1. Chapter 28
Labor Unions
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter Objectives A short history of the labor movement
Labor legislation
The economic power of unions and employers
The economic power of monopsonies
Collective bargaining
The strike
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

3. A Short History of the Labor Movement
Labor unions are a traditional American institution
Until the 1940s most Americans had unfavorable opinions of unions
The AF of L rang in the modern era of unions in 1886
With the emergence of the large corporation, individual workers had little bargaining power
Thousands of workers banded together did have some leverage
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

4. A Short History of the Labor Movement
Employers fought labor unions tooth and nail
Union members were blacklisted
Those who were suspected of union sympathies were fired
Court orders were obtained to prevent strikes
Some times private detectives , labor goons, and sympathetic local police were used to put down strikes violently
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

5. Key Labor Legislation
The National Labor Relations Act (The Wagner Act, 1935)
The Wagner Act put the force of government behind collective bargaining
The Taft-Hartley Act (1945) was put forth as a measure to protect “employers” rights
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

6. Key Labor Legislation The Landrum-Griffin act (1959)
This act protected union members from abuses by their own union leadership
This act also attempted to cut down on embezzlement of union funds by union leaders
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

7. Union membership reached its peak in the late 1970s
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

8. Union Membership,
Union membership as a percentage of the labor force reached its peak in the late 1950s
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

9. America is one of the least unionized industrial nations in the world
Union Membership As a Percentage of Employed Labor Force, Selected Nations, 1999
America is one of the least unionized industrial nations in the world
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

10. The Economic Power of Labor Unions
Are unions a monopoly?
We define a monopoly as the seller of a good or service for which there are no close substitutes
Technically, labor is not really a good or service, but rather a factor that helps produce a good or service
If we brush aside that technicality, then for all intents and purposes unions are sometimes monopolies
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

11. The Economic Power of Labor Unions
Unions have two ways of exerting power
The method of inclusion
Take in as members virtually everyone who works in a particular craft or industry
The power is in the numbers
The method of exclusion
You don’t take in just anyone
You need experience
You must take test
Who you know wouldn’t hurt your chances
By keeping people out, you limit the supply and wages amazingly go way up
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12. Inclusive and Exclusive Unions
The wage rate is set by supply and demand
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

13. The Economic Power of Large Employers
Unions have become quite powerful
Corporations not only have remained powerful, but this power is becoming increasingly concentrated because of the rapid pace of corporate mergers
An extreme case of corporate power is that of monopsony
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

14. Monopsony
Monopsony is the market situation in which there is only a single buyer for a product
The most common kind of monopsony is a labor market where there is only a single employer
Sometimes 60 to 80% of jobs in some areas are provided by a single employer
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

15. Monopsony The monopsonist faces the entire supply curve of labor
Because that curve sweeps upward to the right, to induce more people to work more, it has to pay them a higher wage rate
The best know monopsonists these days are professional baseball, football, and basketball leagues
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

16. Bilateral Monopoly
When a union that controls the supply of labor is opposed by an employer that controls the demand for labor, we have a bilateral monopoly
Some examples are
Auto workers, professional sports, teachers in most large school districts, and aerospace workers
Like the competitive oligopolists, a union dealing with a monopsony employer knows that any move it makes will invite a countermove by the firm
At the bargaining table, who ends up with what depends largely on the relative power on both sides
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

17. The Collective Bargaining Process
Collective bargaining is the main arena of the power struggle between labor and management
Labor generally tries to secure substantial increases in wages, fringe benefits, and perhaps better working conditions
Management, of course, offers considerably less than labor wants
And so they bargain
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

18. The Collective Bargaining Process
Labor’s ultimate weapon is the strike
Management’s ultimate weapon is its ability to take a strike
Sometimes management has been know to “lock out” their workers
But, does it really make any sense to lock out workers who are about to leave anyway?
It might if you lock them out right before payday
Conversely, the best time to begin a strike is right after payday
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

19. The Collective Bargaining Process
The ability to take a strike varies from firm to firm
Manufacturing fares better than services because inventories can be built up in anticipation of a strike
Service industries cannot make up for lost sales because their competitors will have picked up the slack
A diversified firm can ride out a strike more easily than can a firm that produces a single good or service
A multinational corporation might simply shift operations to another country
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

20. The Collective Bargaining Process
A union might be hesitant to strike a company that was about to go under
You might win the strike and lose your job
If a company is financially weak union demands will likely be moderate
During the recession, some unions actually negotiated not only no wage increases but even wage reductions
Saving jobs can sometimes take precedence over anything else
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

21. Pressure to Reach a Settlement
The cost of a strike can be extremely high
General Motors lost $90 million a day during a 67-day strike in 1970
This was approximately $5.7 billion total
The United Auto workers lost $50-$60 million a day (almost $4 billion total)
Real issues are presented and discussed
COLAs, productivity, wages are always key
Pattern setting is always a major consideration on both sides
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

22. The Strike In fact, very few strikes have disrupted the U.S. economy
Only two have caused major economic disruptions
The 1959 steel strike and the UAW strike against General Motors in 1970
With the exception of 1946, in no year did strikes result in as much as a 1% loss in total labor hours worked
1946 was an aberration because unions had been restricted from striking during the war
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

23. Work Time Lost Because of Strikes, 1945-2000
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24. Why People Strike
Most union members do not make any kind of cost-benefit analysis
Sometimes the opposing sides are further apart than is realized
Workers think the strike will be settled quickly
Workers exhibit a combination of machismo and credibility
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

25. Averting Strikes
Collective bargaining is the basic way of averting strikes
The two sides sit down together
After some tough bargaining, they hammer out an agreement both can live with
What if they can’t reach agreement, or even agree to sit down together in the same room?
This is where mediation and arbitration come in
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

26. Mediation A mediator is literally a go-between
A mediator tries to speed up the process of negotiation, getting each side to give a little more and take a little less
A mediator does not have the power to impose a settlement but can play a valuable role as an expediter
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

27. Arbitration The job of an arbitrator is to impose a settlement
Under compulsory arbitration, a labor contract or law actually stipulates that if the two parties cannot reach an agreement, an arbitrator will make the decision
This takes the decision out of the hands of labor and management
This makes arbitration a situation both sides want to avoid
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

28. Have Unions Raised Wages?
The answer is yes, but the real question is by how much?
Various studies indicate that unions have raised the wages of their members by 10 to 45%
In 2000, total compensation for unionized workers averaged $24.75, compared to $18.20 for nonunion workers [but unions have effects on nonunion work pay/conditions]
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

29. Have Unions Raised Wages?
Unions have tended to spring up in relatively productive occupations, often in very profitable industries
There is evidence that even without unions the pay would be better than in the other non unionized sectors
The decline in the nation’s industrial sector may contribute to a decline in the differentials between unionized and non unionized workers
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

30. The American Medical Association (AMA)
The AMA has been amazingly successful in raising the median wage rate of doctors – which is well in excess of $200,000 a year – by restricting their numbers
This process work the same with sheet metal workers, bricklayers, and electricians, but the AMA does it better
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

31. Comments Unions do raise wages
Unions provide a badly needed measure of job security
Until unions were organized, workers were powerless to bargain with huge corporations
Now many fear the power has shifted too far the other way
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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.