Thursday, September 3, 2009

How do mandatory employee rights affect unemployment?

In one of my first posts on this blog, I wrote about how the faculty at my alma mater voted to unionize. As a former undergraduate, graduate student, and adjunct professor at Montana State University, my first reaction was ... "huh?" Accordingly, I said:
I'm skeptical that professors at MSU (even adjuncts and non-tenured faculty) have much to gain from unionizing. [...] When I worked at MSU, I could not complain about the pay for two reasons: (1) I loved the work, and (2) the pay was actually pretty good. Honestly, having a university job in a town like Bozeman is living the good life. Pushing for better treatment seems horribly out of place at Montana State.

I went on to describe the findings of a paper by Cole and Ohanian on the macroeconomic implications of unions and cartels. Basically, union power leads to mandatory employee rights, which correspondingly tie the hands of firms to negotiate with employees about the conditions of their work. In other words, mandatory rules (government-issued or union-negotiated) raise the costs of hiring employees, and hence increase the frictions working in the labor market.

Last week, I came across another interestingly-put argument on this topic. In letter written to the president of the American Association of University Professors, Donald Boudreaux of George Mason University made some excellent points about mandatory employee rights: They might not be the best thing for the employees. In his letter, he disputes the notion that eliminating "at-whim employment" is a noble task:

If you make the dismissal of adjunct professors more difficult, you’ll thereby raise colleges’ costs of hiring adjuncts. As a result, fewer adjuncts will be hired. So it’s doubtful that your efforts will help the very persons whose well-being you claim to champion.

What is clear, though, is that success at increasing the cost of hiring adjunct professors will benefit those of us who work as full-time faculty. Because adjuncts compete with full-time faculty, making adjuncts more costly to hire will raise the demand for, and hence raise the salaries of, full-time faculty. It will also prompt colleges to hire greater numbers of full-time faculty. Each of these consequences benefits us full-timers, both by fattening our wallets and by improving our access to full-time scholars in our fields.

Now, try a thought experiment: Apply this mandatory rule everywhere, to every profession. The natural consequence is that employers will screen potential employees much more reluctantly. Just for the sake of hiring someone that they cannot fire, employers are going to take more convincing to hire qualified applications.

To the extent that being convinced (and convincing reluctant employers) is costly, some potential employees will give up and some employers will stop looking for workers. That's means more unemployment, or at least lower employment.

Lastly, I'll leave you with a link to a video investigation by John Stossel. He makes the same points as above, but with reference to the special legal protections for women in the labor force (specifically, for maternity leave). One unintended consequence, it turns out, is unwillingness of firms to hire women.


This was the fifth post in unemployment week on This Young Economist. Tomorrow, I close out unemployment week by discussing the unfortunate relationship between unemployment and health care. See you then.

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