Chapter 42 Unions

Chapter 42UnionsChapter OutlineWHY UNIONS EXISTA UNION AS A MONOPOLISTTHE HISTORY OF LABOR UNIONSWHERE UNIONS GO FROM HEREBackgroundCurrently unions represent less than 15% of the total workforce and less than 10% of the private workforce.In the late 1800s-early 1900s unions’ actions were considered a violation of the Sherman Anti-Trust Act provisions against restraint of trade.Laws giving union members rights to collective bargaining were passed in the early 1900s but declared unconstitutional. It was not until the 1930s when union protections were created and affirmed by the courts.Why Unions ExistThe labor market is not perfectly competitiveIf there is one buyer of labor, the wages and the number of workers hired will be lower than the economically efficient level.Unions can enhance the value of labor to firms with training and apprenticeships.A Perfectly Competitive Labor MarketLaborWDemandSupplyAW*BC0 L*Value to the firms: 0ACL*Firms pay workers: OW*CL*The opportunity cost to workers: OBCL*Surplus to firms: W*ACSurplus to workers: BW*CThe Monopsony ProblemMonopsony: the market has only one buyer (e.g. a company town.)When there is a monopsony the wage is less than the Marginal Revenue Product of Labor (the additional revenue generated from hiring an additional worker).This is because the supply curve of labor is not the Marginal Resource Cost (the increase in total labor costs to the firm of buying increasing amounts of labor) curve for labor as it is under perfect competition.Modeling MonopsonyLaborWDemandSupplyAW*BC0 L*Marginal Resource CostWCTWvalueLCTEFDeadweight loss is EFCUnions: Restricting Competition and Improving QualityWith licensing unions canreduce supply by limiting the number of people who are eligible for a job.reduce supply by imposing increased training costs (either explicit training costs or opportunity costs in the form of lost wages)increase demand by improving the quality of the labor.The Impact of LicensingCLaborWDSupplyAW*B0 L*D’W’L’S’Information IssuesA Chapter 6 requirement for a perfectly competitive market is that buyers and sellers have complete information.A labor market may not be perfectly competitive because workers may not know their alternatives, while bosses may.A Union as a MonopolistLaborWDemandSupplyAW*BC0 L*WunionLunionMRA Monopsonist Company vs. A Monopolist UnionA negotiation will take place between a union and the company. If the company is the only employer in town of a particular skill and the union is the only seller of that skill then the outcome is uncertain.The wage will be no lower than if there had been no union and will be no higher than if there had been many employers.Modeling the NegotiationLaborWDemandSupplyAW*BC0 L*Marginal Resource CostWCTWvalueLCTLaborWDemandSupplyAW*BC0 L*WunionLunionMRThe lowest wages can be after a negotiation.The highest wages can be after a negotiation.History of Labor Unions: Part IIn the US the shoemakers were the first trade union in the 1700s.In the late 1800s unions that attempted to form and collectively bargain with employers were opposed by the government on the grounds that these actions were a restraint of trade outlawed in the Sherman Anti-Trust Act.There were many violent disputes between union members and government agents.The first attempt at giving union members rights to collective bargaining were in 1914 with the Clayton Act.History of Labor Unions: Part IIThe depression of the 1930s gave Democrats control of Congress and the courts. The Norris-LaGuardia Act and the Wagner Act were passed and upheld by the courts. These laws gave unions rights to collective bargaining.Unions became very powerful during and shortly after WWII. History of Labor Unions Part IIIThe Taft-Hartley Act limited union power. The Act gave power to the President to order a cooling-off period during which workers could not strike.states the power to allow workers the right to not join a union.President Kennedy gave federal workers the right to collectively bargain.History of Labor Unions Part IVThe PATCO strike of 1981 had President Reagan fire all of the nation’s air-traffic controllers.Most strikes/lockouts in the 1980s and 1990s were won by management.Measures of Union PowerMembershipThe higher the percentage of workers represented by unions the greater their power.Work StoppagesMore prevalent strikes is a sign of more powerful unions as unions are less likely to strike from a position of weakness. The Union NumbersUnion membership in the private sector has fallen below 10%Union membership in the public sector has grown to above 35%.Overall union membership has fallen below 15%.