Chapter 10

1. Chapter 10 Labor Unions and Collective Bargaining

2. 1. Why Unions?

3. Why Unions? • Workers prior to industrial revolution were self-employed (i.e., worked for themselves). • Industrialization separated the functions of management and labor. • Workers became dependent on owners for employment and income. • Workers formed unions to protect their interests and bargain collectively with employers.

4. US Union History • Prior to Great Depression, social attitudes and the political climate were anti-union • Sherman Antitrust used to outlaw strikes and product boycotts because they reduced the flow of goods in interstate commerce • Employees had to sign “yellow-dog” contracts to get jobs, agreeing not to join a union. • Unions who organized these workers were found guilty of inducing a breach of contract. • Firms used lockouts to keep unions from forming and blacklists to keep organizers out of work. • Strikebreakers

5. Depression & Later Reforms • 1932 Norris LaGuardia Act first federal law to regulate union-employer relationship. • Restricted employer’s use of courts to prevent organizing and made yellow-dog contracts unenforceable in federal courts. • 1935 National Labor Relations Act (Wagner Act) listed unfair labor practices • Workers can organize as units and firm can’t discriminate against pro-union employees • NLRB can investigate & certifies unions

6. Depression & Later Reforms • 1947 Taft –Hartley Act curbed union power. • Allows right-to-work states (22 in US now). Can’t require union membership to get job. • Allows decertification votes of unions • Disallows most secondary boycotts by unions • 1959 Landrum-Griffin Act limits union corruption • Unions must disclose finances • Unions must have regular elections

7. Depression & Later Reforms • 1962 JFK Executive Order allows federal employees to organize • 1978 Civil Service Reform Act prohibits federal employees from striking & allows federal workers to either join or not join unions

8. 2. Labor Unionism: Facts and Figures

9. Table 13.1 Union Membership and Bargaining Coverage, Selected Countries, 2004

10. Union Membership by Industry, 2008 • Unionization tends to be higher in the goods producing industries such as manufacturing and construction. • Unionization tends to be lower in service industries such trade and finance, real estate, and insurance. • Unionization is high in transportation, communications, and utilities due to low labor demand elasticities.

11. Union Membership by Occupation, 2008 • White-collar workers such as managers and sales workers tend to have low unionization rates. • The low white-collar worker unionization rates are because they have higher wages and some managers are exempt from unionization.

12. Figure 13.1 Union Membership as a Percentage of All Workers, by Sector, United States, 1973–2008

13. Union Membership by Public Sector Status, 2008 • Public sector workers have a much higher unionization rate than private-sector workers. • The unionization rate of public sector workers rose rapidly in the 1960s and 1970s when laws allowing public-sector workers to unionize were passed and public sector managers did not aggressively fight the unionization of their workers.

14. Union Membership by Demographic Group, 2008

15. High Unionization States, 2008

16. Low Unionization States, 2008

17. Structure of Organized Labor Federations National Unions Local Unions

18. Structure of Organized Labor • At top of pyramid are the federations of national unions • AFL-CIO has 56 national unions & 8 million workers. Purpose is not to organize new workers but to push labor interests like minimum wage, trade, political lobbying, etc. • Change to Win (started in 2005 in break from AFL-CIO) has 7 national unions with 6 million workers, including Service Employees Intl. and Teamsters. Key agenda: organize new workers, particularly immigrants

19. Structure of Organized Labor • National Unions are federations of local unions organized by industry (autos, steel) or craft (carpenters, electricians). • They organize the unorganized in industry or craft • They negotiate collective bargaining agreements with employers where product markets are national or regional • Want standardized wages (no substitution of low wage for high wage • Collective bargaining complex and costly

20. Structure of Organized Labor • National Education Association (3 million), a national union, is not associated with either AFL-CIO or Change to Win • Local Unions are usually subservient branches of national unions (while nationals are not subservient to federations) • Locals need national permission to strike • Can be disbanded by national • Police agreement and resolve grievances

21. Collective Bargaining • When an industry contains few employers (e.g., autos), union will engage in pattern bargaining, obtaining a contract first with 1 firm then applying it to others • When there are numerous local employers, unions will broker a citywide deal with an employers’ association • Lower bargaining costs for union • Employers have more power as group vs. solo • Standardized wages limit individual firm risk

22. 3. Unionism’s Decline • The proportion unionized has been declining since 1950s • Why the decline? • Structural Changes in the Economy • Increased Management Opposition • Substitution by Government • Changing Political Balance

23. Union Membership • The unionized sector is a minority component of the labor force. • Unionism is on the decline in the U.S. • The number of union members peaked at 20 million in 1980 and has fallen to slightly more than 15 million now. • The percent of labor force that is unionized fell from 30% in 1950 to 11% now.

24. Comparison to Trading Partners • Union membership has not declined drastically in our trading partners • US is far lower (11%) than Japan (20%), Germany (23%), Canada (28%), UK (29%), Italy (34%) or Sweden (78%).

25. Causes of Decline in Unionism • Structural changes • The structural-change hypothesis is the labor force and economy has changed in ways that are unfavorable to unions. • Demand has shifted from blue-collar manufacturing to white-collar services • Growing import competition in manufacturing • Small firms growing at expense of large • Large increase in women, youths and part-time employment, traditionally nonunion

26. Causes of Decline in Unionism • Energy costs shifted production to South & West • Unions successfully increased wages in 1970s • Unionized firms switched to nonunion methods of production where possible. • Nonunion firms expanded output and employment due to their lower costs. • Criticisms • Other countries have had similar structural changes w/o unionism decline. • In past unions grew by organizing non-unioners.

27. Causes of Decline in Unionism • Managerial-opposition hypothesis • The managerial-opposition hypothesis argues that in the 1970s high union wages increased firm anti-union acts • Firms hire permanent strike breakers • Firms hire consultants • Firms “educate” workers about union negatives, i.e., lost jobs, strikes, etc. • Firms increased illegal actions, like identifying and firing pro-union workers

28. Causes of Decline in Unionism • The substitution hypothesis • The substitution hypothesis argues that the government and employers now provide services that used to be gained by unions. • The government now provides services such as workers’ compensation and health and safety laws that unions used to provide. • Some firms try to prevent unionization by using grievance procedures and providing worker-management communication methods. • Willingness to join unions has declined

29. Causes of Decline in Unionism • Other factors • Unions have decreased their organizing efforts. • The National Labor Relations Board, which oversees unionization efforts, became less pro-union under Reagan-Bush. • American values of free markets and individualism are at odds with collective unionism.

30. Causes of Decline in Unionism • Relative importance • Freeman concludes that the total decline in unionization is due to: • Structural changes (40%) • Increased managerial-opposition (40%) • Decreased union organizing (20%) • Krueger argues nearly all of the recent decline in unionization is due to decreased demand for unions among nonunion workers.

31. Union Responses to Decline • Increased mergers among unions • Example: NEA and AFT • Changes in strategies • Unions have increased organizing efforts and targeted white-collar workers. • Unions have tried to avoid strikes and used work slowdowns in their place. • Less emphasis on wage and more on work conditions, i.e., safety, schedules, parental leave, etc.

32. 1. Critically evaluate each of these statements: Questions for Thought (a) “The relative decline of the American labor movement can be explained by the shift from goods- producing to service-producing industries and the closely related shifts from blue-collar to white-collar occupations and from male to female employees. (b) “The success of unions in raising their wages relative to nonunion workers has contributed to the decline in unionism. (c) “Unionized firms have tended to be less profitable, and therefore, employers are more resistant to unionization.

33. 4. What Do Unions Want? • Monopoly Union Model • Efficient Contracts Model

34. Monopoly Union Model • Economists usually assume that the goal of a union is to increase both the wages and employment of its members. • Economists construct union indifference curves that show the combinations of wage and employment where the union is indifferent. • Characteristics of indifference curves • Negatively sloped • Convex

35. Monopoly Union Model • The monopoly union model assumes that the union sets the wage rate and the firm sets the level of union employment based on this wage rate. • The firm maximizes profits and thus chooses an employment level based on its labor demand curve. • The available wage and employment combinations for the union are on the labor demand curve.

36. Monopoly Union Model Wage • In the monopoly union model, the utility maximizing wage and employment for the union is point u, where union indifference curve I3 is just tangent to the labor demand curve DL. • The union raises the wage rate from Wc to Wu, the firm decreases employment from Qc to Qu, and the union increases total utility from I1 to I3. u Wu I4 I3 Wc I1 c DL 0 Qu Qc Employ

37. Efficient Contracts Model • The outcome of the monopoly union model is point u. This combination is not efficient for the two parties since at least one of them could be made better off by moving off the labor demand curve. Wage I4 I3 • For example, at point y, the union has achieved a higher utility level than at point u by being on a higher indifference curve and the firm is no worse off because it stays on the same isoprofit curve. y u Wu Wy P1 DL • The combinations of wage and employment where at least one party is better off without the other party worse off are called efficient contracts. Qy 0 Qu Employ

38. Efficient Contracts Model • The contract curve is composed of the set of efficient contracts (tangencies of union indifference curves and isoprofit curves). • The slope of the contract curve depends on the shapes of the firm’s isoprofit curves and the union’s indifference curves. • A vertical contract curve at the competitive employment level is called a strongly efficient contract curve.

39. Efficient Contracts Model • In general, the efficient contract outcome will result in lower wage and more employment than the monopoly union outcome. • Economists have suggested this helps explain the requirements for excess labor in union contracts. • These stipulations or “feather bedding” take the form of work rules specifying minimum work crew sizes or narrow job descriptions.

40. Empirical Evidence • A direct test of the efficient contracts model is whether unions bargain over employment as well as wages. • Contrary to the efficient contracts model, union contracts almost always allow firms to unilaterally set the employment level. • Some researchers have suggested they may indirectly affect employment by bargaining over capital-labor ratios.

41. Empirical Evidence • Indirect tests of the efficient contracts model rely on the fact that efficient contracts and monopoly union models have different predictions regarding which factors affect the level of union employment. • Monopoly union predicts union employment level should be related to the union wage, but it should have no relationship with the competitive wage. • Strongly efficient contract model predicts union employment level should be related to the competitive wage, but it should have no relationship with the union wage. • The findings from these indirect tests yield mixed support for the efficient contracts model.

42. 5. Unions and Wage Determination

43. Unions and Wages • Unions can increase the wages of their members by: • Increasing the demand for union labor • Restricting the supply of labor • Bargaining for an above equilibrium wage

44. Increasing Labor Demand Wage rate • To the extent that unions can increase the demand for union labor from (D0 to D1), they can gain both higher wages and employment. S W1 W0 D1 D0 Q0 Q1 Quantity of Labor Hours

45. Methods to Increase Union Labor Demand • Increasing product demand • Lobbying for tariffs on foreign goods • Enhancing productivity • Participation in labor-management committees on productivity • Influencing the prices of related inputs • Lobbying for minimum wage hikes as they raise the price of substitutable less-skilled, nonunion labor • Davis-Bacon Act, which requires federal contractors pay the “prevailing” union wage scale • Increasing the number of employers • Attempts to pass requirements for domestic content for autos sold in the U.S.

46. Changes in Labor Supply S1 Wage rate S0 • If a union decreases the supply of available labor from S0toS1, the equilibrium wage rate will rise to W1 but the equilibrium quantity will fall to Q1. W1 W0 D0 Q1 Q0 Quantity of Labor Hours

47. Methods to Decrease Labor Supply • Reducing the number of qualified suppliers of labor • Lobby for laws that reduce immigration, child labor, and length of the workweek • Limit entry into occupation through long apprenticeships • Occupational licensing which are laws that require practitioners to meet certain requirements • Raising nonwage income • Lobby to increase nonwage income sources such as Social Security in order to decrease labor supply

48. Craft vs. Industrial Unions • Craft unions are more successful in limiting labor supply • Industrial unions have a difficult time limiting labor supply • Must “monopolize” the supply of labor by organizing all firms • Must make labor demand inelastic to preserve labor income when increasing wages • Prohibit subcontracting, mandatory severance, require advance layoff notice

49. Wage rate SL b MWC WU c WC a DL QC QU Quantity of Labor Hours Bargaining for an Above-Equilibrium Wage • By organizing all workers and having a union shop (requiring all new hires to join the union), the union may achieve a wage WU that is above the competitive wage WC. d • The effect is to make the labor supply curve perfectly elastic at WU until point d. • The employment level will fall from QC to QU. • An efficiency loss of abc will also result. • The more elastic is DL, the larger is the employment loss. As result unions try to reduce the elasticity of DL.

50. 1. Explain how each one of the following contract provisions might affect the elasticity of labor demand during the period of the labor contract: Questions for Thought (a) Layoff and severance pay (b) Prevention of subcontracting (c) The limiting of plant shutdown or relocation 2. Under what elasticity of labor demand conditions could a union restrict the supply of labor—that is, shift the supply curve leftward—and thereby increase the collective wage income (wage bill) of those workers still employed?