Despite a friendly Congress and a pending labor bill, unions are under fire these days in Detroit and elsewhere — perhaps with good reason. A working paper by David Lee and Alexandre Mas finds that a successful unionization vote significantly decreases the market value of the company even absent changes in organizational performance. Lee and Mas run a policy simulation and conclude that, “ … a policy-induced doubling of unionization would lead to a 4.3 percent decrease in the equity value of all firms at risk of unionization.” [%comments]
Does WalMart Have the Right Idea?
TAGS: union
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“even absent changes in organizational performance…”
So unions come in, there is no change in performance, but share prices go down. I’m sorry, why are unions under fire? Why aren’t the stupid, reactionary stock markets under fire?
Why do the owners of capital have a greater claim to the wealth than the owners of labor?
Because they take all the risk. Without the capital owners, the labor owners would not have a place to apply thier skills. If the business fails does the laborer loses his ability? no. Does the capital owner lose his capital? yes.
Its simply risk and reward… The capital owner has a higher risk of loss and therefore gets a higher return on his investment.
Unions have their place as do laws that specify minimum wage, labor practices etc… I think all of the above will generally go too far though. I think unions have done good things for the country and the world. I think they have outlived or outreached their usefulness. It would be great to see them go away completely at this point.
Re: Kevin MN #2
You do get that its not just so that “Wal-Mart can make more money…”, right?
I haven’t looked for a list of the significant share-holders of Walmart, but I’m willing to hazard a guess that a sizeable portion of their ownership is institutional investors (pension funds, mutual funds, etc.)
Feel free to go through your 401k or pension system’s investments and you’ll very likely find that a significant portion of your personal wealth is tied up in those big, bad multi-national corporations that are just out to take advantage of the poor, down-trodden worker . Or, if not, you are most certainly invested in companies who do depend on Wal-Mart or other big, bad corporations for their profits. Or perhaps you’re not invested in squat.
Welcome to the global economy. I for one think its a great idea that Chrysler just became an employee owned company.
Before you go off at me, both my father and grandfather were Teamsters. Both made sure I never even considered going that route.
“ … a policy-induced doubling of unionization would lead to a 4.3 percent decrease in the equity value of all firms at risk of unionization.”
So, Union shops would come out ahead, since they have no further risk of unionization, ya?
What #1 said.
I won’t argue that these numbers are correct; in fact, everything in my (slightly educated but far from expert) gut tells me they make total sense. But fortunately, numbers like that aren’t the only characteristic to define a company’s “value.”
In other words, no, WalMart,. while far from the devil many would have you believe, is not right on this idea, no matter what the numbers say.
Are these results a surprise? Unions inflate wages and decrease productivity.
YES, I agree that employees need to be treated properly, but outside of this current recession, the supply/demand curve should ensure that this happens. There are too many intangible forces in play that prevent employers from treating employees unfairly.
Kevin,
“Why do the owners of capital have a greater claim to the wealth than the owners of labor?”
Because the labor can be replaced and the capital cannot. Labor can put up the capital if it likes (employee owned)…but then it would likely want to rid itself of itself.
“Minimum wage laws, OSHA, consumer safety laws, and environmental regulations all decrease the equity value of companies that have to abide by these laws, should all of these laws be scrapped so Wal-Mart can make more money?”
This statement, taken in whole, is false, and I won’t bother to touch on the slavery thing as that’s simply comedy.
I’ve worked within a union and without, and I’ve managed union employees and non-union. The reason for the loss of market value goes beyond any simple increase in obvious costs such as wage. There is a huge and mostly hidden cost to dragging around anchors that tend to be difficult to cut loose in a union shop. It’s a much more complicated picture.
Best of all, well managed companies don’t need unions, and the people don’t want them, so I see great value in unions as “medicine” for a sick patient (poorly managed companies)…..but dangerous medicine, since it’s also detrimental to the patient.
Qingl – you have nothing to fear – the world is full of poor managers that will provide an environment for unions to flourish within.