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The Effects of Unions on Wages and Employment

The Effects of Unions on Wages and Employment. In Competitive and Monopsonistic Labor Markets. Assumptions . Two labor markets Market 1 is competitive Market 2 is monopsonistic Each labor market is in an initial equilibrium illustrated by the graphs A union exists in each of the markets.

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The Effects of Unions on Wages and Employment

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  1. The Effects of Unions on Wages and Employment In Competitive and Monopsonistic Labor Markets

  2. Assumptions • Two labor markets • Market 1 is competitive • Market 2 is monopsonistic • Each labor market is in an initial equilibrium illustrated by the graphs • A union exists in each of the markets

  3. Competitive Monopsonistic 1. Competency test required: the union is successful in requiring that new teachers pass a state competency test to be employed MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

  4. Competitive Monopsonistic 1. Competency test required S1 MRC 2 MRC S1 S S Wage Rate Wage Rate D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment LOWER

  5. Competitive Monopsonistic 2. National advertising campaign: the labor union conducts a successful advertising campaign urging people to buy union made goods MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

  6. Competitive Monopsonistic 2. National advertising campaign: MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER

  7. Competitive Monopsonistic 3. Increased Productivity: the labor union educates workers in new methods of production, which leads to increased productivity MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

  8. Competitive Monopsonistic 3. Increased Productivity: MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER

  9. Competitive Monopsonistic 4. Quotas/Tariffs on Foreign Competition: the labor union promotes national legislation, which gets passed, to increase tariffs and/or quotas on foreign competitors MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

  10. Competitive Monopsonistic 4. Quotas/Tariffs on Foreign Competition: MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER

  11. Competitive Monopsonistic 5. Wage Increase Above Equilibrium Rate: the labor union bargains for and wins an increase in the wage rate above the equilibrium wage rate MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

  12. Competitive Monopsonistic 5. Wage Increase Above Equilibrium Rate: MRC S Wu S Wage Rate Wc Wu Wage Rate Wc D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment indeterminate

  13. Competitive Monopsonistic 6. Only Union Members Hired: the labor union signs an agreement with employers that forces employers to hire only union members who have gone through the union’s apprenticeship program MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

  14. Competitive Monopsonistic 6. Only Union Members Hired: S1 MRC 2 MRC S1 S S Wage Rate Wage Rate D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment LOWER

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