WAGES, UNIONS, AND LABORMICROECONOMICS (ECON2)

Lecture

02.27.2014

Types of UNION

• Craft or Trade Union: a union whose

membership is made up of individuals who

practice the same craft or trade.

• Industrial Union: a union whose membership is

made up of workers who work in the same firm

or industry but do not all practice the same trade

or craft.

Types of UNION

• Public Employees Union: a union whose

membership is made up of workers who work for

local, state, or federal government.

• Employee Association: an organization whose

members belong to a particular profession.

Objectives of Labor Unions

• Employment for all Members

• Maximizing the Total Wage Bill: Maximizing the

peso amount coming from the employer to the

union members. The total wage bill is maximized

where the demand for labor is unit elastic.

• Maximizing income for a limited number of union

members.

The Demand for Labor Union

Labor unions can try to meet their objectives by increasing

the demand for union labor.

• Increasing Product Demand: Unions occasionally urge

the public to buy union products, or support legislation

that keeps out imports or makes the imports more

expensive

• Increasing Substitute Factor Prices: Unions have often

lobbied for an increase in the minimum wage.

The Demand for Labor Union

• Increasing Marginal Physical Product: unions

prefer to add skilled labor to their ranks, and they

sometimes undertake training programs for new

entrants.

Decreasing the Supply of Labor

• One method to achieve Union objectives

includes decreasing the supply of labor,

which translates to higher wage rates.

• A closed shop is an organization in which

an employee must belong to the union

before he or she can work

Decreasing the Supply of Labor

• A union shop is an organization does not

require individuals to be part of a union to

be hired, but does require them to join the

union within a certain period of time after

becoming employed.

Affecting Wages Directly

• Collective bargaining is the process whereby wage

rates are determined by the union bargaining with

management on behalf of all its members.

• Collective bargaining is unlikely to be successful

unless a union can strike.

• A strike occurs when unionized employees refuse to

work at a certain wage or under certain conditions.

Strikes

• The purpose of a strike is to convince

management that the supply curve is what the

union says it is. This often depends on the ability

of striking union employees to prevent non

striking and nonunion employees from working

for management at a lower wage rate than the

union is seeking through collective bargaining.

Union Affects Wages

• Most studies show that some unions have increased

their members’ wages substantially whereas other

unions have not increased their members’ wages at

all.

• There are theoretical and empirical reasons for

believing that labor unions increase the wages of

union employees and decrease the wages of

nonunion employees.

Unions’ Effects on Prices

• Higher union wages ill cause higher prices for

the products the union labor produces.

• Lower nonunion wages mean lower costs for the

firms that employ nonunion labor and thus lower

prices for the products produced by nonunion

labor

Unions’ Effects on Productivity & Efficiency: The Traditional View

• Labor unions have a negative impact on

productivity and efficiency.

• They often have unnecessary staffing

requirements and insist that only certain

persons be allowed to do certain jobs.

Unions’ Effects on Productivity & Efficiency: The Traditional View

• Strikes disrupt production and prevent the

economy from realizing its productive potential.

• Labor Unions drive an artificial wedge between

the wages of comparable labor in the union and

nonunion sectors of the labor market.

Union’s Effects on Productivity & Efficiency: A New View

• Without a labor union, workers who are

disgruntled with their jobs, who feel taken

advantage of by their employers, or who feel

unsafe in their work will leave their jobs and seek

work elsewhere.

• The labor union makes the employees feel more

confident, less intimidated, and more secure in

their work. Such positive feelings usually mean

happier, more productive employees. Some

proponents of this view also hold that the

employees are less likely to quit their jobs.Union’s Effects on Productivity & Efficiency: A New View