Friday, August 22, 2008

US workers pay more from less unionization

Workers in the European Union are faring better than their American counterparts in the latest economic downturn due to higher unionization rates and job-security legislation, according to a feature in today's Wall Street Journal. Even non-union workers have benefited from union-negotiated laws linking wage-increases to inflation.

These types of measures predictably come under fire from economists who emphasize the dangers of a wage-price inflationary spiral, and naturally that would not be a good outcome. However, what we know at present is that millions of American workers are under significant economic stress in a way that their EU counterparts are not. Whether or not EU labor policies will lead to a wage-price spiral is an important question, but it is still a question, not a certainty. Given the impact that higher unemployment rates have on people's lives, one might hesitate to adopt a hawkish position on inflation in response to problems that are not yet obvious. (Albeit this is only a concern when the quality of "most people's lives" is assigned some value -- a dubious notion when we are talking about the breed of business economists who can praise "jobless recoveries," and so on.)

Dean Baker additionally points out the threat posed by US-style wage-stagnation to domestic consumption, and its potential role in hastening economic decline.

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