky” (Freeman 1984: 9)

A) When unions first exercise voice, it is difficult (and later illegal) for employers to fire everyone

B) Once unions form, workers have protection against being fired

Many Economists Look at Unions and Get Chest Pains…. With no King to set prices, what will keep me

from ripping people off?

Competition in a free market Business against Business

What would happen if there was no competition?

Or if I colluded with the competition and we fixed the price of blankets?

So why do unions bring chest pains?

Many Economists Look at Unions and see a Monopoly

Unions as a monopoly that forces wages above competitive levels

Union hall that are the sole provider of carpenters to a company at $X an hour

Members of a union at a Shoprite that agree not to accept less than $X an hour

Economists worry that unions will demand higher wages that will lead to:

Lower employment

“distortion of distribution of income” and greater inequality

Economists worry that unions will negotiate work rules that will lower productivity

Freeman’s Response: Things are more complicated

Unions not a true monopoly that can dictate terms of contract…they bargain contracts with management

Quote from page12:

Freeman’s Response: Evidence Matters

Economists worry that unions will demand higher wages that will lead to:

Lower employment

“distortion of distribution of income” and greater inequality

Economists worry that unions will negotiate work rules that will lower productivity

Unions Wages may or may not lead to lower employment Empirically questionable

Unions distort the distribution of income but lead to greater equality Value judgment as to

whether this is good or bad

In many sectors unions raise productivity Lower quit rates, improved

morale, better information to management

What Do Unions Do?

Please discuss one of the ways that Freeman and Medoff suggest unions help management run more successful business operations. Be sure to cite the text in your answer.

What Do Unions Do?

Collective Voice Can Provide Useful Information

What Do Unions Do? Research Findings “…in addition to the

well advertised effects on wages, unions alter nearly every other measurable aspect of the operation of workplaces and enterprises, form turnover to productivity to profitability to the composition of pay packages” (Freeman 1984: 19).

Selected findings from p.20-21

Raise wages Increase Benefits Reduce wage

inequality More just workplaces Increase wages for

some non-union workers

Some increase in unemployment

Lower profits for firms

What Do Unions Do? Research Findings After reading the first 11 pages of the

paper by Mishel and Walter, briefly summarize the effect of unions on one of the following: wages, inequality, fringe benefits, or workplace protections. Be sure to cite the text in your answer.

Note…don’t get lost in all the data…learn the basic trends

Unions Raise Wages For Unionized Workers

Union Members More Likely to Get Benefits

Unions Reduce Inequality: Raise Wages for Lowest Income and Least Educated

Workplace Protection: Enacting Laws, Education and Enforcement (P.11)

Mishel and Walters (2003)

Unions “set norms and established practices that become more generalized throughout the economy thereby improving pay and working conditions and for the entire workforce”(Mishel and Walters

2003: 8)

Pension, Health Care, Grievance Procedure

Lift wages for non-union workers via “Union Threat Effect” Non union firms meet union standards, particularly

after union density in industries is > 40% Non-union Japanese auto plants in US try to mimic what

Unionized Firms provide

Union Premiums and You

Using the links provided in the week 2 readings box on the syllabus, please gather the following information.

a) For your chosen occupation, what percent of the people in that occupation are represented by unions.

b) For the industry that comes closest to that which you will be employed, what is the pay of non-union workers. What is the pay of union workers.

Union membership as a percentage of the nonagricultural labor force, 1930-2002

Next…

From sociological theory to American history…