Originally posted by JS357
The chief economic argument against RTW is the free rider problem.
Statistically,US states with RTW laws show lower average wages, less medical insurance coverage and pension payouts that non-RTW states. Whether this is causally related, I don't know, but it is a fact that RTW organizations are strongly ba s overall. Small businesses could be exempted if the administrative work was onerous.
Unions are associated with higher wages because they exist to raise the wages of their members and lobby with the corporation for more benefits. This increases the variable costs associated with production, and actually leads to an economic argument against Labor Unions when it comes to periods of unemployment.
Labor Unions have made Keynes' concept of sticky wages a reality. The rationale behind keeping wages high in periods of high unemployment, according to Keynes, is as follows: when the inevitable shrink in production that accompanies a depression or recession hits, by keeping nominal wages high, real wages are increased, because the purchasing power of worker's paychecks increases as the levels of production decrease. Prices begin to drop as supply of the goods drops due to the decrease in demand. With real wages increased, workers will be able to consume to a greater extent than if wages were allowed to drop, as was previously the method of choice, and thus the recovery would be quicker.
The problem with this is that Keynes did not believe that inflation and high unemployment could occur simultaneously. In fact, he believed that an increase in money supply would not affect prices at all until the economy reached full employment, and that an increase in the money supply would have a stimulative effect on the economy until full employment was reached. After reaching full employment, only then would prices begin to rise if the money supply was increased.
The problem with this is that as shown by Stagflation in the 1970s, inflation and high unemployment actually can occur at the same time, and as such, the effect of inflation on wages can be seen as follows: as wages stay the same, inflation drives up prices, decreasing the real wages for the workers, and lowering variable production costs for producers. This necessitates a rise in wages in order to restore the balance. As countries consistently have a small amount of inflation all the time, and consider it to be a good thing, you inevitably will have a rise in wage rates in response to the ever rising prices. Thus, real wages fall in spite of sticky wages.
The fact that unions are associated with higher wages is partially explained by this, but also by the fact they have a monopoly over labor. A monopolistic firm chooses it's supply point based on where MR and MC intersect, and because the MR curve is below the demand curve, this will always result in a higher price and a lower quantity of the good. In this case, the monopoly of Labor Unions over labor is associated with higher wage rates and lower rates of employment.
This is my economic argument against Labor Unions. The free rider problem is also associated with Unions, and RTW counteracts this problem. It forces employees to stay competitive to keep their salaries and jobs.