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Chapter 29

Chapter 29. Unions and Labor Market Monopoly Power. Introduction. Today, nearly 40 percent of U.S. government employees are members of unions, as compared to fewer than 8 percent of all U.S. workers employed by private firms.

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Chapter 29

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  1. Chapter 29 Unions and Labor Market Monopoly Power

  2. Introduction Today, nearly 40 percent of U.S. government employees are members of unions, as compared to fewer than 8 percent of all U.S. workers employed by private firms. In this chapter, you will learn about the goals of unions and about their place in the U.S. economy.

  3. Learning Objectives Outline the essential history of the labor union movement Discuss the current status of labor unions Describe the basic economic goals and strategies of labor unions

  4. Learning Objectives (cont'd) Evaluate the potential effects of labor unions on wages and productivity Explain how a monopsonist determines how much labor to employ and what wage rate to pay Compare wage and employment decisions by a monopsonistic firm with the choices made by firms in industries with alternative market structures

  5. Chapter Outline Industrialization and Labor Unions Union Goals and Strategies Economic Effects of Labor Unions Monopsony: A Buyer’s Monopoly

  6. Did You Know That ... The average employee of U.S. state and local governments receives 45 percent more in wages and benefits than the average U.S. private worker? One explanation for the higher earnings of state and local government workers is that an increasing percentage of them belong to labor unions.

  7. Did You Know That … (cont’d) Labor Unions Worker organizations that seek to secure economic improvements for their members These organizations also seek to improve safety, health, and other benefits (such as job security) of their members

  8. Industrialization and Labor Unions Craft Unions Labor unions composed of workers who engage in a particular trade or skill Collective Bargaining Negotiation between the management of a company or of a group of companies and the management of a union or group of unions for the purpose of reaching a mutually agreeable contract that sets wages, fringe benefits, and working conditions for all employees in all unions

  9. Industrialization and Labor Unions (cont'd) Unions in the U.S. Knights of Labor American Federation of Labor Samuel Gompers Early labor issues 8-hour workday Equal pay for men and women

  10. Industrialization and Labor Unions (cont'd) The formation of industrial unions National Industrial Recovery Act of 1933 National Labor Relations Act 1935, otherwise known as the Wagner Act Gave unions the right to organize workers and to engage in collective bargaining

  11. Industrialization and Labor Unions (cont'd) The Congress of Industrial Organizations (CIO) was formed in 1938 It was composed mainly of industrial unions Prior to the formation of the CIO, most labor organizations were craft unions

  12. Industrialization and Labor Unions (cont'd) Industrial Unions Labor unions that consist of workers from a particular industry, such as automobile manufacturing or steel manufacturing

  13. Industrialization and Labor Unions (cont'd) Congressional control over labor unions Taft-Hartley Act of 1947 Allowed right-to-work laws Laws that make it illegal to require union membership as a condition of continuing employment in a particular firm

  14. Industrialization and Labor Unions (cont'd) Congressional control over labor unions Taft-Hartley Act of 1947 (cont’d) Made closed shops illegal A business enterprise in which employees must belong to the union before they can be hired and must remain in the union after they are hired A union shop however, is legal Non-union members join later

  15. International Example: The Chinese Union Monopoly Expands to Include Employees of Foreign Firms Chinese firms have operated within a closed shop environment, in which All-China Federation of Trade Unions (ACFTU) has been the only single union in China. Recently, the ACFTU has sought to expand its membership by requiring employees of foreign firms, including Wal-Mart, McDonald’s and FedEx, to join this union when they accept their positions.

  16. Industrialization and Labor Unions (cont'd) Congressional control over labor unions Taft-Hartley Act of 1947 (cont’d) Prohibited jurisdictional disputes Disputes involving two or more unions over which should have control of a particular jurisdiction

  17. Industrialization and Labor Unions (cont'd) Congressional control over labor unions Taft-Hartley Act of 1947 (cont’d) Prohibited sympathy strikes A strike by a union in sympathy with another union’s strike or cause

  18. Industrialization and Labor Unions (cont'd) Congressional control over labor unions Taft-Hartley Act of 1947 (cont’d) Prohibited secondary boycotts A boycott of companies or products sold by companies that are dealing with a company being struck

  19. Industrialization and Labor Unions (cont'd) Congressional control over labor unions Taft-Hartley Act of 1947 (cont’d) Established the 80-day cooling-off period A court injunction can be used to delay a strike if it would imperil the nation’s safety or health

  20. Industrialization and Labor Unions (cont'd) To understand the current status of labor unions, we consider Worldwide trends in unionization U.S. unionization trends

  21. Figure 29-1 Decline in Union Membership

  22. Table 29-1 The Ten Largest Unions in the United States

  23. Industrialization and Labor Unions (cont'd) Explaining the fall in union membership Deregulation Immigration Shift from manufacturing to services

  24. Union Goals and Strategies Strikes: the ultimate bargaining tool Purpose is to impose costs and reduce profits of the employer Workers do not receive wages during the time of the strike, but they may receive some compensation from the union strike fund.

  25. Union Goals and Strategies (cont'd) Strikebreakers can reduce the bargaining power of the strike Temporary or permanent workers hired by a company to replace union members who are striking

  26. Union Goals and Strategies (cont'd) Union goals with direct wage setting One of the major roles of a union that establishes a wage rate above the market clearing wage rate is to ration available jobs among the excess number of workers who wish to work in the unionized industry The effects of setting a wage rate higher than a competitive market clearing wage rate can be seen in Figure 29-2.

  27. Figure 29-2 Unions Must Ration Jobs

  28. Union Goals and Strategies (cont'd) Rationing can be done by Using the seniority system Lengthening the apprenticeship period Instituting other rationing methods

  29. Union Goals and Strategies (cont'd) Union wage and employment strategies include: Employing all union members Maximizing member income Maximizing wage rates for certain workers

  30. Figure 29-3 What Do Unions Maximize?

  31. Union Goals and Strategies (cont'd) Union strategies to raise wages indirectly include: Limiting entry over time Altering the demand for union labor

  32. Union Goals and Strategies (cont'd) Limiting entry over time One way to raise wage rates without specifically setting wages is for a union to limit the size of its membership to the size of its employed workforce when the union was first organized

  33. Figure 29-4 Restricting Supply over Time When union membership is limited to Q1, wages increase and employment decreases

  34. Union Goals and Strategies (cont'd) Demand for union labor can be increased by Increasing worker productivity Increasing the demand for union-made goods Decreasing the demand for non-union-made goods

  35. Economic Effects of Labor Unions Do union members earn higher wages? Are they more or less productive than nonunionized workers? What are the broader economic effects of unionization?

  36. Economic Effects of Labor Unions (cont'd) Unions are able to raise wages if they can successfully limit the supply of labor in a particular industry Economists estimate that the average union wage premium is $2.25 an hour Yet annual earnings for union workers are not necessarily higher, because they may work somewhat fewer hours

  37. Why Not … require firms to pay union wages to nonunionized workers? Requiring employers to pay the average nonunionized U.S. worker about $2.25 per hour more would induced firms to cut back on the quantity of labor demanded. Also, more people would desire to supply additional labor. The result would be excess quantities of labor supplied, and more people would be unemployed.

  38. Economic Effects of Labor Unions (cont'd) Question How do unions affect labor productivity? Answers There is some evidence that featherbeddingcreates inefficiency in the unionized industries But some economists argue that unions actually enhance productivity by reducing labor turnover

  39. Economic Effects of Labor Unions (cont'd) Featherbedding Any practice that forces employers to use more labor than they would otherwise or to use existing labor in an inefficient manner

  40. Economic Effects of Labor Unions (cont'd) Economic benefits and costs of labor unions—two opposing views Unions are monopolies whose main effect is to raise the wage rate of high seniority members Unions increase labor productivity by promoting generally better work environments

  41. Monopsony: A Buyer’s Monopoly Assumptions The firm is perfect competitor in the product market: it cannot alter the price of the product it sells, and it faces a perfectly elastic demand curve for its product One factory not only hires the workers but also owns all the businesses in the town. This buyer of labor is called a monopsonist, the only buyer in market

  42. Monopsony: A Buyer’s Monopoly (cont'd) The monopsonist faces an upward-sloping supply curve of labor We call the additional cost to the monopsonist of hiring one more worker the marginal factor cost (MFC) The marginal factor cost of increasing the labor input by one unit is greater than the wage rate; thus the marginal factor cost curve always lies above the supply curve

  43. Figure 29-5 Derivation of a Marginal Factor Cost Curve, Panel (a)

  44. Figure 29-5 Derivation of a Marginal Factor Cost Curve, Panel (b)

  45. Monopsony: A Buyer’s Monopoly (cont’d) Employment and wages under monopsony To determine the number of workers that a monopsonist desires to hire, compare the marginal benefit to the marginal cost of each hiring decision The marginal cost is the marginal factor cost (MFC) curve, and the marginal benefit is the marginal revenue product (MRP) curve

  46. Monopsony: A Buyer’s Monopoly (cont’d) Figure 29-6 displays how a monopsonist finds its profit-maximizing quantity of labor demanded at A, where MRP = MFC

  47. Figure 29-6 Wage and Employment Determination for a Monopsonist MRP > W Hire Qm where MFC = MRP and pay Wm

  48. Monopsony: A Buyer’s Monopoly (cont'd) Monopsonistic Exploitation Paying a price for the variable input that is less than the marginal revenue product The difference between marginal revenue product and the wage rate

  49. Policy Example: Can Minimum Wage Laws Ever Boost Employment? Figure 29-7 demonstrates how a monopsony responds to a minimum wage law that sets a wage floor above the wage rate it would otherwise pay its workers To maximize its economic profits under the minimum wage, the monopsony equalizes the minimum wage rate with marginal revenue product

  50. Figure 29-7 A Monopsony’s Response to a Minimum Wage

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