Thursday, December 12, 2013

More on labor bargaining power

Last week I wrote about how a number highly reliable indicators are indicating the bargaining power of labor is increasing and that it will lead to tighter labor markets and wage inflation.

On Nov 26, The New York Times reported that NYU will once again recognize the graduate assistants' union. The voting was scheduled to take place this week, but a search of press releases shows no results yet as  to the outcome. Excerpt below, emphasis mine.
 Some 1,200 graduate assistants at N.Y.U. and the Polytechnic Institute of N.Y.U. in Brooklyn are scheduled to vote on Dec. 10 and 11 on whether to join the union...
An issue that had long prevented agreement between N.Y.U. and the union was whether graduate research assistants in the natural or physical sciences could be included in the union. The university argued that the research those assistants did was an essential part of their academic training, and should not be viewed as employment. In their statement, the union and N.Y.U. acknowledged that they had not resolved their differences over whether the 275 graduate research assistants in the so-called hard sciences had bargaining rights. They will therefore not be included in the union.
NYU's claim that the work (they called it "work") their research assistants do is part of their training, they are acknowledging it is, indeed, work. As with the recent unpaid intern cases, some will argue that this is not valuable enough to be compensated and the benefit of it mostly accrues to the employee/intern/assistant but, if their labor is truly of so little use, maybe they should be free to apply those resources elsewhere. Like in the intern cases, the labor slack as a result of the financial crisis created a large number of people who wanted work and were willing to sacrifice wages in the hopes that experience would be worth something and make it easier to find a paying job in the future. This shift right in the labor supply curve would have led to lower clearing price for labor, the evidence of which is everywhere. Whether this was unfairly exploited or not is up for the judges to decide, but what seems self-evident to me is that the trough in the bargaining power of labor is behind us and, as a result, the labor consumer surplus--in the neoclassical sense. remember, employers are consumers of labor--is about to be redistributed.

At the risk of oversimplifying, but in the interest of avoiding a black-hole, I will skip discussion of dead-weight losses, the welfare state and heterodox theories of economic surplus, and simply say this: If you believe any of the following:
  • welfare initiatives like the Earned Income Tax Credit subsidize low salaries leading to a higher quantity of labor supplied at a point below the incentive-free equilibrium
  • price elasticity of supply of labor flattens significantly on the left side (positive first derivative)
  • some people will agree to work for less to build a resume or gain experience
Then, the logical conclusion is that, as labor markets recover, the lions share of the benefits will accrue to the household and public sectors. Not only on the marginal increase of production (a change in quantity or labor demanded), but on the entire level of production (a shift in the demand curve).

The corporate rent-seekers masquerading as capitalists will argue the corporate sector will simply not hire or invest if faced with rapidly declining margins or increasing costs at the margin, but the truth is that almost 3 decades where productivity gains have disproportionally accrued to capital and record-high profit margins mean that the ability of capital to bring a credible bluff is just about non-existent. This trend is going to be with us for a long, long time.

UPDATE: The NYU vote was overwhelmingly for organization and both parties expect to have completed a contract by the end of the academic year.
UPDATE-2: "Machinists reject Boeing labor contract offer"


  1. Very nicely written! I especially appreciated how you mentioned the need for fair treatment of physics graduate students. Thank you also for the update on the students' decision to organize with a signed contract anticipated. Physics grad students don't receive enough attention, so I was glad to read your post.

    Best wishes to you in the new year of 2014! (I'm not expecting much, but that's what I have thought for awhile :o)

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