The Profit Tax

THE PROFIT TAX….While I was doing some Googling for the post below, I ran into this wonderful paragraph from a 1998 copy of the conservative American Enterprise magazine. The question is whether unionized firms can overcome high union wages via automation:

Buying more machines has an intuitive appeal. Since unions increase wages, unionized firms could, in theory, automate their way to lower costs and thereby at least partly overcome the higher costs of union wages. [But it turns out that] when more efficient machines increase a firm?s profits, unions increase their wage demands commensurately, in effect taxing away the profits from the machines. Because of this union “profit tax,” unionized firms are in practice less willing to purchase new machines than nonunionized firms.

I just love it. Why, if corporations increase their profits, unions think their workers should participate in the company’s growth. How dare they!

I can’t wait to hear someone call CEO pay, which is often based (rather too loosely, I’m afraid) on corporate profitability, a “profit tax.” Jeez, why bother running the company more efficiently if the additional profit is just going to be siphoned off by the executives?

This is the kind of double standard that drives me nuts. Apparently CEOs are unwilling to increase efficiency if they have to give some of the resulting extra profits to unionized workers, but they are willing to increase efficiency if they can be sure that the bulk of the extra profits will end up in their own pockets.

This is hardly surprising, but it’s hardly praiseworthy either. Leaving potential government action out of this completely, isn’t this an attitude that shareholders should fight, not one they should reward?

UPDATE: I probably shouldn’t have to say this, but I want to add a ritual disclaimer. Unions are not perfect. Sometimes they strike over outrageous demands. They frequently seem to be too wedded to archaic work rules. And they often shelter incompetent employees who richly deserve to be fired.

But ? those are simply problems to be addressed, not reasons to bash unions. Unions also provide millions of workers with decent pay, decent healthcare, and decent treatment. They deserve our support.