January 4, 1999
Dear Friends and Colleagues,
For about 5 months now I
have been intermittently contemplating how to succinctly present some dry
economic findings which are important for development (poverty alleviation),
Labor Union behavior and Donor lending. The findings are presented in an
article in the Summer, 1998 JEP by James Peoples entitled, "Deregulation
and the Labor Market" (pp. 111-130). Peoples has distilled and supplemented
some good micro studies of the Trucking, Airline and Telecommunications
industries. Some of Peoples' findings are that increased competition in
output and factor markets, due to deregulation in the US, enhanced
real employment earnings thus directly reducing poverty. It's partly an
elasticity thing; stagnation or declines in real wages due to greater factor
market competition are more than offset by greater employment so that real
labor compensation rises. Unemployment is reduced because of (i) greater
industry sales and (ii) competition in factor markets which removes wage
premiums for Labor Union workers, thus stimulating investment and employment.
Many of Peoples' findings relevant to this EM are set out in his Table
1 (p. 113), which I have reproduced on my web page (http://www.erols.com/rmyers1/).
That table presents developments for selected years for the Trucking, Airline
and Telecom. industries (TAT) as compared to All Other Industries (AOI).
(Note: Peoples also considers Railways, but I don't believe that deregulation
increased competition in either the output or factor markets in RRs.) His
data are for union membership (%UM), workforce size (really industry employment-IE))
and real average industry weekly earnings. By multiplying the latter two,
one can calculate real industry weekly wage bills (IWWB, 83/84$).
The findings of most relevance
to this note are that deregulation (greater competition) bashes Labor Unions
(%UM and average real weekly wages generally fall) but society benefits
because both industry employment(IE) and industry weekly wage bills (IWWB,83/84$)
rise thus, reducing poverty. Industry employment and real wage bills in
TAT rose faster (by 2.1% and 1.4% p.a. respectively for 1978-96) than in
AOI where the equivalent figures are 1.6% and 1.0% per year (for 1978-96,
the period of deregulation). James Peoples' article makes it quite plain
that workers and the poor gain from increased competition in output and
factor markets, assuming we are starting from non-competitive, less-than-full-employment
situations. The article doesn't speculate on the route by which this occurs,
but other literature indicates that increased competition in the domestic
economy leads to greater output sales and more labor income due to increased
employment, enhanced human capital formation and higher labor productivity.
Peoples' findings suggest
the following.
1) Labor Unions will become
less relevant with greater competition in factor markets unless they change.
They should probably stop trying to raise union wages above "market" ones
and instead become "employment agencies," helping their members acquire
and update the human capital needed to remain employable (competitive)
in their industries.
2) Increased factor market
competition can reduce poverty by expanding employment and labor compensation
("you can't treat poverty until after you've achieved full employment").
Peoples' deregulation study indicates the potential benefits of liberalizing
factor markets. (He and I might disagree on RRs, where deregulation was
accompanied by significant declines in employment and wage bills). This
raises questions regarding how to increase factor market competition where
formal regulations are not considered binding.
3) Increasing factor market
competition in ways that are beneficial to the poor is INCOMPATIBLE with
the Donor practice of lending billions of dollars of grant-like money to
governments. One reason for this is that excessive lending (government
borrowing) enhances intervention while deregulation should reduce it. Another
is that so much lending leaks into (really inundates) private capital markets,
cheapening capital which replaces labor, in the absence of competitive
domestic markets (this is akin to the RR example in the US). Another is
that the Donor "push money" process breeds cartels which thwart the onset
of competition. A fourth is that excessive lending kills investment and
work incentives. I could go on but won't.
Warm Regards, Bob Myers
James Peoples, JEP, Summer, 1998, Page 113.
Table I
Unionization, Employment and Labor Earnings Patterns in Transportation
and
Telecommunications Industries
Industry
1973
1978
1983
1988 1991
1996
Trucking
1.Union Membership
Rate 49%
46%
38%
25% 25%
23%
2.Work Force Size
(X 1,000) 997
1,111
1,117
1,544 1,617
1,907
3.Weekly Earnings
(1983/84 dollars) $499
$491
$404
$386 $405
$353
Railroad
4.Union Membership
Rate 83%
79%
83%
81% 78%
74%
5.Work Force Size
(X 1,000) 587
580
428
363 286
282
6.Weekly Earnings
(1983/84 dollars) $475
$491
$507
$490 $494
$470
Airlines
7.Union Membership
Rate 46%
45%
43%
42% 37%
36%
8.Work Force Size
(x 1,000) 368
465
464
683 696
800
9.Weekly Earnings
( 1983/84 dollars)
$499
$498
$455
$420 $443
$435
Telecommunications
10.Union Membership
Rate 59%
55%
55%
44% 42%
29%
11.Work Force Size
(x 1,000) 949
1,075
1,060
1,114 1,107
1,126
12.Weekly Earnings
(1983/84 dollars)
$399
$442
$457
$447 $458
$488
All Other Industry
13.Union Membership
Rate 23%
22%
19%
16% 15%
14%
14.Work Force Size
(X 1,000) 72,619
81,737 85,220
97,704 99,080 107,844
15.Weekly Earnings
(1983/84 dollars)
$399
$363
$301
$310 $322
$334
Source.- Information on union membership rates and industry work force
sizes were provided by Barry Hirsch and David MacPherson. Information on
labor earnings for the 1973-1991 sample period are taken from Current Population
Survey Files and the 1996 earnings are taken from Hirsch and MacPherson's
Union Membership and Earnings Data Book (1997a). The sample years from
1978 to 1996 cover the post-deregulation period for trucking, railroads
and airlines. The years 1983-1996 cover the post-divestiture period for
telecommunications.