Saturday, January 29, 2005

Decline of Non-Governmental Unions

Over at EconoLog, Arnold Kling asks why unions have been so unsuccessful in moving from the manufacturing sector to the service sector of the private economy. Link.
I think that the answer might start with Gary Becker's distinction between specific human capital and generic human capital. Specific human capital is capital that is built up in a particular company, so that you cannot take it with you. Generic human capital is general knowledge, which is portable.(...)

In manufacturing, workers develop specific human capital. As someone who actually worked in a factory for a couple of summers, I can attest to this. You learn to operate the particular machinery in the plant, but that knowledge is of no value in a different plant.

In the service sector, skills are often transferable. You may have a license (to be a teacher, a nurse, or what have you) that makes you transferable. Or you may have a skill set (sales, general management, computer programming) that is transferable.

With specific human capital, there is mutual bargaining power. The company values your experience, but your opportunity cost is low, so they could try to keep your pay low and exploit you. So a union helps you out.

With generic human capital, you do not need bargaining muscle. If you are way underpaid, you simply take another job. So a union helps less.

The article does not get into the question of why unions have been so successful among local, state and federal government workers, but I think this same analysis fits. How many skills that a government civil-service employee picks up at work could possibly be transferable to the private sector.


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