Chapter 13 Labor Markets & Wage Determination Purely Competitive Labor Market Monopsony Union Models & Bilateral Monopoly
Purely Competitive Labor Market Structure: Many firms competing for a specific type of labor. Numerous qualified workers with identical skills supply their type of labor. Both firms and workers are wage takers (no control over market wage rate.)
Purely Competitive Labor Market Market demand is sum of individual firm demand. Market supply: 1) no union—individuals compete for jobs, and 2) upward sloping—to hire more workers requires higher wages to entice them away from other jobs or into the job market itself. Graph with TR, TC and wage cost.
Monopsony A resource market where an employer has monopolistic hiring power. Single buyer/demander of a particular kind of labor. The type of labor is relatively immobile. The firm is a wage maker. Wages vary directly with the number of workers it employs.
Monopsony Upsloping labor supply curve—the firm will pay higher wages to obtain more labor (if large in relation to labor mrkt.) MRC is higher than wage rate Because higher wages must be paid to all previously hired workers Conclusion: the monopsonist maximizes its profits by hiring fewer workers and paying lower wages!
Examples: Nurses, postal workers, pro athletes, teachers, some building trades, rocket scientists, newspaper reporters in small towns, others?
Largest Labor Unions in U.S. AFL-CIO Auto Workers (UAW) Carpenters (CJA) Communications Workers (CWA) Electrical Workers (IBEW) Engineers, Operating (IUOE) Laborers (LIUNA) Letter Carriers (NALC) Machinists (IAM) National Education Association /American Federation of Teachers (NEA/AFT) Plumbers (PPF) Postal Mail Handlers (NPMHU) Service Employees (SEIU) State, County & Municipal Employees (AFSCME) Steelworkers (USWA) Teamsters (IBT) United Food & Commercial Workers (UFCW) UNITE HERE
3 Union Models Demand Enhancement Model Premise: Unions want to increase demand for labor (higher wages, more jobs.) Increased product demand leads to increased labor demand (“buy union” advertising, lobbying: roads, education, protectionism) Unions promote programs to increase productivity. Unions want to change prices of other resources Raise price of substitutes (supporting minimum wage laws) Lower price of complements (energy, health care)
Exclusive Craft Union Model Premise: unions can increase wages by restricting the supply of labor Lobbying—restrict immigration, child labor laws, overtime laws Exclusive—restrictive membership policies (limit numbers, apprenticeships) Occupational licensing—require workers to have license.
Inclusive or Industrial Model Power gained by seeking all workers as members (eliminate substitutes) Below a certain wage level, the union will supply no labor. Employers become wage takers.
Bilateral Monopoly Model Pure form: single demander of labor and single supplier of labor. Combination of monopsony and inclusive unionism. Indeterminate outcome to model Firm seeks below competitive wage rate Unions seeks above competitive wage rate Economic theory can’t predict outcome
Desirability of bilateral monopoly Through collective bargaining, the wage rate may reach a competitive level. At the competitive wage rate, the firm has no incentive to restrict employment. Each party cancels the other’s monopoly power.