Labour unions are to blame for the high public sector wage bill and high unemployment

  

Date Posted: 7/5/2013 2:48:43 AM

Posted By: Moff J  Membership Level: Silver  Total Points: 485

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Economics is the study of the allocation of scarce resources to fulfill unlimited human wants. One of these resources that economics looks at is labour. In this article we will be trying to demystify the impact of labour in an economy, unemployment and the effect of labour unions in the economy. The case study will be based on the Kenyan labour market, specifically the public sector.

When the new government was ushered in on 9th April 2013, the president and his deputy had their work cut out. They had resolved to create employment so as to reduce the unemployment prevalence in the country and cut down the public wage bill to sustainable levels so as to focus those resources on the development aspects of the economy. Nevertheless, one question lingered in the minds of everyone, especially the economists; how were they going to do that with the labour unions in hovering around?

Barely three months after being sworn in and the public sector employees are up in arms agitating for higher pay albeit the fact that the president promised to reduce the wage bill! Their demands are based on Collective Bargaining Agreements(CBAs) signed between their unions and the government, some dating back to over 10 years ago! With such agility from the unions which command great numbers in terms of members, it is only reasonable to suggest that the bringing down of the public sector wage bill is a milky way away from being accomplished!

Now let us relate this to economics. Economists believe that the prevailing market wage rates ought to be set by the market forces of demand and supply. At this rate, the productive capacity of the economy will be maximized. Where the two are at equilibrium, the set wage rate will be acceptable to both the workers and the

employers.
However, the situation gets complicated when labour unions are introduced. As we know most jobs nowadays are unionizable according to labour laws. The labour unions complicate the situation when they start compelling for higher pay above the equilibrium market wage rate set by the forces of demand and supply. The result of this is higher labour costs from the employers' perspective and the hampering of growth in other productive areas. To make matters worse, the employer cannot sack a unionizable worker anyhowly. Therefore to avoid incurrence of further losses brought about by the absence of workers from the job, the employer will have to negotiate with the union for an amicable solution or meet their demands all together.
This is what has been pushing the public wage bill in Kenya to soaring heights even when the economy is depressed.

Unemployment rates will also increase. To reduce the wage bill, an employer may have to freeze the employment of more workers until the current ones retire for instance. Thus unemployment becomes prevalent. The fear of the employer is that if they employ more workers, they will also join unions and ask for higher pay. They may therefore resort to freezing employment or employing workers on contractual basis.
Unemployment may be defined as a situation where workers who are able and willing to work at or below prevailing market wage rates cannot secure employment. This has, to some extent, been brought about by labour unions. They continue agitating for higher and higher pay, way above the market wage rate and because they cannot be fired without the employer incurring heavy compensation costs, they lock out other willing and able workers who would be willing to work at lower wages. Unemployment therefore becomes prevalent!

Thus, in conclusion, labour unions are partly to blame for the high unemployment in our country. Despite so many people having qualifications and would be willing to work at the equilibrium market wage rate, the labour unions keep pushing for higher wages to benefit the members that they already have. In as much as they may sometimes offer job security to members, their hard line positions are damaging to the economy and its ripple effect is increased unemployment levels.

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