Cutting government expnditure

Michael Fallon, in today's Telegraph, urges Cameron to take on the huge public sector trade unions, in removing national bargaining. If he did there would be a great battle, as national bargaining is a sacred cow and justifies much of what unions do. Expect strikes and disruptions, as we now have in the Royal Mail, to cause the maximum harm.

Now is, however, a good time to do it. The electorate seem to have taken on board the idea of cuts and austerity to cover the gigantic hole in the public finances. Public sector unions will have less opportunity to threaten, as their jobs come under scrutiny.

Why attempt it, if there will be be disputes?
The main answer is that such bargaining causes major distortions in the labour market which feed through into regional problems. If poorer, or lower income, regions have to apply national rates, then there will be some on national rates earning much more than others locally, because rates are set to allow recruitment in areas where living costs are higher. There will be people willing to work for less in poorer areas, but unable to.

The Unions, of course, do not like markets and try to avoid the fact of demand and supply. They seem to succeed, but not entirely. In higher education, for instance, since lecturers on the same grade and of the same experience must be paid the same, what happens? Those whose subject specialisms permit them to earn more outside higher education,- accountants and mathematicians, for example, will tend to be on higher grades. So the salary grades are the same for everyone, but relative shortages are revealed in grades people occupy.

Wages, like any other price, must reflect shortages and surpluses between professions and regions. Otherwise there could be a serious misallocation of resources. This is precisely what happens with the mathematicians and accountants, otherwise there would be shortages.

In short, national wage bargaining, which is urged on grounds of fairness, will keep some areas poor and some professions under-supplied, which isn't good for the community.