Prisoner’s Dilemmas-XIX: Labor Negotiations & Strikes

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For now, President Biden was able to pump the breaks on the railroad strikes. Biden appointed arbitrators to negotiate mutually agreeable recommended revisions to the current labor contracts. This action kept “..115,000 rail workers on the job..” and narrowly side-stepped work stoppages from occurring on Monday (July 18th). In a time of preexisting supply-chain constraints, labor disputes would only exacerbate matters (the best real example would be the situation in the UK).

The dynamics of organized labor have a long history of being contentious, and striking is their secret weapon in gaining leverage at the collective bargaining table. If a policy does not contour to union interests, the relationship between the government and the labor movement devolves into a standoff. Since both factions have competing goals, this negotiation process is a Prisoner’s Dilemma. Lawmakers tailored policies to the preferences of the majority (union members only make up 13% of the US labor force). Also, in the anti-union camp, management possesses a fiduciary responsibility to enforce policies that are advantageous for the firm. 

These sets of incentives are opposed to the interests of the unions. Organized labor aims for higher wages, better benefits, more safety measures, and other generous forms of compensating differential. These new desired measures may be more costly for the firm or adversely impact consumers with higher prices or a lower grade of customer service (inefficiency). The demands of the labor unions tend to concentrate the benefits and impose costs on the rest of the economy. Even in sectors that are only tangentially connected to the industry where the workers are on the brink of striking. When their proposals are ignored or rules they dislike come into play, they defect by halting production and picketing. 

How neither party can reach a consensus generates Pareto-inefficient outcomes; should be self-evident. Because employers and policymakers might not want to cooperate or even meet the unions in the middle, they are defecting. In turn, the unions initiate strikes which create product scarcity, production bottlenecks, and higher prices. The ripple effects of the lack of agreement will hurt every economic actor in the market.

Prisoner’s Dilemmas- VII: Hoarding

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The event of toilet paper shortages of March 2020 was our societal initiation into the peculiar COVID-19 era. Now that we are currently facing global supply-chain shortages, people are once again starting to engage in hoarding behavior. The attempt to accumulate scarce goods when confronted with shortages is an understandable response. However, is it a good strategy? From a superficial standpoint, hoarding seems like an optimal strategy, especially when assessing the present market conditions. But being fixated on the current supply shortages does not take into account downstream consequences of hoarding behavior. Whether it is the toilet paper shortages of 2020 or the current supply shortages of 2021, all supply shortages present us with a Prisoner’s Dilemma. This observation is most likely true of all supply shortages past, present, and future.

By definition, a Prisoner’s Dilemma is a situation where players (in this scenario shoppers) believe it is in their best interest to adopt noncooperative strategies; but create suboptimal results. For example, consumer’s hoarding scare commodities can have the following consequences:

 1.) Consumers’ opting to hoard a scarce product will only exacerbate current shortages.

2.) The intensified stress placed on the supply chain from hoarding will be reflected in skyrocketing prices (absent any price control measures, e.g., price gouging laws).

3.)  Private firms may decide to place purchasing quotas on specific scarce goods.

4.)  The increased potential for violent interactions when attempting to obtain scare goods.

While many people may think buying every last roll of toilet paper is a good strategy, several potential ramifications suggest otherwise. Hoarding results in forms of strategic purchasing that pits shopper versus shopper. Consequentially, engenders many social and economic externalities.