1. Copyright © 2009 Pearson Education, Inc. 13- 1 Topic 8 (Chapter. 13) Unions

2. Copyright © 2009 Pearson Education, Inc. 13- 2 Table 13.1: Union Membership and Bargaining Coverage, Selected Countries, 2004

3. Copyright © 2009 Pearson Education, Inc. 13- 3 Union  Norris-LaGuardia Act of 1932: outlaw yellow-dog contract  National Labor Relations Act of 1935: rules for collective bargaining  Taft-Hartley Act of 1947: restricted some union activity (right-to-work laws)  Landrum-Griffin Act of 1959: regulate internal union policies (increase union democracy)

4. Copyright © 2009 Pearson Education, Inc. 13- 4

5. Copyright © 2009 Pearson Education, Inc. 13- 5 Figure 13.1: Union Membership as a Percentage of All Workers, by Sector, United States,1973-2006

6. Copyright © 2009 Pearson Education, Inc. 13- 6 Table 13.2: Percentage of U.S. Wage and Salary Workers Who Are Union Members, by Selected Characteristics, 2006

7. Copyright © 2009 Pearson Education, Inc. 13- 7 Figure 13.2: Effects of Demand Growth and the Wage Elasticity of Demand on the Market Constraints Faced by Unions

8. Copyright © 2009 Pearson Education, Inc. 13- 8 Figure 13.3: Union Maximizes Utility Subject to the Constraint of the Labor Demand Curve

9. Copyright © 2009 Pearson Education, Inc. 13- 9 Figure 13.4: Employer Isoprofit Curves

10. Copyright © 2009 Pearson Education, Inc. 13- 10 Figure 13.5: The Contract Curve— The Locus of Efficient Contracts

11. Copyright © 2009 Pearson Education, Inc. 13- 11 Figure 13.6: The Demand for and Supply of Unionization

12. Copyright © 2009 Pearson Education, Inc. 13- 12 Demand and Supply  Demographic change: % female workers up  D shifted left.  Changing industrial mix: increase in service sector (high price elasticity)  perceived benefit from union is small, establishment size is small  D shifted left  Regional shift: to the Sunbelt where right-to- work laws are effective  S shifted left  Competitive pressures: foreign competition and deregulation  high price elasticity  D shifted left  Employer resistance: S shifted left

13. Copyright © 2009 Pearson Education, Inc. 13- 13 Table 13.3: Union Representation Elections and Unfair Labor Practice Complaints Issued by NLRB, 1970-2005

14. Copyright © 2009 Pearson Education, Inc. 13- 14 Figure 13.7: Hick’s Bargaining Model and Expected Strike Length

15. Copyright © 2009 Pearson Education, Inc. 13- 15 Implications  UR schedule: if costs to workers of being strike fall, then heighten the resistance (unemployment insurance, unemployment rate..)  EC schedule: if firms can pile inventories, are less profitable, face an elastic demand curve, can hire replacement workers, then heighten the resistance  Strikes are wasteful: require certain bargaining protocol that will help to avert future strikes. (start bargaining earlier, limit the number of contract items,..)  then why do they occur?  since threat as such is a weapon (retaining credibility)  Strikes give signals (to know the true level of profits)

16. Copyright © 2009 Pearson Education, Inc. 13- 16 Union wage effects  R=(Wu-Wn)/Wn  Four possible reactions 1)Spillover effect 2)Threat effect 3)Wait unemployment 4)Shifts in labor demand

17. Copyright © 2009 Pearson Education, Inc. 13- 17 Figure 13.8: Spillover Effects of Unions on Wages and Employment

18. Copyright © 2009 Pearson Education, Inc. 13- 18 Figure 13.9: Threat Effects of Unions on Wages and Employment in Nonunion Sector

19. Copyright © 2009 Pearson Education, Inc. 13- 19 Wait unemployment and shifts in labor demand  Wait unemployment: waiting for union jobs to open up. Not everyone who loses a job in the union sector will spill over into the non union sector  moderating downward pressure on nonunion wages E(w) = w*probability of getting job  Shift in labor demand: unions put effort to increase product demand

20. Copyright © 2009 Pearson Education, Inc. 13- 20 Evidences (wages)  Union wage differential in US is 10-20%  Private sector differential > public sector  US > UK, Germany, Austria, Australia  Union reduce the earnings gap  Bigger during economy expansion. Also hard to replace capital for labor  Mixed evidences on spillover and threat effect: threat effect dominated within cities, spillover effect dominated within industries

21. Copyright © 2009 Pearson Education, Inc. 13- 21 Evidences (others)  Ignoring non-pecuniary conditions of employment may be misleading (union firms tend to have less-flexible hours, faster work paces, overtime..)  Union has adverse effect on employment  The effects of unions on productivity and profits are mixed: “pressure” or “voice”? (workers suggestions and preferences can be communicated). Productivity may be higher, but stock prices are lower for unionized firms.

22. Copyright © 2009 Pearson Education, Inc. 13- 22 Normative analyses  Potential reductions in social welfare: -Strike waste resources -Use of excess workers create wastage -Mobility of workers are restricted.  Potential increases in social welfare: -Voicing of request and collective bargaining (also solve free-rider problems) -Share monopoly profits -Give “shock” for better management