Roger LeRoy Miller Economics Today

1. Roger LeRoy Miller Economics Today Chapter 28 Unions and Labor Market Monopoly Power

2. In the early 1960s, one out of every four American workers was a union member. Today only about one in ten belongs to a union. Why has union membership declined? Introduction

3. Learning Objectives • Outline the essential history of the American Labor Union movement • Discuss the current status of labor unions in the United States • Describe the basic economic goals and strategies of labor unions

4. Learning Objectives • 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 • The American Labor Movement • Unions and Collective Bargaining Contracts • Union Goals • Have Unions Raised Wages?

6. Chapter Outline • Can Unions Increase Productivity? • The Benefits of Labor Unions • Monopsony: A Buyer’s Monopoly

7. Did You Know That... • In 1971, some 2.5 million workers were involved in strikes, but in the past few years, fewer than 250,000 have been involved? • More than 12 times the number of workdays were lost to strikes in the 1950s than are lost to them today?

8. The American Labor Movement • Labor Unions • Worker organizations that seek to secure economic improvements for their members • They also seek to improve the safety, health, and other benefits of the their members.

9. The American Labor Movement • Craft Unions • Labor unions composed of workers who engage in a particular trade or skill • Knights of Labor • American Federation of Labor

10. The American Labor Movement • Early labor issues • 8-hour workday • Equal pay for men and women • Replacement of free enterprise with socialist system

11. The American Labor Movement • Government policy and unions • Initially government supported business by using police force to break strikes until World War I • National Industrial Recovery Act (1933) gave labor the right to bargain collectively • Declared unconstitutional

12. The American Labor Movement • Government policy and unions • National Labor Relations Act (1935) (Wagner Act) • Guaranteed the right to start unions and engage in collective bargaining

13. The American Labor Movement • Collective Bargaining • Bargaining between the management of a company or of a group of companies and the management of a union or a group of unions for the purpose of setting a mutually agreeable contract on wages, fringe benefits, and working conditions for all employees in all the unions involved

14. International Example:European Merchant Guilds, the Original Craft Unions • Began in the 11th century when merchant caravans organized themselves to seek exclusive trade rights

15. The American Labor Movement • Industrial Unions • Labor unions that consist of workers from a particular industry

16. The American Labor Movement • Industrial unions • Congress of Industrial Organizations (CIO) (1938) • AFL & CIO merged (1955) • United Auto Workers, United Steelworkers of America, and Industrial Association of Machinists announced they would merge

17. The American Labor Movement • Congressional control over labor unions • Taft-Hartley Act of 1947 • Allow right-to-work laws • Laws that make it illegal to require union membership as a condition of continuing employment in a particular firm

18. The American Labor Movement • Congressional control over labor unions • Taft-Hartley Act of 1947 • 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

19. The American Labor Movement • Congressional control over labor unions • Taft-Hartley Act of 1947 • Prohibited jurisdictional disputes • Disputes involving two or more unions over which should have control of a particular jurisdiction

20. The American Labor Movement • Congressional control over labor unions • Taft-Hartley Act of 1947 • Prohibited sympathy strikes • A strike by a union in sympathy with another union’s strike or cause

21. The American Labor Movement • Congressional control over labor unions • Taft-Hartley Act of 1947 • Prohibited secondary boycotts • A boycott of companies or products sold by companies that are dealing with a company being struck

22. The American Labor Movement • Congressional control over labor unions • Taft-Hartley Act of 1947 • Established the 80-day-cooling-off period

23. Decline in Union Membership Figure 28-1

24. The American Labor Movement • Explaining the fall in union membership • Shift from manufacturing to services • 1948 • Goods producing, transportation, and utilities accumulated to 51.2% of wage and salary employment • Today • 25%

25. The American Labor Movement • Explaining the fall in union membership • Persistent illegal immigration • Deregulation • Increase in female labor force participation • Increase in global competition

26. International Example:Europe’s Management-Labor Councils • Unionization rate in the European Union is 48% • Management-labor councils • Management and labor must reach decisions jointly and unanimously

27. Unions and Collective Bargaining Contracts • Collective bargaining sets a minimum wage • Contract (2 to 3 years) establishes: • Fringe benefits • Maximum work days • Working conditions

28. Unions and Collective Bargaining Contracts • Strikes: the ultimate bargaining tool • First strike—1786 • Purpose • Impose costs and reduce profits of the employer

29. Unions and Collective Bargaining Contracts • Strikes: the ultimate bargaining tool • Strikebreakers can reduce the bargaining power of the strike • Temporary or permanent workers hired by a company to replace union members who are striking

30. Taking on the Teamsters—The “Big” UPS Strike • In 1997 the Teamsters struck United Parcel Service (UPS). • The strike hurt thousand of firms that depended on UPS for shipments to their customers. • The higher shipping costs resulting from the new contract affected employment in other industries.

31. The Declining Number of Labor Strikes Figure 28-2 Source: U.S. Bureau of Labor Statistics

32. Union Goals • 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 unionized industries.

33. Unions Must Ration Jobs Figure 28-3

34. Union Goals • Unions must ration the available jobs by: • Seniority • Apprenticeship

35. Union Goals • Unions are monopoly sellers of a service • Three wage and employment strategies • Employ all union members • Maximize member income • Maximize wages for certain workers

36. What Do Unions Maximize? Figure 28-4

37. Union Goals • Limiting entry over time • One way to raise wage rates without specifically setting wages is for the unions to limit the size of their membership to the size of their employed workforce when the union was first organized.

38. Restricting Supply Over Time If union membership limited to Q1, wages increase to 16 instead of 15 and employment is reduced Figure 28-5

39. Union Goals • Altering the demand for union labor • Increasing worker productivity • Increasing the demand for union-made goods • Decreasing the demand for non-union-made goods

40. Union Goals • Question • Why would the strategy of increasing the demand for union labor be preferred over the limiting-entry strategy?

41. Have Unions Raised Wages? • Research findings • In selected industries (airlines and construction) union wage differential is high as 50% • Higher differentials during recessions • On average, the differential is 10 to 20%

42. Can UnionsIncrease Productivity? • Evidence that unions reduce productivity • Featherbedding • Any practice that forces employers to use more labor than they would otherwise or use existing labor in an inefficient manner

43. Can UnionsIncrease Productivity? • Evidence that unions reduce productivity • Resistance to new technology • Painters and paint sprayers • Plumber and PVC pipe • Strikes

44. Can UnionsIncrease Productivity? • Evidence that unions increase productivity • By providing a collective voice, unions: • Improve worker morale • Reduce turnover

45. The Benefits of Labor Unions • Unionism probably raises social efficiency. • Unions appear to reduce wage inequality. • Unions seem to reduce profits.

46. The Benefits of Labor Unions • Internally, unions provide a political voice for all workers, and unions have been effective in promoting general social legislation. • Unions tend to increase the stability of the workforce.

47. The Benefits of Labor Unions • What do you think? • Are unions really just monopolies that create member benefits by establishing a barrier to entry?

48. Monopsony: A Buyer’s Monopoly • Assumptions • 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 • The firm is the only buyer of a particular input • The buyer of labor is called a monopsonist, the single buyer.

49. Monopsony: A Buyers Monopoly • Monopsony in college sports • The NCAA operates as a monopsony (and monopoly) power in four ways: • It regulates the number of recruits • It fixes the prices universities can charge for sporting events. • It sets wages and conditions under which the athletes can be recruited. • Enforcement done with sanctions and penalties.

50. Monopsony: A Buyers Monopoly • Question • Which schools have the greatest incentive to cheat under this system?