1. Chapter 13 Labor Markets & Wage Determination
Purely Competitive Labor Market
Monopsony
Union Models & Bilateral Monopoly

2. 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.)

3. 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.

4. 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.

5. 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!

6. Examples:
Nurses, postal workers, pro athletes, teachers, some building trades, rocket scientists, newspaper reporters in small towns, others?

7. 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

8. 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)

9. 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.

10. 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.

11. 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

12. 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.