Unions, wages and unemployment

The idea that unions cause unemployment by driving up the wage level above the market price is well established. When the price of any good, doesn't matter if it is labour or bananas, is set above the market clearing rate, some of that good will be left unsold. In effect the additional wage increases the unions are able to extract from the employer will be paid for by the unemployed.

 I recently heard a recording of Hayek where he argues that unions do not only cause unemployment but actually cause the overall wage level in the economy to be lower then it would otherwise be. This argument would at first seem to contradict the unemployment argument, but Hayek doesn't deny that unions are able to raise wages in one industry above the market rate, but that this increase will keep wages low in other industries. The idea has to do with powerful unions in one industry causing capital to be allocated in an inefficient manner. Any employer will have to decide on the how much to spend on machinery and other capital goods (usually a long term investment), and how much to spend on labour. When the labour costs go up, more will be spent on capital goods in order to raise the output per worker, since labour is now so expensive. These capital investment would otherwise have been made in other industries, where less capital is now allocated, keeping down their productivity and by effect also their wages. If the wages would have been left at their market levels, the capital would have instead been allocated to those industries where the efficiency gains would have been the largest. By lowering the overall productivity in the economy, overall wage levels would also be kept down.