1. Unions and Labor Market Monopoly Power
Chapter 30
Unions and Labor Market Monopoly Power

2. Introduction What are labor unions?
What are the objectives of unions, and what strategies do they utilize to pursue their goals?
Why have the aims of some unions recently clashed with others?
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3. Learning Objectives
Outline the essential history of the labor union movement
Discuss the current status of labor unions
Describe the basic economic goals and strategies of labor unions
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4. Learning Objectives (cont'd)
Evaluate the potential effects of labor unions on wages and productivity
Explain how a monopsonist determines how much labor to employ and what wage rate to pay
Compare wage and employment decisions by a monopsonistic firm with the choices made by firms in industries with alternative market structures
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5. Chapter Outline Industrialization and Labor Unions
Union Goals and Strategies
Economic Effects of Labor Unions
Monopsony: A Buyer’s Monopoly
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6. Did You Know That...
Half of U.S. labor union members are in only six states?
Once a union represents all the workers who supply a particular type of labor, an element of monopoly power replaces the competitive outcome?
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7. Industrialization and Labor Unions
Worker organizations that seek to secure economic improvements for their members
They also seek to improve safety, health, and other benefits (such as job security) of their members.
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8. Industrialization and Labor Unions (cont'd)
Craft Unions
Labor unions composed of workers who engage in a particular trade or skill
Collective Bargaining
Negotiation between the management of a company or of a group of companies and the management of a union or group of unions for the purpose of reaching a mutually agreeable contract that sets wages, fringe benefits, and working conditions for all employees in all unions
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9. Industrialization and Labor Unions (cont'd)
Unions in the U.S.
Knights of Labor
American Federation of Labor
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10. Industrialization and Labor Unions (cont'd)
Early labor issues
8-hour workday
Equal pay for men and women
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11. Industrialization and Labor Unions (cont'd)
The formation of industrial unions
National Industrial Act of 1933
National Labor Relations Act 1935, otherwise known as the Wagner Act
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12. Industrialization and Labor Unions (cont'd)
The Congress of Industrial Organizations (CIO) was formed in 1938.
It was composed mainly of industrial unions.
Prior to the formation of the CIO, most labor organizations were craft unions.
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13. Industrialization and Labor Unions (cont'd)
Industrial Unions
Labor unions that consist of workers from a particular industry, such as automobile manufacturing or steel manufacturing
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14. Industrialization and Labor Unions (cont'd)
Congressional control over labor unions
The Wagner Act (1935)
Gave unions the right to organize workers and to engage in collective bargaining
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15. Industrialization and Labor Unions (cont'd)
Congressional control over labor unions
Taft-Hartley Act of 1947
Allowed right-to-work laws
Laws that make it illegal to require union membership as a condition of continuing employment in a particular firm
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16. Industrialization and Labor Unions (cont'd)
Congressional control over labor unions
Taft-Hartley Act of 1947
Made closed shops illegal
A business enterprise in which employees must belong to the union before they can be hired and must remain in the union after they are hired
A union shop however, is legal
Non-union members join later
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17. Industrialization and Labor Unions (cont'd)
Congressional control over labor unions
Taft-Hartley Act of 1947
Prohibited jurisdictional disputes
Disputes involving two or more unions over which should have control of a particular jurisdiction
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18. Industrialization and Labor Unions (cont'd)
Congressional control over labor unions
Taft-Hartley Act of 1947
Prohibited sympathy strikes
A strike by a union in sympathy with another union’s strike or cause
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19. Industrialization and Labor Unions (cont'd)
Congressional control over labor unions
Taft-Hartley Act of 1947
Prohibited secondary boycotts
A boycott of companies or products sold by companies that are dealing with a company being struck
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20. Industrialization and Labor Unions (cont'd)
Congressional control over labor unions
Taft-Hartley Act of 1947
Established the 80-day cooling-off period
A court injunction can be used to delay a strike if it would imperil the nation’s safety or health.
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21. Industrialization and Labor Unions (cont'd)
The current status of labor unions: we consider
Worldwide trends in unionization
U.S. unionization trends
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22. Figure 30-1 Union Membership as a Share of Total Employment in Selected Nations
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23. Figure 30-2 Decline in Union Membership
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24. Industrialization and Labor Unions (cont'd)
Explaining the fall in union membership
Deregulation
Immigration
Shift from manufacturing to services
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25. Table 30-1 The Ten Largest Unions in the United States
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26. Union Goals and Strategies
Strikes: the ultimate bargaining tool
Purpose is to impose costs and reduce profits of the employer
Workers do not receive wages during the time of the strike, but they may receive some compensation from the union strike fund.
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27. Union Goals and Strategies (cont'd)
Strikebreakers can reduce the bargaining power of the strike
Temporary or permanent workers hired by a company to replace union members who are striking
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28. Union Goals and Strategies (cont'd)
One of the major roles of a union that establishes a wage rate above the market clearing wage rate is to ration available jobs among the excess number of workers who wish to work in unionized industries.
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29. Figure 30-3 Unions Must Ration Jobs
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30. Union Goals and Strategies (cont'd)
Unions must ration the available jobs by
Seniority
Apprenticeship
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31. Union Goals and Strategies (cont'd)
Union wage and employment strategies
Employ all union members
Maximize member income
Maximize wages for certain workers
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32. Policy Example: Higher FDIC Wages for Some Means Fewer FDIC Jobs for Others?
Employees of the FDIC are represented by the National Treasury Employees Union (NTEU).
Over the years, the NTEU has won significant wage increases for its members, including workers at the FDIC.
During the 2000s, the agency’s earnings failed to keep pace with the NTEU-bargained pay increases.
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33. Figure 30-4 What Do Unions Maximize?
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34. Example: To Save Members Jobs, the UAW Agrees to a Two-Tier Pay Scale
Many of DaimlerChrysler’s Jeep vehicles are assembled in two plants located in Toledo, Ohio.
In an effort to reduce hourly wage costs, some pre-assembly work was shifted out of these plants.
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35. Example: To Save Members Jobs, the UAW Agrees to a Two-Tier Pay Scale (cont'd)
To preserve union jobs, the UAW agreed to adopt a two-tier wage system at the Toledo Jeep plants.
Workers who specialize in final assembly make $26 per hour; those in pre-assembly make $15 per hour.
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36. Union Goals and Strategies (cont'd)
Union strategies to raise wages indirectly
Limit entry over time
Alter demand for union labor
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37. Union Goals and Strategies (cont'd)
Limiting entry over time
One way to raise wage rates without specifically setting wages is for a union to limit the size of its membership to the size of its employed workforce when the union was first organized.
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38. Figure 30-5 Restricting Supply over Time
If union membership limited to Q1, wages increase to 21 instead of 20 and employment is reduced
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39. Union Goals and Strategies (cont'd)
The demand for union labor can be increased by
Increasing worker productivity
Increasing the demand for union-made goods
Decreasing the demand for non-union-made goods
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40. Economic Effects of Labor Unions
Do union members earn higher wages?
Are they more or less productive than nonunionized workers?
What are broader economic effects of unionization?
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41. Figure 30-6 The Most Heavily Unionized Occupations in the United States
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42. Economic Effects of Labor Unions (cont'd)
Unions are able to raise wages if they can successfully limit the supply of labor in a particular industry.
Economists estimate that the average union wage premium is $2.25 an hour.
Yet annual earnings for union workers are not necessarily higher, because they may work somewhat fewer hours.
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43. Economic Effects of Labor Unions (cont'd)
Question
How do unions affect labor productivity?
Answers
There is some evidence that featherbedding creates inefficiency in the unionized industries.
But some economists argue that unions actually enhance productivity by reducing labor turnover.
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44. Economic Effects of Labor Unions (cont'd)
Featherbedding
Any practice that forces employers to use more labor than they would otherwise or to use existing labor in an inefficient manner
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45. Economic Effects of Labor Unions (cont'd)
Economic benefits and costs of labor unions—two opposing views
Unions are monopolies whose main effect is to raise the wage rate of high seniority members.
Unions increase labor productivity by promoting generally better work environments.
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46. Monopsony: A Buyer’s Monopoly
Assumptions
Firm is perfect competitor in the product market: it cannot alter the price of the product it sells, and it faces a perfectly elastic demand curve for its product.
One factory not only hires the workers but also owns all the businesses in the town, this buyer of labor is called a monopsonist, the single buyer.
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47. Monopsony: A Buyer’s Monopoly (cont'd)
The monopsonist faces an upward- sloping supply curve of labor.
Consequently, the marginal factor cost of increasing the labor input by one unit is greater than the wage rate.
Thus the marginal factor cost curve always lies above the supply curve.
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48. Figure 30-7 Derivation of a Marginal Factor Cost Curve, Panel (a)
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49. Figure 30-7 Derivation of a Marginal Factor Cost Curve, Panel (b)
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50. Monopsony: A Buyer’s Monopoly (cont'd)
Monopsonistic Exploitation
Paying a price for the variable input that is less than the marginal revenue product
The difference between marginal revenue product and the wage rate
Bilateral Monopoly
A market structure consisting of a monopolist and a monopsonist
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51. Figure 30-8 Wage and Employment Determination for a Monopsonist
MRP > W
Hire Qm where MFC = MRP and pay Wm
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52. Figure 30-9 A Monopsony’s Response to a Minimum Wage
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53. Figure 30-10 Pricing and Employment Under Various Market Conditions, Panel (a)
Firm operating in perfect
competition in both
input and output markets
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54. Figure 30-10 Pricing and Employment Under Various Market Conditions, Panel (b)
Firm operating in perfect competition in the input market but a monopoly in the output market
Why are fewer workers hired in this market compared to perfect competition in both markets?
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55. Figure 30-10 Pricing and Employment Under Various Market Conditions, Panel (c)
Firm operating as
monopsonist in the
input market and a
perfect competitor
in the output market
Hire where MFC = MRPC
W = WC
WC < MRP
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56. Figure 30-10 Pricing and Employment Under Various Market Conditions, Panel (d)
Firm operating as
a bilateral monopoly
Hire where MFC = MRPm
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57. Issues and Applications: Big Labor Breaks Up
A gradual splintering of goals and strategies:
Beginning in the 2000s, seven unions within the AFL-CIO began advocating for changes in its goals and strategies.
The big breakup:
During years of discussion and then months of intense negotiation, the seven rebel unions could not reach an agreement with the other unions.
Accordingly, they withdrew and established a new labor organization, called the Change to Win Federation.
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58. Figure Membership Shares for Unions in the Change to Win Federation versus Unions Remaining in the AFL-CIO
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59. Summary Discussion of Learning Objectives
Labor unions
Types of unions
Craft unions
Industrial unions
Labor legislation
In 1935, the National Labor Relations Act (or Wagner Act) granted workers the right to form unions and bargain collectively.
The Taft-Hartley Act of 1947 placed limitations on unions’ rights to organize, strike, and boycott.
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60. Summary Discussion of Learning Objectives (cont'd)
The current status of U.S. labor unions
In the United States, about one in eight workers is a union member.
The percentage of the labor force that is unionized has declined due to
Immigration, global competition, and a shift away from manufacturing employment
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61. Summary Discussion of Learning Objectives (cont'd)
Basic goals and strategies of labor unions
Maximize total income of members
Restrict entry of new workers in the union
Increase worker productivity
Reduce the demand for non-union labor
Increase the demand for union labor
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62. Summary Discussion of Learning Objectives (cont'd)
Effects of labor unions on wages and productivity
Union members hourly wages are higher.
Annual earnings may not be higher.
Unions may reduce productivity due to job rules, or may enhance it due to reduced labor turnover.
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63. Summary Discussion of Learning Objectives (cont'd)
How a monopsonist determines how much labor to employ and what wage rate to pay
Equate MRP and MFC
Set the wage on the supply curve for labor
Wage is less than MRP
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64. Summary Discussion of Learning Objectives (cont'd)
Comparing a monopsonist’s wage and employment decisions with choices by firms in industries with other market structures
Compared to a perfectly competitive firm in both the labor and output market
A monopolist in the output market employs fewer workers
Pays the same wage if faced with perfect competition in the labor market
Pays a lower wage if also a monopsonist
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65. Unions and Labor Market Monopoly Power
End of Chapter 30
Unions and Labor Market Monopoly Power