Last year, San Francisco municipal transit workers received an average $123,000 compensation package, but this year, when presented with a proposed 10.3 – 11.3 percent wage increase over the next two years, they declined and instead held a three-day sickout in an effort to get more.
Caving to the unionized employees’ demands, the city proposed a 14.25 percent wage increase over three years, which was ultimately accepted. This wage increase included a 4.75 percent annual cost of living increase over three years, ostensibly designed to help offset the notoriously high cost of living for the Bay Area.
Unfortunately for the residents of San Francisco and the surrounding Bay Area, government-mandated wage increases to combat the increase in cost of living will be as effective as attempting to put out a fire by dousing it in gasoline.
Along with San Francisco’s housing shortages, worsened by government intervention, the reason employees earning $123,000 a year are claiming they are unable to afford to live in the city that pays them lavish compensation packages is the same reason why increases in their wages won’t alleviate the problem. A sustained increase in the standard of living can only be achieved through an increase in productivity, and the corresponding increased purchasing power it brings.
Said differently, the reason people desire an increase in money wages is not for the money itself, but rather the amount of goods it can be exchanged for. The prospect of being a millionaire sounds great, but not if you had to live in Zimbabwe, where at the peak of its inflation, even a billion dollars was not enough to survive.
Absent the corresponding increase in productivity that normally drives wages higher, the method of increasing wages via fiat will only result in bidding up the prices of goods that have not become any more abundant, like real estate, or efficiently produced, like a cup of coffee, that will eventually negate the advantages the artificially inflated wages initially offer.
It is true that if only a subset of the population is gifted with this artificial increase in wages — Muni workers in this case — they will enjoy an increased standard of living. This increase, however, comes at the expense of non-Muni workers and is inherently unsustainable in the long run. As opposed to the movement of wages in a market, where increases in wages are the result of an increase in productivity and value creation for society, an increase in wages through the political method results in a zero-sum outcome — the greater the wage increase for Muni workers, the less taxpayers have for themselves. Additionally, the long-term effect of increasing taxation discourages capital investment and business creation and results in an amplified cost significantly greater than the dollar amount of the increased tax bill.
Unless changed by projects like TransparentCalifornia.com, this cycle will continue until finally the taxpayers supporting it all collapse under the weight of the burden foisted upon them. This highlights the inherent contradiction of the unions’ efforts — it is not only non-union members who pay the cost for their members’ higher money wages, in the long term even members of the unions suffer.
As George Reisman writes in Capitalism,
“In sum, far from being responsible for improvements in the standard of living of the average worker, labor unions operate in more or less total ignorance of what actually raises the average worker’s standard of living, and are responsive for artificial inequalities in wage rates, for unemployment, and for holding down the average worker’s standard of living.”
On an individual basis, the goal to increase one’s wages is entirely rational and usually helps the economy as a whole, because individuals usually attempt to increase their money wages by increasing their productivity. An individual may obtain the education or skills necessary to obtain a job that pays higher wages or seek a raise from his employer by demonstrating his added value for the company. In both cases, the higher money wages are merely a reflection of the true cause of the subsequent increased purchasing power the higher wages brings him – the increased productivity gained while attempting to achieve higher money wages.
Labor unions operate in total ignorance of the productive theory of wages as outlined above. The harm comes not from their ignorance, but from the power they have to force money wages higher, as a result of receiving salaries funded by taxpayers who have no choice in the matter. While those fortunate enough to be members of the unions will receive benefits in the short term, the resulting artificial imbalance in wage rates will result in inflation, unemployment, and ultimately, a decreased standard of living for all.
(Mod: Robert Fellner is a research fellow with the California Policy Center and a transparency researcher for TransparentCalifornia.com. For more visit http://californiapolicycenter.org)