The Law of Supply and Demand in the Labor Market

The interaction of supply and demand in determining the price of a goods and services and even labor works very effectively when the markets are truly free.  That is not to say the one will necessarily be happy with the result that the law of supply and demand produces and this is especially true in the labor market. Competition in free markets has the tendency to keep prices down for goods and services and prices high for labor.

This last point is very evident in third world countries where the supply of labor is so much greater than the demand. The principle works exactly the same way in first world countries, also. I could give you many examples from my own experience; but, let me share just one.

Many years ago I was a general manager of a small mining company in New Mexico. My chief accountant was a very capable woman. She asked to see one day about six months after her promotion to chief accountant. She explained to me that she liked her job very much but in her new position she was now aware of the salaries of all of our personnel. She said she was amazed and not  a little bit upset to find that the maintenance foreman, who had not graduated from highschool had a higher salary than she, a professional accountant, had. Although I used much more tact in my response, the gist of what I said was that in the cold hard reality of the world, if she were to quit her job, I could easily replace her with someone just as qualified within a week. But, if the maintenance foreman were to quit, I would have a much more difficult time finding someone who could adequately replace him. That is how supply and demand works in the labor market. It doesn’t seem fair, does it?

Many of you are old enough to recall when jobs as teachers, government bureaucrats and public employees like garbage collectors, firemen and policemen were less desirable than jobs in the private sector. Today all of that has changed because we no longer have free markets in the public employee sector due government produced laws, regulations and policies and, of course unions. Government and unions have distorted the private labor market, as well, but not to the extent that they have in the public sector.

We all know the stories of the Robber Barons and how they abused their workers. Labor laws and unions are credited for putting a n end to the Robber Barons.

In my career I managed companies both unionized and non-union. And I will be the first to admit that the wage and benefit structures of the non-union operations were indeed influenced by what was occurring in unionized companies. In other words, our wage and benefit packages were better than they would have been if there had not been for unionized competition in they area where we were working. But, today let’s focus on the public employee sector.

In the public sector today, the role of the Robber Baron has changed hands. yesterday, the blog The Empress is Naked posted a marvellously written piece on this subject, which I highly recommend.  This quote sums up the situation we have today very well:

Crooked politicians gave the collectivists a monopoly on supplying labor to taxpayers.  Since there is no alternative source competing to supply the public, they can command exorbitant prices for inferior goods and services.  Taxpayers have no recourse because the people responsible for protecting their interests depend upon money for re-election from the people who are robbing them.

From this article at, we find a similar comment:

Government-employee unions are primarily interested in maximizing the profits of the union. Consequently, they use civil-service regulations as a tool to protect the job of every last government bureaucrat, no matter how incompetent or irresponsible he or she is. Fewer employed bureaucrats means fewer union dues are being paid. Thus, it is almost guaranteed that government-employee unions will challenge in court the attempted dismissal of all bureaucrats save the occasional ones who are accused of actual criminal behavior. This means that firing an incompetent government school teacher, for example, can take months, or years, of legal wrangling.

One of my heroes, Walter Williams, had this to say back in March of this year:

Given the relationship between politicians and public employee unions, we should not be surprised that public employee wages and benefits often average 45 percent higher than their counterparts in the private sector. Often they receive pension and health care benefits making little or no contribution.

How is it that public employee unions have such a leg up on their private-sector brethren? The answer is not rocket science. Employers in the private sector have a bottom line. If they overcompensate their employees, company profits will sink. The company might even face bankruptcy.

Now, on the other side of this argument, this source quotes two labor economist, Keith Bender and John Heywood of the University of Wisconsin _ Milwaukee:

  • Employees in state and local sectors are twice as likely as their private  sector counterparts to have a college or advanced degree.
  • Wages and salaries of state and local employees are lower than those for  private sector workers with comparable earnings determinants (e.g., education).  State employees typically earn 11 percent less; local workers earn 12 percent  less.
  • Over the last 20 years, the earnings for state and local employees have  generally declined relative to comparable private sector employees.

Economist? Really? What about the law of supply and demand? My chief accountant,  from  years ago, would have loved these guys.

Folks, we have a very serious problem here in America. And it’s not just the distortion of the principles of supply and demand and the attendant cost burden on the taxpayers, tha author od Empress is Naked blog got it exactly right, in my opinion. The public employee unions are the new Robber Barons and these Robber Barons are not averse to using intimidation and even violence to protect their privileged positions.

The world was witness to the despicable behavior of the unions and Democrat politicians this year in Wisconsin, Indiana and New Jersey. We have recently witnessed the veiled calls to violence from Union leaders like Trumka and Hoffa.  Most recently we learned of the violence perpetrated by the Longshoremen’s union in the state of Washington.

This is very worrisome, of course. But what worries me more is that our President and other leaders of the Democrat Party are provoking this type of behavior with their class warfare rhetoric. And, in my opinion,  it is intentional. Did you hear Obama in his address to the joint session of Congress yesterday say more than once: “This is not class warfare.” Now, why did he say that? I believe he said it because he knows very well that his words were an example of class warfare rhetoric.

I  don’t think it is enough that we in the blogosphere take the President and the Democrats to task for their uncivil discourses. I think it’s time our Republican leaders took some initiative and call some news conference and demand more civility from our President and from the Democrats. Our leaders need to make this a headline issue. The liberals would do it if the situation was reverse.

Well, that’s what I’m thinking. What are your thoughts?


















22 thoughts on “The Law of Supply and Demand in the Labor Market

  1. Public service unions are a blight. They exist only to provide funding & votes to the Democratic Party. In the immortal words of Junior Hoffa, it’s “time to take the sons of b**ches out.”

  2. Yes! And your argument is a good one for why the federal government should be constricted to only the enumerated powers. People of all stripes and interests clamor to use the power of the state to serve their narrow interests.

  3. It is a good example of what can happen when no one is paying attention. For years agreeing to union contracts with big bucks and benefits were nothing more than a source of funding for the next election. Payback. Looks like we are starting to get the drift. I ony hope it is not too late.

  4. Unions are another tool in the collectivist toolbox to control more of our society.

    Here is a snippet from Ron Paul’s recent column telling me something else I didn’t know about Rick Perry, he supports public unions. Just when I thought I had done a thorough investigation!

    “Gov. Rick Perry signed a bill forcing Texas police and firefighters under union boss control, paving the way for all of Texas’ state and local government employees to be put under organized labor’s thumb.”

    And guess who the Houston Police and Firefighter Union endorsed for president almost a year ago? Rick Perry who said he had pledged not to run.
    Gee, maybe that’s why he slashed the volunteer firefighter budget as volunteers don’t pay union dues. I’ve not got time to do a thorough accounting, but consider this a case study in public unions and politics and poor volunteer firemen.

    1. Just one more lying- bought and paid for slime ball.

      I always make one distinction though. That is between public and private unions. Private workers, in a free country, should have the right to form unions. I believe that without the right to unionize the have would have thoroughly exploited the have nots- and history shows us that they did. That is why they exist.

      Public unions were illegal and still should be.

  5. It used to be one wanted to get a job in the private sector as opposed to the public sector. Now it’s reversed. The public sector is bloated and an entitlement mentality exists there. After all, the government is never going to go out of business so they pretty much have jobs for life.

  6. The fact that Obama felt the need to tell us he isn’t involved in class warfare is all the proof needed that he is indeed involved in class warfare and I agree with you that it is about time for the Republican leadership to step up and challenge Obama on this! What are they afraid of?

  7. Pretty easy to cut nice deals with someone else’s money. The only way to perpetuate the public sector monstrosity is to pull more and more money from the private sector. The whole scheme is doomed to failure.

  8. Great post, Jim. I think our government has given the law of supply and demand an entirely new and different meaning. They have manipulated the economy and the environment in our country to artificially create a demand, ie. fairness and equality, which we all know doesn’t really work in the real world. They are not satisfied to give everyone a fair chance and let the results sort themselves out. Instead, they want to manipulate the results and as I said, that never works in the real world.

    1. It is amazing, Larry, that centralized planning has failed and is failing wherever it has been tried,; yet, I would guess that on a world wide basis, 99% of the people continue to believe in statism. The greatest concentration of people who believe in the free market approach, is here in the United States and we are becoming or already are a minority. It is not hyperbola to say that we are the last hope for America and for the world. The coming elections will determine which path will be followed.

  9. I wrote a lot about public sector unions during the Wisconsin embarrassment, and even before. Even FDR warned against unionizing government workers. You can’t have elected officials who need campaign contributions negotiating the contracts with unionized public employees utilizing their union dues to help elect the person negotiating with them. Who represents the tax payer in that fraudulent negotiation?

    Did you notice that in Obama’s jobs speech (snicker… gaffaw) the people who benefited directly from government expenditures are unions, both public and private?

    Do you know why Democrats love raising the minimum wage, even though it has clearly been demonstrated that it causes more unemployment, particularly among the young and minorities? Government contracts with unions often use some multiplier of minimum wage as a baseline for worker pay on the job. Every 50 cent raise to the minimum wage is a buck, or a buck and a half or more, raise to a union worker on a government contract.

    It’s a slimy thing. There was a time when unions were needed, and they provided a good service. Now it is pure corruption.

  10. Yes, I absolutely agree that our representatives in Congress in both Chambers must start protesting – loudly, and not once but everyday until the shameful rhetoric is stopped – until the shameful are publicly shamed. I am sick of Congressmen and Senators holding themselves above the fray, that is destroying this country. I want to hear them, and I want to hear them every day for however long it takes. Some of them are at a mic everyday, somewhere in America. They have the opportunity and the power to take on this battle.

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