UNIONS CHAPTER OBJECTIVES CHAPTER OUTLINE CHAPTER OBJECTIVES. At the end of this chapter you will INTRODUCTION

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1 UNIONS CHAPTER OBJECTIVES At the end of this chapter you will understand why labor unions exist and how they alter the bargaining relationship between employers and employees. You will understand how a competitive labor market differs from one where there is market power only with the employer, only with the employee, and when CHAPTER OUTLINE CHAPTER OBJECTIVES INTRODUCTION WHY UNIONS EXIST The Perfectly Competitive Labor Market A Reaction To Monopsony A Way To Restrict Competition and Improve Quality A Reaction to Information Issues A UNION AS A MONOPOLIST THE HISTORY OF LABOR UNIONS WHERE UNIONS GO FROM HERE CHAPTER SUMMARY both have power. You will understand that labor unions differ in that some seek to raise wages by reducing supply while others seek to raise wages by using collective bargaining as a monopolist. You will understand how unions came about in the U.S., and you will be able to draw on some recent history and to predict the future of unionization in the U.S.. INTRODUCTION The role of labor unions in the United States has been the subject of some controversy for more than 100 years. As the economy developed from agriculture to industrial manufacturing, labor issues came to the forefront. While the struggle to organize labor to demand better treatment began much earlier, it was not until the 1930's that legislation was passed that gave workers the right to bargain collectively and to join unions. Unions grew in influence and membership with their representation in the workforce peaking at nearly 30% in That year saw the beginning of a long and rapid decline, and unions now represent less than 15% of the total work force and less than 10% of the private work 794

2 force. On a theoretical level, we will discuss here why unions are usually desirable in a manufacturing economy, and we will show how they can serve the best interests of both laborers and the economy as a whole. We will then discuss the early struggles, the pertinent laws, and the successes and failures of unions. We will use a couple of measures of union power to illustrate the health of labor in the United States, and we will conclude with some insights into the ways unions will make the transition to the 21 st century. WHY UNIONS EXIST The Perfectly Competitive Labor Market When the United States was almost entirely agrarian in nature, aside from those who were enslaved, indentured, or otherwise beholden to masters of one sort or another, people worked mainly for themselves. Obviously, if you work for yourself, and outside influences are not at work, your pay and working conditions cannot be unfair since your own productivity determines your own wealth. As the United States grew throughout the 19 th century, however, it evolved into an economy where fewer and fewer people worked for themselves. The industrial revolution came to the fore, and more and more people began to work for companies that manufactured goods. The supply and demand model of the economy supports us in concluding that any time one person buys something from another person, there are gains to both sides. This applies to labor as well. Figure 1 indicates that if the good being sold is labor, and the price at which it is sold is the wage, then, like any market in perfect competition, there is an equilibrium wage and an equilibrium amount sold that makes both parties better off than they were before the transaction took place. In 795

3 Figure 1, at equilibrium the wage paid is W* for L* labor. The firm that hires the labor pays it 0W*CL*, values it at ( that is, generates revenue from the sales of output from it) of 0ACL* and therefore gets the difference that is its consumer surplus (or profit) of W*AC. The workers get paid 0W*CL* when it costs them only 0BCL* in opportunity cost to provide their efforts. As a result, they get producer surplus of BW*C. There is no other wage/labor combination that provides as much surplus to the combination of both workers and firms as this one. Figure 1 A Labor Market Under Perfect Competition In a perfectly competitive labor market without government regulations an equilibrium will result that makes both workers and their bosses better off. As shown above the wage is W* and the labor sold is L*. The consumer surplus goes to firms and is W*AC. The producer surplus goes to workers and is BW*C. In a fairly subtle way, we conditioned all this on the assumption that there was perfect competition in the labor market. This means that there are many independent firms and many independent, that is, nonunion workers, so that neither buyers nor sellers of labor have any control over the wage. Perfect competition also requires that all parties involved have good information about their 796

4 alternatives. A Reaction to Monopsony We can safely assume that there is perfect competition if we are talking about a very large city and a field that is not particularly specialized. For instance, there are many carpenters in large cities, and there are many contractors who hire them. On the other hand, competition can be a lot less than perfect for a couple of reasons, both of which boil down to whether the number of firms buying labor is limited. The most extreme example of this would be a so-called company town, where only one firm buys labor in a particular area. Though company towns tend to be rare today, towns like Redmond, Washington, with Microsoft and State College, Pennsylvania, with Penn State University are close. On the other hand, history is replete with companies that literally owned entire towns. Mining towns were especially likely to being company towns with all the problems of paternalistic control and subjugation of workers with which they have been associated. The case where the specialization is so narrow that there are at most only a few potential buyers of that skill is one that is somewhat different in cause but similar in effect. This is fairly common in high-skill specialties where there is only one employer in a large area. You may be actually sitting at a chair in such a location. While assistant, associate, and full professors in colleges make pretty good money, adjunct professors at colleges and universities are paid very little. Faculty at mid-level universities often make in the neighborhood of $50,000 and teach four to six courses per year. Though there are research and service obligations to their jobs, that translates to between $8000 and $10,000 per course. Adjuncts are often paid less than $2000 for a semester-long course. Many colleges are in towns where they are the only employer of people with Masters and Ph. D. s (especially in the Arts 797

5 and Humanities). For that reason, for people who are in the college town as a result of their spouse s work, a college can offer to pay them very little and still get relatively high quality instruction. Regardless of the reason, if it is the case that there is only one employer in an area, that Monopsony: the market has only one buyer employer has power that is very similar to the monopoly power enjoyed by utilities. You may recall that under monopoly there is only one seller of a good and that seller can charge very high prices. When the market has only one buyer a monopsony exists. In a monopsony the seller rather than the buyer is exploited. Figure 2 shows how monopsony alters the perfectly competitive markets depicted in Figure 1. Before going into the detail of the Marginal Revenue Product of Labor: the additional revenue generated from hiring an additional worker graph, though, we need to step back and deal with a little labor vocabulary. As we mentioned briefly in the explanation of Figure 1, the demand curve for labor represents how much money adding a worker can generate for the firm as that worker increases production and therefore sales revenue. This is called the Marginal Revenue Product of Labor, and it is equal to the demand curve, because the firm will be willing to pay up to the amount of money it can make from its workers efforts in order to squeeze all possible profit out of its labor force. In addition, since there is only one buyer of labor, the firm is not looking at an equilibrium wage that it must pay its employees. The firm Marginal Resource Cost: shows the increase in total labor costs to the firm of buying increasing amounts of labor decides how much labor it wants, and it pays the minimum required to get that labor. In order to get 798

6 more workers, it not only has to pay the new workers more, the firm has to pay all workers more. Thus, if the firm wants to hire more workers, its costs do not rise along the supply curve, they rise faster. The cost of increasing hiring is therefore not the supply curve but the curve that is labeled the Marginal Resource Cost in Figure 2. This shows the increase in total labor costs to the firm of buying increasing amounts of labor. To solidify this in your mind consider Table 1. The first column represents the wage that is paid while the second is the quantity supplied. The third, the total cost to the employer, is the product of the first and second. The final column is the difference in the total cost from one worker to the next. Notice that it rises substantially faster than the first column. Table 1 Illustrating the Relationship Between Supply and Marginal Resource Cost Wage Quantity Supplied Total Cost to the Marginal Resource Cost Employer The monopsonist firm maximizes profit when it hires at the point where the Marginal Revenue Product of Labor equals the Marginal Resource Cost. In Figure 2 this is L CT rather than L* workers. To find what these workers are paid, we take L CT up to the supply curve to get W CT. If we want to know what these workers are worth, we go up to the demand curve to find that the amount of money they are making for the company is W value. It should be clear that under monopsony workers do not get what they are worth. As a check, note that under perfect competition, at L*, workers get their Marginal 799

7 Revenue Product; that is, they get exactly what they are worth. Using the notions of consumer and producer surplus introduced in Chapter 4, we can see that this situation is worse than the perfectly competitive one. Though firms do better because they pay less, their consumer surplus is W CT AEF, and workers do worse, their producer surplus shrinks to BW CT F, and the net to society is reduced by EFC. We can conclude from the preceding that if the problem that unions combat is monopsony, then unions can make things better by moving the market toward its original equilibrium. Figure 2 A Company Town and a Monopsony Market for Labor In a labor market that is dominated by one buyer of labor and has no government regulations an equilibrium will result that is worse for workers and better for bosses than the perfectly competitive one. As shown above the wage is lower at W CT and the amount of labor sold is also lower at L CT. A Way to Restrict Competition and Improve Quality Some unions and professional organizations enhance the pay of their members by restricting the supply of workers and by increasing the value of their members. Thus Figure 3 alters Figure 1 by reflecting the reduction in potential workers as a changing of the shape of the supply curve. First, the 800

8 supply curve moves to the left because there is a cost to the employee of learning how to become skilled in this area. The costs to the newly licenced employees are reflected in the general movement of the supply curve to the left. The fact that there are a limited number of openings for training in the field, here noted as L, makes the supply curve perfectly inelastic at that point. Because there is an improvement in skills of the workers and the quality of their work, there is a movement of the demand curve to the right. This raises the wage to those who ultimately work in the field. Among others, the American Medical Association, the American Bar Association, the International Brotherhood of Electrical Workers and the Plumbers and Steamfitters all follow this pattern. By restricting the ability of people to become workers in a particular field, these types of unions keep the supply of workers down. You can not practice medicine or law without a licence and that licence serves as a mechanism to restrict competition. While you can wire your own house or do your own plumbing, in many communities you can not sell these services to others without a licence. The other side of Figure 3 is the increase in demand. Because of the training that union plumbers and electricians get, we can model their increased productivity and quality as an increase in the demand for their services. Thus, having a certification process also increases the pay of these workers because an increase in the demand occurs for their services. As you can see, the net result is an increase in the price of these services and an uncertain effect on the numbers of these services that are provided. 801

9 Figure 3 The Impact of Licencing A union that licences, both increases the demand for its services, and it reduces the number of competitors. These outcomes result in an increase in pay to the members. If, on the other hand, the net effect of unionization of this form is that the labor sold is reduced, then unionization of this type detracts from economic efficiency. Otherwise, unionization is neutral or good for it. Though there is considerable debate among labor economists on this point, they tend to suggest that the net impact of licencing is generally negative. A Reaction to Information Issues Another reason that the actual market for labor may not be the perfectly competitive version is that workers may not have good information about other positions they might fill. Workers that look to find out what their other prospects are tend to be viewed as disloyal by their bosses and coworkers. For this reason and because looking for a new job takes effort, people may not know what they are worth elsewhere. Though it was not stated above, one of the things that makes the perfectly competitive labor market perfect -- workers get paid what they are worth-- is that workers who are paid less than 802

10 market wages know it and will move on to other, better-paying jobs. If they do not know about the other jobs, they are not likely to move even when they are poorly paid or poorly treated. There are a couple of ways that this works to hurt workers. The first, as stated above, is that there is a tendency for employers and co-workers to distrust people seeking better jobs; especially when those better jobs are with the competition. Therefore, there is sociological peer pressure that stands in the way of workers finding out what they are worth. Second, employers are not above conspiring with one another to strike fear into workers. This works when there is a limited number of firms, and they collude in agreeing not to bid against one another for workers. When this works, each of the firms can threaten disloyal workers with statements like you will never work in this town again. A UNION AS A MONOPOLIST Boiled down to its most essential form, unions exist to insure that workers get at least what they are worth in a perfectly competitive market and possibly more. In economic-speak, laborers band together in unions so they can force employers to provide them with wages that are equal to their marginal revenue product. They do this by countering the market power that firms have with market power of their own. Unions are most effective when they are the single-seller to a firm s single-buyer. Sometimes unions such as the United Auto Workers, the United Mine Workers and the Teamsters provide labor to many different buyers of labor. In such cases it is the union that possesses the sole market power. The formal model of unions is the same as the model of monopolies. In Figure 4 you see the impact of having a union control all labor. The marginal revenue to the union is set equal to the supply 803

11 curve to find the amount of labor the union wishes to provide. This occurs at L union. That means that wages are higher than before, as W union exceeds W*. If we look at unions as if they existed in a vacuum, it would appear they are bad for the economy, since the consumer surplus falls to W union AE and producer surplus only grows to BW union EF. Since the combined producer and consumer surpluses are lower with a union than without it by FEC, unions appear to hurt the economy. Figure 4 A Union s Effect on Wages in a Perfectly Competitive Labor Market In a labor market that is dominated by one seller of labor, a union, and has no government regulations an equilibrium will result that is better for workers and worse for bosses than the perfectly competitive one. As shown above the wage is higher at W union but the amount of labor sold is lower at L union. Unions did not arise and they do not exist in a vacuum. Many were born from workers getting poor treatment, poor pay, or both poor pay and poor treatment. For other unions Figure 4 depicts the end of the story. When unions simply use their monopoly power to sell labor to different competitive firms, then the existence of the union detracts from economic efficiency. We can see, though, that some workers lose opportunities to work, because L union is less than L*. We also see that the gain to those 804

12 that keep there jobs is greater than the loss to those that lose theirs because the producer surplus increases from BW*C to BW union EF. Clearly the firms that do the hiring are worse off as their consumer surplus is reduced from W*AC to W union AE. The net effect is that unions reduce the total amount of the surplus by EFC. In order to compare those unions that exist as a reaction to monopsony power to the case without the union, we need to combine Figures 2 and 4. In Figure 5 we can find out where the battle lines are drawn. In its monopolistic form the union will want to set the wages at W highest. This is what they would demand if they were bargaining with many different employers. The Company that rules the company town will want to pay what it would have paid if it were bargaining with many independent workers, W lowest. While there are some sophisticated economic models that hope to predict the outcome of bargaining between unions and firms, at this point we have difficulty making good predictions about where within the range the wages will ultimately settle. 805

13 Figure 5 The Union Fights the One Company Town or Monopoly vs. Monopsony In a labor market that has only one buyer of labor and one seller of labor and has no government regulations, bargaining will result. We know that the wage that results will be bounded between what unions want, W highest. and what companies want, W lowest. The number of workers hired will either be the lower of the quantity demanded and quantity supplied at that wage or some other, negotiated number. Once a wage has been agreed upon in this range, the number of workers the employer will hire depends on the supply and demand curves. To find out exactly how many will get hired, remember that since we are not going to be at equilibrium, it will be the lower of quantity demanded and quantity supplied at that wage. To get quantity demanded at that wage, take that wage to the demand curve. Similarly, to get quantity supplied, go over to the supply curve. As long as the bargaining process works out between what unions want and what firms are willing to pay, the economy is better with a union in a company town than it is without a union in a company town. The result of the bargain is that the loss of consumer plus producer surplus is limited. 806

14 THE HISTORY OF LABOR UNIONS Labor organizations have existed in the United States since shoemakers banded together near the end of the American Revolutionary War. Labor s battle was largely unsuccessful until the beginning of the 20 th century, though, because courts saw their actions as restraint of trade or conspiracy. Thus, any union that organized and struck an employer for better conditions or better wages had these actions stopped by the courts. 57 Before laws began to support laborers attempts to form unions, and, before unions had any rights under the law, there were court rulings that were decidedly anti-union. At one point, in a dispute between workers and a company that made railroad cars, sympathetic railroad workers refused to handle cars made by that particular company. The company retaliated by having U.S. mail cars attached to the offending company s cars. When railroad workers then uncoupled the mail cars from the company s cars in sympathy for the company s workers, they were jailed for conspiracy to tamper with the U.S. mail. From the end of the Civil War to 1914, the courts, Congress, and most Presidents were beholden to large corporate interests, interests that saw that union members were fired, jailed, beaten, and killed. Seldom were they successful in getting pay increases. All that began to change in 1914 when President Woodrow Wilson, a Democrat, was able to work with a Democratically controlled Congress. In that year, laws were enacted to grant labor rights. Though one of these laws, the Clayton Act, was overturned by the Supreme Court, its passage marked a clear dividing line between the political parties. Republicans sided with management and Democrats with organized labor. 57 See McConnell and Brue Contemporary Labor Economics 8 th ed. Ch

15 Through the 1920's Republicans had held onto both the Presidency and Congress and nearly no headway was allowed for labor unions. The Great Depression, which started in 1929, changed the economic and political landscape. As millions of workers lost their jobs, Democrats were voted into office; and, under the Presidency of Franklin Roosevelt, Congress passed laws such as the Norris- LaGuardia Act, the National Industrial Recovery Act, and the Wagner Act. These laws reestablished labor rights that had been granted under the Clayton Act, and they created new ones. Under these acts, workers were given the right to organize and to bargain collectively. Additionally, they stipulated that exercising these rights could no longer be construed as conspiracy to restrain trade. Importantly, the law now stated that whenever a majority of workers voted for union representation, the union was held to represent all workers, whether nonunion workers wanted to be represented or not. In actuality, it was often the case that when a firm s workers were represented by a union, membership in that union was required as a condition of employment for all the employees. These rights did not apply to everyone. Most notably, government employees were still forbidden from striking, but the passing of the laws did give labor a great deal of muscle. As the economy surged out of the depression and into World War II, strikes were becoming commonplace. Strikes were considered serious enough that, during World War II, Congress temporarily gave the President power to seize control of industries in which strikes were considered to be jeopardizing the production of war material. In the year following Japan s surrender in World War II, nearly 120 million work days, 1.9% of all potential work time, were lost to strikes. In part, this was because a wide disparity existed between where wages were going before the war and where they were as a result of the freeze. Since 808

16 wages were frozen for much of the war, workers wanted to at least be paid what they would have been paid had the freeze not been in place. Management liked the low current wages and argued that the health insurance benefits that were put in place to circumvent the wage freeze were sufficient to make up for the freeze. As a result of Depression era laws, labor was still holding nearly all of the cards, and was quite successful in achieving its aims. Organized labor was so successful that to keeps its power in check, a Republican Congress passed the Taft-Hartley Act over President Harry Truman s veto. The Taft-Hartley Act amended the Wagner Act in ways that gave management back some of the cards it had held in previous years. It allowed states to determine whether they would allow workers who did not want union representation to work for a company for whom a majority wanted union representation. It also allowed the President to order a cooling-off period, temporarily ending any strike that threatened the economic health of the nation. In 1962 President Kennedy issued an executive order that gave federal employees the right to unionize and to bargain collectively in ways they had not been able to do under the Wagner Act. Though still unable to strike, they were granted grievance procedures. Other protections were instituted that led greater numbers of public employees to form and to join unions. A look at Figures 6 and 7 shows that, since the time of President Kennedy, there has been a general decline in the numbers of workers who belong to unions. Though union power peaked in the middle 1970's, the decline has been long and consistent. The exception has been the relative health of public employee unions. Figure 6 shows that the percentage of all workers who are unionized and the percentage of private sector employees who are unionized has fallen dramatically since the 1980's. It 809

17 further shows that the percentage of public employees who are unionized has stayed at a relatively constant 35% to 40%. This difference between the health of public and private employees unions is most seen in just a few unions. The United Auto Workers lost nearly half of its 1.5 million members between 1978 and The United Steel Workers once numbered 1.3 million; today they number only 400 thousand. On the other hand, the American Federal, State, County, and Municipal Employees Union has had membership more than triple since Similarly, if you look at work stoppages as a measure of labor unions confidence (that they can win in a situation in which workers either strike or are locked out by management) you find that unions have been running scared since the early 1980's. The drop in the number of strikes is generally attributed to President Reagan s firing of the striking air-traffic controllers in In one of the more ironic events in labor history, the only President of the United States who had ever belonged to a union or had been a president of a union became the President most identified with labor s downfall. President Reagan had been a member of, and eventually becoming president of, the Screen Actors Guild. When PATCO, the union representing the air traffic controllers, struck in the summer of 1981, President Reagan followed the law, which unambiguously stated that public employees who engaged in strikes were to be terminated. At the time, hardly anyone thought he would actually follow through and fire the controllers, and virtually everyone thought he would hire them back after the strike was settled. When they struck, he fired them. He then ordered his Secretary of Transportation not to negotiate with them, since they were fired and no longer held legal status as employees. Instead, he ordered every available air traffic controller in the military to fill in until new 810

18 controllers could be recruited and trained. The events of this single week in 1981 are given inordinate weight by many, but it does serve as a time-post. Though PATCO was a small union and though unions were beginning to lose many of their battles in the late 1970's, the outcome of this strike is viewed by many in the labor movement as singularly important. For the first time since the 1930's the government was perceived to be as much a foe of unionized labor as was management. It is even more ironic, then, that President Reagan garnered more union votes than any other 20 th century Republican President. It was not until seventeen years later, when the Teamsters Union struck the United Parcel Service in 1998, that a major union won major concessions from an employer. Whether this strike serves as another turning point or simply magnifies labor s difficulties by serving as the exception that proves the rule, will not be known for several years. For more than fifteen years nearly every major strike resulted in workers being worse off at the end of the strike than they had been when it started. The only exception to this generalization was that strikes by already highly-paid professional athletes succeeded in making them even more highly paid. Less than one-tenth of one percent of all work time was lost to strikes over the late 1990's, a consequence that can be attributed to the realization on the part of labor that they would lose any confrontation. The ultimate reasons that organized labor won the UPS strike are the same as the reasons that any union wins a strike. The workers were not easily replaceable and the company that employed them had competitors that were taking its market share. The labor market of the late 1990's was such that finding dependable workers was difficult. This contrasts with strikes such as the strike by Caterpiller s Peoria, Illinois, workers in the early 1990's. In that period of time dependable workers willing to take 811

19 $15 to $25 an hour jobs were not difficult to find. In 1990 such workers were much more difficult to find. Thus, the Teamsters would demand higher wages. Another difference was that UPS saw their market share in the overnight delivery business disappear. The fear that customers would not return after the strike induced them to settle. Conversely, Caterpiller had less of a concern that competitors would or could take market share for long because of Caterpiller s dominance in the heavy construction equipment industry. Unionization Public, Private and Total Employees Percentage Year Private Public Total Figure 6 Union Membership as a Percentage of the Work Force Lost Time Work Stoppages Percentage of Work Time Lost Year Figure 7 Lost Time from Strikes and Lockouts 812

20 WHERE UNIONS GO FROM HERE Unions comprised of men and women who work in the public sector will likely survive long into the future, as there are far fewer pressures on them than there are on unions in the private sector. For instance, if a car company decides it can no longer afford its union s pay demands, it can move its production facilities to a location where the workers are only too happy to take the jobs at whatever the company is offering. On the other hand, if a city cannot afford its firefighters wage demands, it must negotiate. It cannot move to a location where it can hire other firefighters and pay lower wages. Unions in the private sector are likely to have continuing difficulty. Because employment growth has been most evident in service and retail industries and because these areas are much more difficult to unionize, the picture for private sector unions is rather bleak. Further, since old-line manufacturing in areas like automobiles and steel is susceptible to international trade pressures to keep costs down, unions will have a hard time winning concessions even in industries where they are still strong. In general the health of private sector unions will depend greatly on whether we return to the days when only a few major employers hired most workers. The information age has seen many startup companies lure workers away from larger companies. The wages of computer engineers, programmers, and the employees who actually make computers are pretty close to what these workers are worth. If, on the other hand, the computer industry begins to centralize around only a few major employers and start-ups become rare, unions may finally make inroads into information-age industries. Unless that happens, public sector unions may truly dominate the labor movement by the end of the 21 st 813

21 century. CHAPTER SUMMARY You now understand why labor unions exist and how they alter the bargaining relationship between employers and employees. You understand how a competitive labor market differs from one where there is market power with only the employer, with only the employee and when both have power. You understand that labor unions differ in that some seek to raise wages by reducing supply while others seek to raise wages by using collective bargaining as a monopolist. Lastly, you now understand how unions came about in the U.S., and you have enough knowledge of recent history to be able to project where unionization is going in the U.S. Monopsony Marginal Revenue Product Marginal Resource Cost KEY TERMS 814

22 Quiz Yourself The number of workers represented by unions has a) decreased. b) increased. c) stay roughly the same. The percentage of all workers represented by unions has a) decreased. b) increased. c) stayed the same. A union that trains and licences all those able to work in a particular field a) causes the supply curve to change shape by creating a vertical segment. b) causes the supply curve to shift as a result of training costs incurred by the trainee. c) causes the demand curve to shift to the right because they licenced workers are more productive. d) all of the above. The percentage of government workers that are unionized the percentage of private workers that are unionized. a) is greater than b) is less than c) is roughly equal to To model a union that is the sole provider of labor in a market where there are many firms hiring labor you use a a) monopsony model. b) monopoly model. c) a simple supply and demand model. d) model with aspects of monopoly and monopsony. The proper model to depict the situation of a very small college town in which almost all of the jobs for year olds are at the college itself is a a) monopsony model. b) monopoly model. c) simple supply and demand model. d) model with aspects of monopoly and monopsony. Wages in a market in which there is one union bargaining against one employer will a) always be above their perfectly competitive level. b) always be below their perfectly competitive level. c) always be at their perfectly competitive level. 815

23 d) depend on the result of the negotiation. Draw a perfectly competitive supply and demand diagram for labor. On it also draw the situation where a union offers to organize the workers. Can you, from the diagram, see that the vote on unionization will not be unanimous, even though workers get a larger producer surplus with a union than without one? Where on the diagram can you point to find the anti-union sentiment? Think About This Are unions a necessary protection against firms? Would (Does) the lack of union activity in your field significantly change your work life? Talk About This Unions use some of their dues money to support politicians that support the union agenda. Almost all of this money goes to Democrats even though usually a third of union members vote Republican. Should unions be forbidden to make political donations, should they be required to divide their money more evenly, or should the government stay out of their political activities? For More Insight See McConnell, Campbell R., Stanley L. Brue and David A. MacPherson Contemporary Labor Economics 8 th ed. Boston MA Irwin McGraw-Hill 1999 (see specifically Chapters 10, 11 and 13) 816