Labor Unions

Transcription

1 Labor Unions

2 Labor Unions Def.: A labor union is an organization of workers, which through its leadership, bargains with the employer on behalf of union members and negotiates labor contracts with employers.

3 Types of Unions Craft or Trade Union Plumbers, electricians, musicians unions Industrial Union Autoworkers, steelworkers unions Public Employee Union Teachers, police, and firefighters unions Employee Associations American Medical Association

4 Facts and Figures

5 Union Membership 30 % Union Membership As A Share of Nonagricultural Employment 25 % 20 % 12.1 % 15 % 10 %

6 What are the Objectives Of the Labor Union? Total Wages Wages Max. Elastic Inelastic Q

7 Union Success and the Elasticity of Demand for Labor

8 Question The leaders of a union are sitting around the table discussing what to do in the current situation. One person argues for a 7 percent wage increase. Another person argues for a 10 percent wage increase, saying, I don t think a 10 percent wage increase will cost us many jobs if any. What is the demand for union labor (elastic or inelastic)?

9 Practices of Labor Unions Affecting Elasticity of Demand for Union Labor AVAILABILITY OF SUBSTITUTE PRODUCTS AVAILABILITY OF SUBSTITUTE FACTORS Affecting the Demand for Union Labor INCREASING PRODUCT DEMAND INCREASING SUBSTITUTE FACTOR PRICES INCREASING MARGINAL PHYSICAL PRODUCT Affecting the Supply of Union Labor CLOSED SHOP UNION SHOP Affecting Wages Directly COLLECTIVE BARGAINING

10 Successful Unions get companies to believe that supply curve is higher than it really is

11 Determinants of Union Membership: The Decision to Join a Union

12 Successful Unions = Monopoly Unions Monopoly Unionism: the union has an effective monopoly on the sale of labor to the firm. The union sets the wage. The firm makes hiring decision.

13 Unions and Resource Allocation Efficiency loss= =1/2(w U -w N )(E 1 -E 1 ) Efficiency loss 1 = National income 2 (% of union - nonunion wage gap) (% decline in E in union sector) (% fraction of (labor's share of LF that is national unionized income)

14 Efficient Bargaining P, P, P combinations are equally profitable The isoprofit curve has an inverse-u shape

15 Efficient contracts Pareto efficiency: a situation is optimal only if no individuals can be made better off without making someone else worse off. PZ is a contract curve. All wage-employment combinations along PZ are called efficient contracts.

16 Strongly Efficient Contracts Wage-employment combinations on upward-sloping contract curve are efficient only in the sense that they exhaust all bargaining opportunities between the firm and the union. Strongly efficient contracts: PZ is a vertical line (E*)

17 Strikes and Pareto Efficiency: Hicks paradox Strike is the situation in which union employees refuse to work at a certain wage or under certain conditions. There are $100 (rents) to be shared between the union and the firm. Strikes are NOT Pareto optimal!

18 The Optimal Duration of a Strike Hicks paradox: Workers have incomplete information (unreasonably optimistic expectations)

19 EFFECTS OF LABOR UNIONS The Case of Monopsony Unions Effects on Wages

20 Monopsony: single buyer in the LM Situation (b): Without union, wages suppressed. Company should pay W 2, but because they have monopsony power they pay W 1. Situation (c): Union effectively forces the company to pay a higher wage and to recognize the supply curve S.

21 Unions Effects on Wages: Data

22 Unions Effects on Wages: Theory

23 Union Wage Effects Union wage gain for a particular worker (%): union wage gain (avg. worker in the economy): The union wage gap: i N i N i u i w w w = Δ 1 k i i k = Δ Δ = N N U w w w D =

24 For/Against Unions For: Monopsony (company town.) Provide non-wage employment benefits. Against: Increase wages, and costs of production. Reduce productivity and efficiency. Lower wages for non-union workers.

25 Homework Borjas (5e): Ch. 10 Final exam: May 13, 2011 (Friday) SB211 12:45-14:15 June 1, 2011 (Wednesday) SB310 10:00-11:30