My post on the minimum wage got me involved in a couple of exchanges regarding the determination of wages rates in the market place, hence this post. Now free market economists are perfectly correct in pointing out that unions justify their existence on the basis of the alleged “imbalance of bargaining power” that lies with employers. According to union apologists, particularly in the media and the Australian Industrial Relations Commission, employees must combine if they are to get a fair wage.
Unfortunately, these economists rarely attempt to explain why the “imbalance of power” concept is another dangerous fallacy. This is a particularly egregious failing on their part considering that union apologists have sometimes even drawn on the writing of Adam Smith in support of their actions. In fact, one could even argue that it was Adam Smith who fathered the “imbalance of power” idea. According to Smith: Continue reading Passing thoughts on wages and the fallacy behind union bargaining