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The Union Solution to Market Failure

David Callahan

If you don't like unions, pray for tight labor markets. Because when labor is scarce, the law of supply and demand raises wages and workers don't have big incentives to unionize. It's when market's aren't tight that unions become a must-have for workers seeking more pay. 

That insight explains a lot about the growing wave of fast-food strikes over the past year. The biggest strike yet is scheduled for this Thursday, August 29. These strikes are rapidly becoming the most significant labor activism in years, if not decades. 

And the weak labor market is a big driver of what is going on. Today's high jobless rate gives employers all the bargaining power, leaving wages flat. So even though profits are high at places like McDonald's, there is no imperative for the company to share those profits.

A very similar situation prevailed a century ago, when the modern labor movement was fast gathering steam. Massive immigration and recurrent crashes, along with new mechanization technologies, created an abundance of labor for years on end from the late 1800s through the early 1900s. Then, too, capital held all the cards. 

This is an interesting example of market failure. Because, technically, the market is not actually failing: Supply and demand is simply working in capital's favor.

Rather, what we have is another instance of how a well-functioning market can fail abysmally when it comes to providing for overall human welfare. 

There are two obvious soutions to this kind of market failure: One, the state can intervene to regulate the labor market and also redistribute wealth or, two, workers can use their collective bargaining power to win higher wages. 

A century ago, our political system was so controlled by private power that a statist response was a huge lift. That's less true today, judging by things like the big expansion of the EITC over the past two decades and a raft of recent state laws raising the minimum wage, but otherwise it's largely true that government has been siding with the wealthy lately. 

So if you want to know why low-wage workers are suddenly going on strike all the time, the answer is simple: Because neither the hidden hand of the market nor democratic government is doing enough to save them from the virtual slavery of low-wage work. They have to save themselves.