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In an earlier article in this Journal, The Limits of Collective Bargaining in Public Employment, we asked whether private sector collective bargaining should serve as the model for collective bargaining in the public sector. We concluded it should not. Our argument was, and is, that a wholesale transplant from one sector to the other is inappropriate. First, market restraints on union power are substantially different in the two sectors. Second, the consequences of such a transplant for the political process are undesirable. A summary of our reasoning follows.

In the private sector, a high degree of substitutability between various products generally exists: a price increase of one product relative to others will result in a decrease in the number of units of that product sold as consumers adjust their preferences to changed price relationships. Wage increases which exceed rises in productivity usually result in higher prices. Private sector unions generally face, therefore, a trade-off between the level of benefits they can extract from an employer and the level of employment for union members they can maintain. Even when this is not the case—as with expanding industries or products with inelastic demand curves—the threat of both the substitution of capital (machines) for labor and of competition from non-union employers is a significant restraint on union power. Thus, although the private sector is extremely diverse and contains many exceptions, the costs of collective bargaining are kept within arguably tolerable limits by a market of free consumers.

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