Michael Cameron senior lecturer in the Department of Economics at the University of Waikato wrote an interesting piece on his excellent blog “Sex, Drugs and Economics.” The Los Angeles city council voted in May to raise the city’s minimum wage from $9 to $15 per hour. Initially trade unions fought hard for the increase in the minimum wage but they now want a change to the law that would exempt unionised firms from the new proposals – trade unions wanting lower wages? The Economist said:
Indeed, by exempting unionised businesses from the minimum wage, unions are creating more incentives for employers to favour unionised workers over the non-unionised sort. Such exemptions strengthen their power. This is useful because for all the effort unions throw at raising the minimum wage, laws for better pay have an awkward habit of undermining union clout. Britain’s minimum-wage law in 1998, for example, precipitated a decline in union membership. Once employers are obliged to pay the same minimum wage to both unionised and non-unionised labour, workers often see less reason to pay the dues to join a union.
In this case we have members of trade unions pushing up the wages of non-members but not their own wages. What are the benefits for the employer, union worker and non-union worker:
* Unionised employers will find that they labour costs will be lower than non-unionised employers
* Workers will be more likely to join the union if unionised employees are likely to be offered employment.
* Non-union employees receive the higher minimum wage.
As Michael Cameron said:
So, if there are so many winners, who loses from this proposal? While some non-union employees may be better off initially (from the higher minimum wage), available jobs for these employees are likely to reduce substantially. Why would employers employ a non-union employee for $15 per hour, when they can employ a union employee for much less? So, non-unionised workers are going to be made worse off.