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Theoretical Approaches to Industrial Relations

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The analogy with monopoly producers is misleading. As intermediary organizations, unions do not sell labor services nor do they pursue profit maximizing objectives, yet such details are ignored in neo-classical theory. What matters we are told, is that unions interfere with the free play of market forces with necessarily damaging consequences for their members and the social welfare of the community at large. Attempts by unions to lift their members' wages above prevailing competitive rates will prompt employers to substitute alternative inputs (e. g. physical capital) for relatively expensive unionized labor and cut output in order to balance costs with anticipated revenues.

Initially confined to unionized establishments, these price and scale effects will be amplified throughout the economy as displaced unionized workers are gradually re-employed at lower wages in relatively labor-intensive, low productivity jobs in non-unionized firms. In aggregate the economy will tend to exhibit significant structural imbalances with too much (physical) capital absorbed by the unionized sector and too much labor power employed within non-union firms. The role and impact of unions in production are less clearly specified, but since Rees's seminal study (Rees 1963) their activities are none the less thought to be damaging to productivity.

Starting from a theoretical position which treats production as a technical relationship between inputs and outputs, economists judge attempts by unions to influence the level of work effort and choice of technique as an unwarranted interference with firms' optimizing decisions in the face of given technological and price constraints. Interruptions to production through strikes and other 'hostile' practices (e. g. work to rules and overtime bans) are cited as further evidence of unions' adverse effects.

Finally, it is claimed that unions may inflict additional damage by attempting on behalf of their members to influence the character and scope of government economic policy.

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