The Effects of Unions on Wages and Employment

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Presentation transcript:

The Effects of Unions on Wages and Employment In Competitive and Monopsonistic Labor Markets

Assumptions Two labor markets Market 1 is competitive Market 2 is monopsonistic Each labor market is in an initial equilibrium illustrated by the graphs A union exists in each of the markets

1. Competency test required: the union is successful in requiring that new teachers pass a state competency test to be employed Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

1. Competency test required Competitive Monopsonistic S1 MRC 2 MRC S1 S S Wage Rate Wage Rate D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment LOWER

2. National advertising campaign: the labor union conducts a successful advertising campaign urging people to buy union made goods Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

2. National advertising campaign: Competitive Monopsonistic MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER

3. Increased Productivity: the labor union educates workers in new methods of production, which leads to increased productivity Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

3. Increased Productivity: Competitive Monopsonistic MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER

4. Quotas/Tariffs on Foreign Competition: the labor union promotes national legislation, which gets passed, to increase tariffs and/or quotas on foreign competitors Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

4. Quotas/Tariffs on Foreign Competition: Competitive Monopsonistic MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER

5. Wage Increase Above Equilibrium Rate: the labor union bargains for and wins an increase in the wage rate above the equilibrium wage rate Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

5. Wage Increase Above Equilibrium Rate: Competitive Monopsonistic MRC S Wu S Wage Rate Wc Wu Wage Rate Wc D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment indeterminate

6. Only Union Members Hired: the labor union signs an agreement with employers that forces employers to hire only union members who have gone through the union’s apprenticeship program Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______

6. Only Union Members Hired: Competitive Monopsonistic S1 MRC 2 MRC S1 S S Wage Rate Wage Rate D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment LOWER