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Living in the Long Run

September 7, 2010

Here’s a little argument a little belated for Labor Day.

One of the classic Republican-Democratic schisms (that has reversed more than once in the past) is whether to support labor unions or the employers trying to break them up.  If either side of the equation gains too much leverage over the other (e.g., if the supply sides of markets tend toward either a monopoly on labor or a monopsony on jobs), the end-consumer always suffers from restricted supply and increased prices.  In the mid-twentieth century, when one dollar of American labor resulted in so much productivity relative to everywhere else in the world, labor unions held enough sway over employers to take some of the (consumer) surplus out of the equation.  In the globalizing world, with ready access to substitutes in labor markets thanks to cheap transportation, employers have gained the upper-hand.  Of course, if employers are checked by competition within their product markets, then the savings get passed along to the consumer because cheaper wages can be used to lower prices (see, e.g., Walmart before it swallows up all competition and then jacks up prices).  Now consumers may be exerting some force on behalf of the labor market by preferring products grown locally or with other ethical constraints built into the product (e.g., farmers’ markets, fair trade coffee, etc.).

Whether you accept the truism that there are no reasonable bets against globalization or think that markets are subject to a perennial tug-of-war that has a chance to play out differently on any given day of the week (the long run is just a series of short runs, right?), there are still the second-order effects and externalities brought on by poverty in a society that aren’t solved by blithe non-concern for structural changes and what is perceived to be only temporary wage reductions.  The structural stickiness (i.e., the longer a worker is unemployed the less employable they become), the political backlash (e.g., tea partiers and the enthusiasm gap), the xenophobia and anti-elitism (do I really need a cite?), and generally inadequate opportunities being passed along to children (e.g., the Prince Charles Problem).  Aren’t these forms of deadweight loss that may simply exist in another dimension or on another graph?

Am I missing something?

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