Unionization's Decline, a Human Capital Story
By Arnold Kling
Why hasn’t labour successfully colonised the non-manufacturing world, outside of the public sector?
I think that the answer might start with Gary Becker’s distinction between specific human capital and generic human capital. Specific human capital is capital that is built up in a particular company, so that you cannot take it with you. Generic human capital is general knowledge, which is portable. Or, as Michael Piore put it when he taught my graduate school course in labor economics, “Specific human capital means knowing where the men’s room is located. Generic human capital means being able to read the sign on the door.”
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.
So, my explanation for declining unionism is that it is part of a larger trend, which is toward increased importance of generic human capital and reduced relative importance of specific human capital. That trend in turn reflects changes in technology and the work force.
Along these lines, Tyler Cowen asks why unions are so strong in Hollywood. I think that this may be another instance where people have low opportunity cost relative to their marginal product. The proverbial part-time actor, part-time waiter.
For Discussion. What does the economics literature say about the reasons for the decline of unionism? Has a similar decline taken place in other countries as well?