Unionization’s Decline, a Human Capital Story

Saturday, January 29th, 2005

In Unionization’s Decline, a Human Capital Story, Arnold Kling explains why unions haven’t spread (much) outside of manufacturing:

In manufacturing, workers develop specific human capital. As someone who actually worked in a factory for a couple of summers, I can attest to this. You learn to operate the particular machinery in the plant, but that knowledge is of no value in a different plant.

In the service sector, skills are often transferable. You may have a license (to be a teacher, a nurse, or what have you) that makes you transferable. Or you may have a skill set (sales, general management, computer programming) that is transferable.

With specific human capital, there is mutual bargaining power. The company values your experience, but your opportunity cost is low, so they could try to keep your pay low and exploit you. So a union helps you out.

With generic human capital, you do not need bargaining muscle. If you are way underpaid, you simply take another job. So a union helps less.

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