In the last few weeks, I’ve had numerous discussions involving economic theory ranging from the complex to the mundane. After having six slight variations of every single conversation, I thought I would start documenting them here. And besides, I figured I should actually put my economics minor to use..
Speaking in generalities..
When you have an employee and an employer, you have some matched and mismatched motivations. The employee wants to do the “best” work available to them and get as much compensation (money, benefits, etc) as possible. The employer wants to compensate the employee as little as possible that still gets the employee. Except in a handful of cases, a single employee will not make or break the organization. Regardless, both the employee and employer have an interest in a successful organization.. if for no other reason, everyone wants to get paid.
When you have a union and an employer, the situation is slightly different. The union still wants to get their people to get the best compensation possible. The employer still wants to compensate the employees the minimum acceptable. The major difference is that since a huge number of employees are represented, a small change in compensation (up or down) can have a big impact and potentially make or break the organization. Of course, both sides still have an interest in a successful organization.. if for no other reason, everyone wants to get paid.
In both cases, we assume the organization is a company that must compete in the marketplace. They must hold costs down and attempt to increase revenue with the goal of creating a profit. If the company fails to do this, it goes away.
But what if that isn’t the case?
What if the organization is a group without competition? What if there is little to no motivation to hold down costs? What if profit is irrelevant? What if the organization can’t go away?
The situations above fundamentally change..
Now the union (or single employee) and the employer don’t have a interest in a “successful” organization. More importantly, without constraints, it becomes incredibly difficult to define “success.”
This is the situation in Wisconsin with the current standoff between Governor Walker and the teachers’ unions.
A small shift in compensation (up or down) can have a significant impact on the budget.
The politicians are rarely – if ever – motivated to reduce costs. The next couple years will be an exception but remember that we’re 3+ years into the current economic downturn. It’s taken that long for them respond. Name one company that could do the same.
The unions aren’t concerned about the government closing or ceasing operation. Revolution is the only definitive way but exceptionally rare. A government shutdown is possible but the collateral damage would cripple whichever group initiated it.
All in all, the protests and chaos happening in Wisconsin are irrelevant to the underlying principles. If the two groups can’t align their motivations.. it’s only going to get worse from here and Wisconsin will just be the first.