Optimum Market Wage

If a person, A, is willing to do a job, J, for price $P, and a business, B, is willing to pay that rate, and both the person and the business enter into such an agreement that A is doing J for B and receiving $P in return, then $P is the optimum market wage. There is no market outside of a transaction. Any sort of statistics merely describes the distribution of the states of the markets it samples, and must not be used as an indication for an outside force to determine what is "fair" or "unfair". These things are for all of the As and Bs to decide on their own, in such transactions.

Opening at a theater near you, Attack Of The Free Market Fetishists. How many free market fetishists does it take to change a light bulb? If the light bulb needed changing, the market would have already done so.

This, of course, is independent of any power relationship existing between the two parties. It also ignores the effects of choice availability, in other words if person B may be willing to do J for $P-n and person C would J for $P+n however it might be in B's interest to hire C depending on variables like QualityAndTimeToMarket?...

There is a lot lost in the generic description above. What is meant by "job"? What time frames are involved? What sort of "agreement" is entered into? Most of us have a position at a company. As long as the company feels it has enough jobs to warrant the position, one stays hired. After that, the agreement is usually the curiously named "RightToWork" which permits a company to fire a person without cause.

Well, you have the right to leave your job without cause, don't you? So isn't that only fair? Your employer is free to replace you with an Indian for half the cost, but you're free to switch companies for that shinier, better job. -- MikeSmith

No, it is not fair. Neither the company nor the individual can plan for the future. The company, however, has much less to risk. If I leave my job, the company will lose 1/2000 th of its workforce, but if the company fires me, then I lose 100% of my salary (actually more than 100% if I pick up COBRA and pay for health care). There is not a balance of power between the company and the individual, so the situation is not fair.

The situation is absolutely fair, and you can't make it any fairer than that other than by freely agreed contracts. You have the right to ask for a severance package or you have the right to ask for higher salary, some part of which you can set aside so that it will cover your period of unemployment before the next job. The company is then free to choose whether it meets your request or not. You are also free to find another company, or to make your own company.
It is highly unlikely to happen and it is irrational to think that a "company" would fire somebody "without cause". It's not going to be "the company", it's gonna be "some manager" or "some managers", which ultimately boils down to human beings not an impersonal "company", and the cause for which somebody gets fired, whether you like it or not, can be as simple as "to cut losses" or "to maximize profit". There may be other things in life that happens without a cause, but hiring and firing are not typically among them.

"Without cause" in this context surely refers to a cause relating to the individual. It's an important difference - the discussion here involves an AmericanCulturalAssumption. In the UK (and most of the rest of Europe) you cannot fire an employee without cause (causes can include redundancy for cost cutting reasons, but there are regulations controlling how that needs to be approached). In the US, as I understand it, a company can just tell you one morning you're dismissed. "Freely agreed contracts" are a bit of a red herring. The power relationship is such that the actual power to decide the clauses is heavily weighted to the company. Hence the reason for unions.

That's why people make unions. But you're right, it isn't fair. There is more demand for employment than supply on average.

This is an skewed picture. The balance of power is shifted towards the company only recently. Back in the boom years (97-2000), companies were at a clear disadvantage, to the point where salaries paid were "grossly unfair" (if we are to judge by your criteria of fairness, at least compaired to the rest of the society who was scammed of some billions in order to support the lavish life style of software engineers). The same people who complain now about the unfair market advantage didn't consider it at all at the time when they had the advantage. It is as fair as you're going to get: what comes around goes around.

(That's 4 years out of my 20 year career when that's been so. That's not "as fair as you're going to get", that's a once in a lifetime bubble)

I'm not talking about software development jobs. I'm talking about all jobs, and I said "on average". Some fields are different, and those are the ones where unions never stick.

Unions have their own problem with their bureaucracy and corruption. They are very popular in Europe but less so in US. In the field of software engineering they are almost non-existing, which shows that people do not put much value on this idea. If it was such a briliant idea and beneficial to their memebers we'd have had unions by now in the field of software engineering. But we don't.

"less so in US". That depends. I was amazed how unionized exhibition administration was in the US - much worse than I've ever encountered in Europe. We were setting up a stand at an exhbition, and had to take take two people for a minunum time at a (exhorbitant) fixed rate from the union, even if we had nothing for them to do. If we couldn't carry something by hand, a union guy had to do it. We could afford it - but for smaller organizations it would have been a signficant spending.

In 1999, about 14% of the workforce was unionized in the US (see http://www.reapinc.org/U.S.%20Workforce). It's about 31% for the UK (http://www.ipma-hr.org/index.cfm?id=2904&navid=118&tcode=nws3), and I expect rather more for most other European countries

We don't have software development unions because we don't need them. The supply and demand for employment are too close to equilibrium to support the overhead.

I suspect this is changing. It will be interesting to see if unionization increases as a result. In the UK, there are certainly unions for (but not exclusively for) software developers. Personally, I have a problem with the collective bargaining/standardized salaries position of the main one (MSF).

I doubt it will change in the US any time soon. When it's cheap and easy to move work off-shore there isn't much a union can do. Perhaps once the cost of Asian and US labor get closer, but that's a long way off.

Unions can and do negotiate employment agreements with individual companies that protect workers. The unions can and do also lobby the US Federal Government concerning federal policy regarding tarifs, imports, worker visas, etc., which tends to reduce the desirability to off-shore.

Unions kept US auto manufacturers from off-shoring production? When did that happen?

Odd thing is that while the US auto manufacturers were off-shoring production, the non-US manufacturers were also off-shoring production, to the US.

If you understand how they came about, RightToWork laws aren't that curiously named... maybe you're confusing them with AtWillEmployment? laws?

CategoryEconomics