
PG on Unions - chwolfe
http://www.paulgraham.com/unions.html
======
nostrademons
I've got another explanation, one that's perhaps simpler and grounded in more
orthodox economics:

The great union boom of the postwar era came about because labor was
relatively the scarcest factor of production. Millions of people had been
killed by WW2; billions more were locked up behind the iron curtain or stuck
in third-world post-colonial nations, and hence unable to contribute to the
global economy. Meanwhile, the U.S. had a huge capital stock leftover from
WW2, and plenty of new innovations to develop. High supply of capital + high
demand for products + low supply of labor = rising wages.

The nifty thing about this model is that it can explain virtually all economic
history from the past millenia. For example:

Around A.D. 1000, the population of Europe began rising, marking a slow trend
out of the Dark Ages. As labor became more abundant, land became scarcer
(capital was not much of a factor in those days). This led to the glory days
of feudalism: serfs would be bound to the feudal estate, since land was dear
and labor cheap.

This continued until 1347, when Black Death hit. Within a few years, 1/3 of
Europe's population was wiped out, leading to large-scale chaos in the social
order. When people recovered, wages started rising. Feudalism collapsed, as
there were not enough workers left to work the field, and surviving laborers
began demanding more rights. The new entrepeneurial spirit led to innovations,
particularly the development of modern finance, Medici-style banking. As
capital became progressively more important and labor more abundant, returns
to capital increased (the speculative booms in the late 1600s) and wages
dropped.

Colonialism also opened up large new land areas during this time period,
dropping the returns to land and increasing the returns to labor and capital.
This sounded the final death knell of feudalism: you really don't hear about
many knights in shining armor after the 1600s.

As labor expanded across the new continents, it eventually reached a point of
diminishing returns. It's no coincidence that the industrial revolution kicked
into high gear just as the Americas and European-habitable parts of Africa and
Australia became fully settled. With no more land for the taking, people _had_
to turn to machinery to increase their returns. And once the machinery had
been invented, wages dropped as labor became less necessary.

This reached a head during the Great Depression, when capital outpaced what
labor could buy. The immediate cause of the Great Depression was a major
contraction in the money supply. This, in turn, was caused by the bursting of
a major credit bubble that had inflated throughout the 1920. Credit is a way
for rich people to give poor people money, so that poor people can continue to
buy the products that rich people make. Unfortunately, creditors generally
expect to be paid back, so it sucks when people find out that's impossible.

The Depression led to the political unrest that eventually led to World War 2.
WW2 had four major effects: it killed a lot of people, it made the U.S. build
up a huge industrial base for war production, it destroyed the capital stocks
of most European countries, and it led to the Cold War and rise of communism.
The net effect is detailed above: labor became scarce, capital became
abundant, and that lead to a large increase in wages and general prosperity.

That changed in the 1980s. People generally attribute the change to Ronald
Reagan and Margaret Thatcher, but it's worth asking _how_ they came to power.
In the 1980s, the peak of the baby boom generation was just entering the
workforce. The increased labor supply drove wages down ("jobless recovery",
anyone?) and returns to capital up.

The pendulum should've started swinging the other way around 1990, when the
relatively small Gen-X started entering the workforce and the 1920s-born
Silent Generation started retiring. And that's what happened _among skilled
professionals_ : wages for the top 20% of the population have increased
significantly lately.

But the end of the Cold War put a kink in a more broad-based prosperity. When
Communism collapsed, lots and lots of additional workers entered the global
labor pool. And with Y2K and outsourcing and the Internet, we found out how to
put them to use. So the global supply of labor has been increasing and
increasing fast, which keeps real wages down and returns to capital up. Hence
the booming stock market of the last 10 years, amidst fears that Main Street
USA is missing out on the party.

In the last 3-4 years or so, a new wrinkle has been added. The new Asian
workers are voracious savers, which means that the supply of financial capital
has been high along with the supply of labor. That's why real interest rates
are fairly low, and stocks are trading at valuations higher than their
historical norms.

It also means the relatively scarce factor of production is innovation: the
ability to take available capital and make something people want. That's why
the returns to entrepreneurship have been so high for these past couple years,
and why so many people have been starting startups. We're attempting to fill a
supply/demand imbalance and turn all that free money floating around into
useful products for people. When YouTube gets bought for $1.6B despite having
little revenues and no profits, it's not because Google is stupid. It's
because Google stock has been bid up to stratospheric heights by large
influxes of money, and so the rational thing to do is trade it away to make
life a bit better for its customers.

So PG's wrong when he says unions are a historical anomaly. (Well, the
particular organization of a "union" is a historical anomaly, but the general
phenomenom of labor making greater demands in times of scarcity is not.) Labor
will have its day again, when a war or famine or plague kills off large
numbers of people. Similarly, the startup ecosystem isn't a brave new world
that'll last forever: rather, it's a reaction to the particular economic
conditions that exist on earth at this time. As long as capital and labor both
remain abundant, though, startups will continue to be a profitable career
path.

~~~
pg
Sure, labor prices always vary with supply and demand. I'm not contradicting
that, or merely restating it. What I'm saying is that the hot companies of the
early 20th century happened to be a type that needed lots of people. Those
before and after didn't, earlier ones because they just weren't as big, and
later ones because they tended to hire programmers by the tens, not factory
workers by the hundreds.

So labor unions were a historical anomaly, because they happened at a time
when, uniquely in history, single organizations needed to hire large numbers
of people and didn't need to be too careful about how much they paid them.

~~~
jason13
That is an interesting argument.

Now what public policies would you advocate for based on your previous thesis
?

~~~
gibsonf1
I would advocate removing all legal advantages unions have to level the
market. If they want to exist, let it be a fair voluntary agreement between
employees and management without the legal jeopardy that still exists for
management during labor disputes.

~~~
Goladus
I think that's a bad idea. I'm sure there are laws that need reconsideration,
there always are. But fundamentally, collective bargaining is an important
right because individual workers are worth so little all by themselves. In
order for the dynamic you mention in your post to work employees have to be
able to organize. They cannot do this if all the legal aspects (aka threats of
force) favor the employers. Employers will use Divide and Conquer to win every
time.

~~~
gibsonf1
I guess I don't quite see your point. What stops employees from organizing
themselves (say using the web etc), electing someone to represent the group,
and negotiating with the company. Lets say the group demands more pay, and the
company says no. The employees go on strike, and the company is able to hire
all new people. This means that the pay demand was beyond market levels and
not an appropriate request. The flip side is the company is unable to find
replacements, which would mean that the staff is underpaid, so they grant the
raise. Going on strike at a company is an extremely damaging method of
contract negotiation putting into jeopardy both the company and the jobs they
provide. It is very risky and should only be done as a last resort. Either
way, why would you need laws for this (other than current contract law, etc.)

Can you give an example of where the free market and current laws prevent
voluntary group negotiation?

~~~
jason13
The simplest answer is that many people believe the "free market wage" is not
always the apropriate wage.

Anyhow your defining the free market wage, as the wage the get paid if the
have no legal help in there negotations. And then your defining the
appropriate wage as the free market wage.

So you are basically stating that by definition the appropriate wage for
people to be paid is the wage they could negotiate if they have no laws to
help them negotitate.

Basically your conclusion is the axiom you start with.

~~~
gibsonf1
The free market wage is the amount that an employer is voluntarily willing to
pay, and an employee is voluntarily willing to be paid. To say that this is
"inappropriate" is to argue for the introduction of force into one or the
other side of this equation which would definitely be _inappropriate_.

~~~
jason13
I disagree, I have different set of axioms than you. My axioms are based on
morality and well-being. What are you axioms based on ?

~~~
gibsonf1
Mine are based on Morality (which are based on Philosophy), one key principle
of which is individual responsibility.

------
BrandonM
Everyone seems to be missing an important point of unions, which is to
increase the standard of the work environment. If you have never worked in
manufacturing you will not understand, but I spent three summers working in
steel mills, and even today the conditions are not very good. There is
constantly steel dust floating around in the air, sulfuric acid fumes, and
excessive heat. If conditions are like that now, _with_ unions, I cannot
imagine what things must have been like earlier in the century.

It may be easy to simply view laborers as commodities (in fact, pg compares
them to servers), but it's important to remember these are human beings with
lives to live. Before the era of unions, these people were treated as tools,
and unions forced companies to recognize that they need to actually give their
workers livable working conditions.

So I would like to submit that one reason for the decline of unions today is
that government regulates companies much more tightly. Organizations like OSHA
and the Workers' Compensation Fund ensure that workers have reasonable demands
placed upon them, and if they get hurt, they will still have enough money to
live on.

No web consultant ever had to worry about getting electrocuted by the machine
he or she uses, or about passing out from excessive heat and falling into
dangerous machinery. To compare the union movement of the early 1900s to the
boon of web developers in the 90s is absurd, in my opinion. The people who
were part of the union movement _were_ heroic, in a way, by forcing faceless
companies to recognize the health and humanity of their workers.

~~~
earthboundkid
Two questions:

1) Isn't it more efficient to mandate minimum safety standards through the
government/OSHA than through unions?

2) When you took the job, did you know about the conditions there? If so, why
did you take it? I can't speak for you, but I want to guess the money made up
for the suckiness, right? So, it seems like if people know what the conditions
are in a job before they sign up, isn't it up to the individual to decide
whether the money is enough to get them to put up with the sucky conditions?

Just curious.

~~~
BrandonM
1) Isn't it more efficient to mandate minimum safety standards through the
government/OSHA than through unions?

That's an interesting question. My initial inclination, however, is to answer
"no". The conditions and safety issues associated with different jobs vary so
greatly that it would be quite difficult for any general organization to
encompass and mandate all relevant standards. Unions can be much more
specific, even taking care of issues like, "Workers working in location X
should receive extra pay because it is 15 degrees warmer than the rest of the
plant." (That's a bad example, but I hope you get what I mean.)

2) When you took the job, did you know about the conditions there? If so, why
did you take it? I can't speak for you, but I want to guess the money made up
for the suckiness, right? So, it seems like if people know what the conditions
are in a job before they sign up, isn't it up to the individual to decide
whether the money is enough to get them to put up with the sucky conditions?

The 3 summers were actually 3 different jobs. The first one I took, I didn't
know much about the conditions. My uncle got me the job (he's a boss there),
and the experience turned out to be a very eye-opening one. This was actually
the one with the worst conditions: the company I worked for that summer was
hired to do the things that their client companies' (unionized) workers
wouldn't want to do. This meant that we were in places with high carbon
monoxide, extreme heat, excessive dirt (I crawled around in grease on several
occasions), and so on. This company was not unionized, and its workers
received abysmal pay... anywhere from $9.50-13.50 per hour, with only a couple
guys getting more than $11. On one occasion, I worked 11 straight 13-hour
shifts, and the full-time guys were frequently expected to work a month or so
at a time (8+ hrs/day) without a day off.

The reason the company could go on like this is because work in my area is at
a premium. I live in the steel manufacturing area of northeastern Ohio, and
since the early 90s, plants have been slowly laying off workers and closing
down. There are so many people without jobs that places like the one I worked
for can pay ridiculously low amounts for very dangerous work, and they are
bound to get someone to take the job. I guess if you've always lived in a
place with plenty of jobs, this situation is hard to envision, but sometimes
when you have a family to support, you'll take whatever work you can get.

The following 2 summers, I managed to get a job in one of the steel mills,
instead of the company I had worked for before. For me, the situation improved
dramatically, largely because it was a union job. The pay was better and the
demands were much more reasonable. There were still some jobs, however, that
if someone asked you to do them, your first reaction would surely be, "Are you
serious?" One of the summer workers' duties was basically to work these jobs
that the more tenured workers would never do on a regular basis. At least for
us, we could look at the end of the summer as the light at the end of the
tunnel. For the guys who worked there full-time, many had 30+ more years to
go. So I didn't complain too much regardless of what job I was given.

In all cases, I worked the jobs because they were the best money I could get
close to home. This does not mean that the money even comes close to making up
for the actual value of the worker or the peril of the job (although in the
case of the union job, the situation was markedly improved). This is where
unions become very important: to ensure that even in a poor job market,
workers get their due compensation for the work that they perform.

------
Prrometheus
Unions are labor cartels. Sellers of labor ban together to set price floors.
The force of special legal privilege alone has prevented unions from being
consigned to the scrap heap of history's unsuccessful cartels. This privilege
prevents the alternate sellers of goods that normally break up cartel
("scabs") from entering the market.

~~~
greendestiny
Well at least unions have become cartels. I don't see a problem with voluntary
bodies representing workers, advocating for them as a body and so forth. In
fact I think remove special protections for unions would make them more
accountable to their members, making them better at doing what they are
suppose to do; look after their members.

------
far33d
Certainly, PG's point here is very true with respect to the legacy airline
carriers: Most of the union contracts were negotiated during airline
regulation. Regulated prices guaranteed that the airlines could pass any
increases in labor costs on to the customers and still turn a profit - thus,
they had no incentive to negotiate with them. Then deregulation and suddenly
those contracts don't make much sense anymore.

However, it's very shortsighted to solely blame the unions. A contract is a
contract, and if an employer made a bad one, they are still bound to uphold
it.

------
davidw
Aaaagghh... we don't need to bring reddit to yc news. Note that PG didn't put
a yc news link on this article.

~~~
danielha
While Startup News sounds like it should be all about startups, I've come to
think that it should just be submissions that would be of interest or value to
this community. We've come to understand each others' likes pretty well, so as
long as something isn't blatantly off topic, it should have a chance here.

~~~
ecuzzillo
a) PG has said that they will determinedly keep the place focused, and

b) Reddit did exactly what you're saying, and now look where it is.

~~~
danielha
a) Look around some more. An article about CSS hacks might not be a "startup
article", but it may definitely be of interest to startup founders. This is
decidedly different from an article about, say, Spider-man 3's box office
success.

b) Excuse me? Nothing is off topic on Reddit.

~~~
davidw
Let's try a test:

\- Who here is creating or has created a web page for their startup? Did it
use some CSS?

\- Who here has dealt with unions for their startup?

PG's article is not even practical in its treatment of unions, something that
is a highly political topic. I guess politics is where I would really start to
draw a line... some economics is ok, but PG isn't an economist, and this
article, right or wrong, has little relevance for most of us here.

I'm not judging the article itself, but I hope in the future that that sort of
discussion can be left to reddit. I sympathise with the point that "it's a
tight community", but these things usually start to head downhill. I like to
talk politics and economics myself, and would certainly enjoy doing so more
here than on reddit, but if we all started posting articles about those sorts
of things, I could see it becoming a bit too prevalent...

------
muzzy
manufacturing laborers unionized because they were in great demand? so
shouldn't the tech bubble workers have unionized as well since they, too, were
in such great demand? union qua union, ithink, serves a purpose -- ie ensure
the well being of its members. and it was unions that provided workers with
leverage to negotiate higher salaries and more benefits - not because they wer
in such great demand. if workers already had leverage because they were
scarce, i don't see why this would lead them to forming unions. and contrary
to what PG implies, i think there were some extraordinary, heroic union
organizers.

------
especkman
I don't quite buy the analogy. Manufacturing was a profitable business
(particularly the auto industry) during the union heyday. The same can hardly
be said for most startups investing in infrastructure during the dot com
bubble.

~~~
pg
Actually there were a huge number of car companies, nearly all of which died.
It was very much like happened with Internet startups. In fact during the
Bubble Rupert Murdoch used the history of the car business as an example to
explain why he wasn't in a rush to invest in Internet companies.

~~~
especkman
I'm just not feeling it.

I think it is better to think of labor unions themselves as startups that
eventually consolidated. They gained control of a resource that was in demand
by a growing industry, manufacturing. They grew by competition and
consolidation (as did their most successful customers) They supplied that
resource at a price negotiated with their customers. Manufacturing prospered,
and so did it's suppliers, including the labor unions.

The labor unions failed to adapt to a changing market (as did many of their
customers), which is why they are on hard times.

That they failed to adapt says little or nothing about the considerable,
commitment and sacrifice it took to found them. I agree though, that the
presence or absence of those attributes in modern day union organization and
membership isn't the whole story about why they are throughly failing today.

~~~
byrneseyeview
"I think it is better to think of labor unions themselves as startups that
eventually consolidated."

They don't make something people want. They take something people want and
jack up the price to make them pay more for it. They're as much of a startup
as OPEC -- the only difference is that they're cartelizing labor instead of
oil.

~~~
jason13
"They don't make something people want."

So I guess YC.News has become a cult.

------
jeffrese
What an arrogant, ignorant jackass. PG doesn't know what the hell he is
talking about. He sounds stupid explaining unions the way he did. I guess
that's what happens when you surround yourself with sycophants and yes men.

------
adnam
-

~~~
byrneseyeview
"A union brings democratic practices to the work environment."

Do workplaces need democratic practices? I've never worked for a company that
threatened my life, liberty, or pursuit of happiness -- mostly, they tend to
secure the blessings of (financial) liberty to myself and my posterity by
paying me an amount that I find satisfactory. If they didn't, I could always
cry oppression, but it would be more mature for me to just find a better job.
And if I had a higher estimation of my worth as an employee than any employer,
I might consider my own estimate incorrect.

It's a fallacy to apply your political principles to anything outside of
politics. If you want to work for a business that runs itself like a country,
work for GM (and pray for your pension).

~~~
adnam
-

~~~
byrneseyeview
Democracy is probably useful for any institution with absolute power -- if
there's a group that has the right to imprison or kill me, I'd rather they
derive that right from the will of the people. But if all an institution can
do is give me money in exchange for work, or give me stuff I want in exchange
for money, democracy is an imposition that makes them less free. If a
transaction can only happen with the consent of person A and person B, why on
earth would you want Mob C to interpolate itself between them? The only
positive results from that would flow to members of C or to parties that have
coopted it.

------
jason13
Why do we need a "Theory" to justify being against Unions? If we want to be
selfish and keep all the money for the people at top of society. Let us just
be honest about it, and say we are selfish and will use the power we have to
satisfy our own greed.

~~~
earthboundkid
The whole point of capitalism is that people are basically going to be greedy
no matter what, but if you tell them, "Well, be as greedy as you like, but to
get money you have to convince other people to give it to you, and the best
way to do that is usually to make something they like," then things work out
ok. Of course, we still need regulation to ensure that the best way to make
money really is to make something people like, but outside of that there's no
reason to blame geed per se. Greed is the engine that drives the machine!

~~~
jason13
I certainly agree with the philosophy of trying to use greed as a
motivation/engine for good.

But I certainly do not think it is moral for unions to be weak.

