Pricing in Action: Why Rational Workers Refuse Wage Increases

Tuesday, February 24, 2015

How much would you like to make more money? I'm betting that you'd say quite a bit. So why are so many actors at a tiny Los Angeles theater fighting tooth and nail against union-backed efforts to increase their pay?

Before we answer that question, let's take a step back and look at the purpose of unions. By creating centralized points of contact between businesses and workers, they were able to increase the pricing power of their members. As a result, the average wage of employed workers went up, while (in many cases) the absolute number of employed workers went down.

It's that last part that's important for this pricing story. While the folks receiving larger paychecks tended to support unionization, one should not forget those who were left with no income whatsoever due to union organizing.

Theater economics
Image courtesy of Wikipedia

Many actors at the Renberg Theatre, fear that their union's demands for higher wages would put their employer out of business and leave them as unintended casualties of well-intentioned efforts. In this case, it doesn't appear that there are "greedy" businessmen unwilling to pay the unions what they want. Rather, it's a case of being completely unable to pay higher wages at all. Should these new wage rules be put into effect, it is a near certainty that the theater will close and its staff be left out on the street.

Unfortunately, the parties involved seem unable to see past their own arguments. The union appears to be set on the idea of higher wages while the actors at this particular theater are fighting to keep their wages as they are. Rather than investigating alternative solutions (such as allowing for income sharing rather than wage increases at smaller venues), both parties appear to be digging in their heels, as they head toward an uncertain future.

It's too bad that both sides are unwilling to think more creatively with respect to their labor pricing strategies. Don't make the same mistake! If you want to succeed in business, make sure to grab a copy of my guide to the pricing of software or contact me for a private consultation.