1. Chapter 30: Union and Labor Market Monopoly Power
ECON 152 – PRINCIPLES OF MICROECONOMICS
Chapter 30: Union and Labor Market Monopoly Power
Materials include content from Pearson Addison-Wesley which has been modified by the instructor and displayed with permission of the publisher. All rights reserved.

2. Industrialization and Labor Unions
Craft Unions
Labor unions composed of workers who engage in a particular trade or skill
Knights of Labor
American Federation of Labor

3. Industrialization and Labor Unions
Collective Bargaining
Bargaining between the management of a company or of a group of companies and the management of a union or a group of unions for the purpose of setting a mutually agreeable contract on wages, fringe benefits, and working conditions for all employees in all the unions involved

4. Industrialization and Labor Unions
The Congress of Industrial Organization (CIO) was formed in 1938.
It was composed mainly of industrial unions.
Industrial unions consist of workers in a particular industry, regardless of the skills they use on the job.

5. Industrialization and Labor Unions
Congressional control over labor unions
The Wagner Act (1935)
Gave unions the right to organize workers and to engage in collective bargaining
Taft-Hartley Act of 1947
Allow right-to-work laws
Laws that make it illegal to require union membership as a condition of continuing employment in a particular firm
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

6. Agency Shop Closed Shop
An enterprise in which employees must belong to the union before they can be hired and must remain in the union after they are hired
Union Shop
An enterprise in which employees must belong to the union after they are hired and complete a probationary period of employment
Agency Shop
An enterprise in which employees must pay the equivalent of union dues whether they choose to, or not to, belong to the union after they are hired and complete a probationary period of employment
Open Shop
An enterprise in which employees are never required to join a union or pay the equivalent of union dues if they choose not to belong to the union

8. Industrialization and Labor Unions
Congressional control over labor unions
Taft-Hartley Act of 1947 (..continued)
Prohibited jurisdictional disputes
Disputes involving two or more unions over which should have control of a particular jurisdiction
Prohibited sympathy strikes
A strike by a union in sympathy with another union’s strike or cause
Prohibited secondary boycotts
A boycott of companies or products sold by companies that are dealing with a company being struck

9. Industrialization and Labor Unions
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.

10. Decline in U.S. Union Membership
Figure 30-2

11. Industrialization and Labor Unions
Explaining the fall in union membership
Deregulation
Immigration
Shift from manufacturing to services
Labor legislation
Foreign competition

12. 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.

13. Union Goals and Strategies
Strikebreakers can reduce the bargaining power of the strike
Temporary or permanent workers hired by a company to replace union members who are striking

14. Union Goals and Strategies
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.

15. Unions Must Ration JobsD W U B Q S A Q D W e E Q
Wage Rate per Hour
Quantity of Labor per Time Period
Figure 30-3

16. Union Goals and Strategies
Unions must ration the available jobs by:
Seniority
Apprenticeship

17. Union Goals and Strategies
Unions are monopoly sellers of a service
Three wage and employment strategies
Employ all union members
Maximize member income
Maximize wages for certain workers

18. Union Goals and StrategiesMR
Maximum total union
member income earned W 3 Q
Wage Rate per Hour W 2 Q W 1 Q
Quantity of Labor per Time Period
Figure 30-4

19. Union Goals and Strategies
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.

20. Restricting Supply Over Time
If union membership limited
to Q1, wages increase to 21
instead of 20 and employment
is reduced
Figure 30-5

21. Union Goals and Strategies
Altering the demand for union labor
Increasing worker productivity
Increasing the demand for union-made goods
Decreasing the demand for non-union-made goods

22. Economic Effects of Labor Unions
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.
But annual earnings for union workers are not necessarily higher, because they work somewhat fewer hours.

23. Economic Effects of Labor Unions
How do unions affect labor productivity?
There is some evidence that featherbedding creates inefficiency in the unionized industries.
Some economists argue that unions actually enhance productivity by reducing labor turnover.

24. 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
The firm is the only buyer of a particular input
The buyer of labor is called a monopsonist, the single buyer.

25. Monopsony: A Buyer’s Monopoly
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.

26. Derivation of a Marginal Factor Cost Curve
Figure 30-7, Panel (a)

27. Derivation of a Marginal Factor Cost Curve
Figure 30-7, Panel (b)

28. Monopsony: A Buyer’s Monopoly
Monopsonistic Exploitation
Exploitation due to monopsony power: It leads to a price for the variable input that is less than its marginal revenue product. Monopsonistic exploitation is the difference between marginal revenue product and the wage rate.
Bilateral Monopoly
A market structure consisting of a monopolist and a monopsonist

29. Wage and Employment Determination for a Monopsonist
MFC
MRP
MRP > W S A Q m
MFC, MRP, and Wage Rate per Worker-Week ($) W e Q
Hire Qm where
MFC = MRP and
pay Wm W m
Labor Input (worker-weeks)
Figure 30-8

30. Pricing and Employment Under Various Market Conditions
Panel (a)
MRP c
Firm operating in perfect
competition in both
input and output markets W e
Labor supply
Revenue Product per Hour($)
Wage Rate and Marginal Q e
Competitive Input, Competitive Output
Quantity of Labor per
Time Period
Figure 30-9, Panel (a)

31. 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
MRP m
Revenue Product per Hour($)
Wage Rate and Marginal W e
Labor supply Q m
Competitive Input, Monopoly Output
Why are fewer workers
hired in this market
compared to perfect
competition in both markets?
Quantity of Labor per
Time Period
Figure 30-9, Panel (b)

32. Pricing and Employment Under Various Market Conditions
MRP
Panel (c)
Firm operating as
monopsonist in the
input market and a
perfect competitor
in the output market
MFC S Q 1
Wage Rate, Marginal Factor Cost, and
Marginal Revenue Product per Hour ($)
• Hire where MFC = MRPc
• W = WC
• WC < MRP W c
Monopsony Input, Competitive Output
Quantity of Labor per
Time Period
Figure 30-9, Panel (c)

33. Pricing and Employment Under Various Market Conditions
Panel (d)
MFC
MRP m
Firm operating as
a bilateral monopoly S Q 2
Wage Rate, Marginal Factor Cost, and
Marginal Revenue Product per Hour ($)
• Hire where MFC = MRPm W m
Monopsony Input, Monopoly Output
Quantity of Labor per
Figure 30-9, Panel (d)
Time Period

34. Repeated on one page… Pricing and Employment Under Various Market Conditions
Competitive Input, Competitive Output
Competitive Input, Monopoly Output
Monopsony Input, Competitive Output
Monopsony Input, Monopoly Output

35. Chapter 30: Union and Labor Market Monopoly Power
ECON 152 – PRINCIPLES OF MICROECONOMICS
Chapter 30: Union and Labor Market Monopoly Power
Materials include content from Pearson Addison-Wesley which has been modified by the instructor and displayed with permission of the publisher. All rights reserved.