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 LewRockwell.com, 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?