Friday, November 09, 2007

More on the Writers’ Strike

Most of these points will be familiar to economists, but I hope my reiterating them is useful to others.

1. Like any strike, this is a classic case of people fighting over the division of a pie while the pie shrinks. The pie is the huge gains from trade that result from writers and producers working together, and every day that passes without a contract represents more unrealized gains from trade. Both sides lose as a result.

2. That does not mean it’s irrational or wrong for the writers’ union to strike. The gain they get from a larger slice of the pie could outweigh their losses during the strike period; clearly, the union leaders think so. Moreover, the situation is symmetrical; either side could end the strike by acceding to the other side’s demands. A strike occurs when both sides play hardball.

3. In general, unions drive wages above the competitive (market) rate, and this is why economists often don’t like them. A union is like a cartel, with many of the same ill effects, including underproduction. However, in this case, the producers are also negotiating as a bloc. I’m not sure what loophole in antitrust or labor law allows them to do so, but it’s common knowledge that they do. So what we’re looking at here is essentially a bilateral monopoly: one bloc of buyers, one bloc of sellers.

4. The bilateral monopoly emphasizes, again, the symmetry of the situation. Both sides have each the other over a barrel. A clear victory by either side would likely be inefficient. Set writers’ compensation too low, and writers will write too little; but set writers’ compensation too high, and producers will produce too little (and hire too few writers). Either way, we don’t get as much entertainment output as we should. Some writers on the margin could be shooting themselves in the foot by demanding too much, inasmuch as they won’t share in the higher compensation if they are not employed.

5. The efficient level of compensation for writers is far from obvious to me. This is why I find the ideological rhetoric employed by both sides, but mostly by the writers’ union, frustrating. Maybe the writers are getting paid too little, but I haven’t seen especially compelling evidence one way or the other. I’ll grant that insiders might have such evidence, but I doubt the rank-and-file know much more than I do.

6. Probably the best evidence I’ve seen that writers’ compensation should be higher than producers will agree to is the actions of writer-producers like show runners. Given their dual role, writer-producers were forced to decide which side of the picket line to stand on; on Wednesday, about 100 of them sided with the writers. Since writer-producers share in both the gains and losses from giving writers higher compensation, they seem relatively well-positioned to know what level of compensation would maximize the joint gains from trade. On the other hand, the article doesn’t state how many writer-producers did not side with the writers. Also, I wonder about the extent to which ideology and a sense of solidarity, rather than a concern with their own total compensation, contributed to their decision.

UPDATE: More here.


Colin said...

Not only do the explanations of creativity and super stardom fail to explain why writers, directors and actors are unionized, those explanations would suggest that the people in Hollywood would not be unionized.

A very talented writer or director or actor's skills are truly a one of a kind good. They have a lot of market power and a union would be superfluous. Not only that but a union would be a liability because of dues the have to pay and more importantly risking losing out on gains from trade when a strike happens. It would seem like the unique nature of the skills of the top actors, writers and directors would weaken the unions.

You get a type of prisoner's dilemma and in this scenario most union members do not have an incentive to defect but those at the top have tremendous incentive to break ranks.

My guess is that left wing ideology drives top actors, writers and directors to stay in a union. If someone who makes millions of dollars per year chooses to drive cramped, unreliable hybrids, it is not hard to picture them doing other irrational things.

Brandon A said...

In regards to #6 - I don't know if that's necessarily why the hyphenates joined the strike. They have potentially much more to lose by crossing the picket line than by waiting it out.

Most of them are writer-producers because they are good writers and they also want to have more say in how their stories end up. Their real skill is their writing, not their producing. Without their writing, they probably wouldn't be producing.

Deciding not to side with the strike would likely bar them from ever writing in the guild again once things settle down, which would end their career.