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Labour Unions, Olympics, and Recession. By Paola Ycaza

by on June 2, 2012

What happens when the government gives away what a labour union demands for? Milton Friedman, the most influential economist of the second half of the 20th century,[Note:1] explains this in a famous quote: “When unions get higher wages for their members by restricting entry into an occupation, those higher wages are at the expense of other workers who find their opportunities reduced.” This is exactly what the London Underground Union is currently doing.

The United Kingdom is suffering what analysts have called a “double-dip recession.” This of course means a rising unemployment, which implies there are plenty of people looking for job opportunities. Yet, this does not seem to be a concern for the capital’s Underground Union: they have been threatening with strike for months if the London Mayor refuses to attend their demands. Last time it was disregarded. It happened at the end of 2011 when a strike by train drivers of the London Underground over working on Boxing Day disrupted almost all the Tube lines of the network. They demanded triple pay and a day off. The London Mayor, Boris Johnson considered the demands being made by the union as outrageous and so the strike took place.

Despite the mayor’s refusal to play the unionists’ game the threats have continued. On the occasion of the Olympic games and knowing that 3 million extra people are expected to use public transport, the London Underground workers have asked for higher bonuses, just for doing their job. While London is getting ready for the Olympics, Tube workers prepared their biggest threat to London City. Mr Johnson knew he could not accept the strike. After some negotiations the London Underground staff will receive up to £850 for working during the Olympic games, with drivers receiving up to £1,000. Staff at Network Rail, the DLR, the London overground line, and Virgin Trains have all agreed bonuses of between £500 and £900.[Note:2]
There is no doubt government should respect the right of workers to unionise and bargain collectively; in fact, preventing unionisation would be a violation of freedom. Nonetheless, it is important to question if unions’ demands affect other individuals. This is the case. As Friedman would argue, these bonuses are at the expense of the unemployed and the taxpayer. Accordingly, Mr Johnson has two options of action regarding unions: 1) like Margaret Thatcher, who managed to destroy the power of labour unions afflicting some crucial industries, he eliminates small and large labour unions, or 2) he keeps giving away what they demand at the expense, not only of the taxpayer, but of unemployed people.

A third alternative remains, and is one he already chose once but he is not willing to take the risk again for this Olympic transport challenge: to let the strike take place. This option would not allow to spend the taxpayer’s money in unionists’ bonuses, but instead wealth destruction would definitely occur, in this case, against the London’s transport authority: underground trains sleeping while the wide-awake overground city is willing to pay for fast transportation.

Regardless of what the head of the city decides to do in future occasions he should answer the following question: In what way allowing a person who conditions his/her activities to specific demands is better than allowing unemployed and capable people to start working? When in recession, politicians should better balance their priorities, whilst labour unions should take more care of the “labour” part of their tag by double-checking their demands in times of high job supply.

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