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Who protects the worker?

By Luke Tan
web posted September 10, 2018

Who protects the worker? According to Milton Friedman, when labour unions protect their workers, they do so at the expense of other workers. He argues that free trade, and not labour unions, protect the worker, and everybody benefits. I agree with Friedman that free trade protects workers better.

How do labour unions supposedly protect their workers? They inform their workers of the value of their labour, helping them make informed decisions about what job to take. They also allow workers share information about where the best jobs are. In addition, if the union feels that the wages are too low, its members may go on a strike, choosing not to work until wages have been raised. What if employers can find other non unionized workers? The employer will not be forced to raise wages. Because not every worker is unionized, they can continue working, making the strike futile. In order to prevent that from happening, many unions use force to prevent other workers from working. When unions use force to prevent other workers from working, those workers lose out on what would have been beneficial work for them. The employer loses hardworking workers and has to raise salaries to meet the workers demands. From the traditional viewpoint, this is thought to reduce the profits that the employer was receiving and redistribute it among his workers. However, if the employer was being fair, the employer will have to increase prices to pay the workers more, or the employer will have to lay-off some workers. This hurts the economy as a whole since productivity is decreased.

However, if free trade is allowed, the competition between companies will force wages up. For example, if company A hires a worker beneath what he is giving the company, that company will be making a profit from its own worker. If company B sees this, it will be interested in getting that worker, since he is paid less than his value. Company B will then offer a higher salary to win over the worker. When company A sees this, it will be want to buy back the worker with an even higher salary. This will cause the wages to reach the point where the worker is getting paid for the value he adds. In addition, this provides an incentive for the worker to work faster and better, since he will get a better offer from another company.

This is an example of the demand and supply curves, where the equilibrium is when the worker is getting paid his value. When wages are below equilibrium, the demand for that labour is high, since it is cheap, while the supply is low, since few want to work for such low wages. This over demand for the worker will push up wages until the demand is equal the supply. In addition, when wages are at their equilibrium price, the maximum number of workers will be at work, increasing the total output, and reducing unemployment. This is the exact opposite of the result labour unions achieve through their campaigns, where not everyone is working, while those who are working are not doing their best.

As can be seen then, while labour unions have a purpose to educate the worker, it is the free trade that guarantees fair wages. While strikes sometimes result in higher wages, it is always at the expense of somebody else, such as the consumer or the other workers. However, when the free trade is left to do its job, workers get better pay and have an incentive to work even harder, and productivity is increased. Everybody benefits. Thus, I agree with Milton Friedman that free trade protects workers better. ESR

Luke Tan is a high school student studying AP Macroeconomics. © 2018 Luke Tan.

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