Lecture Issues in economics today - Chapter 42

The following will be discussed in this chapter: Economic growth in the United States: The record; the role of productivity; the reasons our productivity has varied; the roles of savings, capital, and technology; the declining quality of our labor force; economic growth in the less developed countries; the malthusian theory of population.

Chapter 42

Unions

Chapter Outline

• WHY UNIONS EXIST

• A UNION AS A MONOPOLIST

• THE HISTORY OF LABOR UNIONS

• WHERE UNIONS GO FROM HERE

• Currently 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 Exist

• The labor market is not perfectly

competitive

– If 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

The Monopsony Problem

• Monopsony: 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

Unions: Restricting Competition

and Improving Quality

• With licensing unions can

– reduce 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 Licensing

Information Issues

• A 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 Monopsonist Company vs

A Monopolist Union

• A 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 Negotiation

The lowest wages can be after a negotiation.

The highest wages can be after a negotiation.

History of Labor Unions: Part I

• In 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 II

• The 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 III

• The Taft-Hartley Act limited union

power The Act gave

– power to the President to order a off period during which workers could not strike

cooling-– 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 IV

• The 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 Power

• Membership

– The higher the percentage of workers represented by unions the greater their power

• Work Stoppages

– More prevalent strikes is a sign of more powerful unions as unions are less likely to strike from a position of weakness

Public, Private and Total Employees

The Union Numbers

• Union 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%.