Chapter 10 Labor Unions Union gives strength. —Aesop
10.1 Why Unions? • Workers prior to industrial revolution were self-employed (i.e., worked for themselves). • Industrialization separated the functions of management and labor. • Workers became dependent on owners for employment and income. • Workers formed unions to protect their interests and bargain collectively with employers.
10.2 Labor Unionism: Facts and Figures • Union Membership by Industry, 2006
10.2 Labor Unionism: Facts and Figures • Union Membership by Occupation, 2006
10.2 Labor Unionism: Facts and Figures • Union Membership by Public Sector Status, 2006
10.2 Labor Unionism: Facts and Figures • Union Membership by Demographic Group, 2006
10.2 Labor Unionism: Facts and Figures • High Unionization States, 2006
10.2 Labor Unionism: Facts and Figures • Low Unionization States, 2006
10.3 Unionism’s Decline • Union Membership
10.3 Unionism’s Decline Causes of Decline in Unionism • Structural changes • The structural-change hypothesis is the labor force and economy has changed in ways that are unfavorable to unions. • Employment growth has been greater in traditionally nonunion sectors such white-collar jobs, services, women, small firms, part-time, and Southern states.
10.3 Unionism’s Decline Causes of Decline in Unionism • The union wage differential increased in the 1970s • Unionized firms switched to nonunion methods of production where possible. • Nonunion firms expanded output and employment due to their lower costs. • Criticisms • Other countries have had similar structural changes and their unionism has not decreased. • Unions have been able to unionize traditionally nonunion workers in the past.
10.3 Unionism’s Decline Causes of Decline in Unionism • Managerial-opposition hypothesis • The managerial-opposition hypothesis argues that the increased union wage advantage in the 1970s caused firms to fight unions more aggressively. • Firms may hire permanent strike breakers, illegally fire pro union workers, hire consultants, etc. • The number of illegal anti-union
10.3 Unionism’s Decline Causes of Decline in Unionism • The substitution hypothesis • The substitution hypothesis argues that the government and employers now provide services that were previously provided by unions. • The government now provides services such as workers’ compensation and health and safety laws that unions used to provide. • Some firms try to prevent unionization by using grievance procedures and providing worker-management communication methods.
10.3 Unionism’s Decline Causes of Decline in Unionism • Other factors • Unions have decreased their organizing efforts. • The National Labor Relations Board, which oversees unionization efforts, became less pro-union under Reagan-Bush.
10.3 Unionism’s Decline Causes of Decline in Unionism • Relative importance • Freeman concludes that the total decline in unionization is due to: • Structural changes (40%). • Increased managerial-opposition (40%). • Decreased union organizing (20%). • Krueger argues nearly all of the recent decline in unionization is due to decreased demand for unions among nonunion workers.
10.3 Unionism’s Decline Union Responses to Decline • Increased mergers among unions • Example: NEA and AFT. • Changes in strategies • Unions have increased organizing efforts and targeted white-collar workers. • Unions have tried to avoid strikes and used work slowdowns in their place.
10.4 What do Unions Want? Monopoly Union Model • Economists usually assume that the goal of a union is to increase both the wages and employment of its members. • Economists construct union indifference curves that show the combinations of wage and employment where the union is indifferent. • Characteristics of indifference curves • Negatively sloped. • Convex.
10.4 What do Unions Want? Monopoly Union Model • The monopoly union model assumes that the union sets the wage rate and the firm sets the level of union employment based on this wage rate. • The firm maximizes profits and thus chooses an employment level based on its labor demand curve. • The available wage and employment combinations for the union are on the labor demand curve.
10.4 What do Unions Want? • Monopoly Union Model
10.4 What do Unions Want? • Efficient Contracts Model
10.4 What do Unions Want? Efficient Contracts Model • The contract curve is composed of the set of efficient contracts (tangencies of union indifference curves and isoprofit curves). • The slope of the contract curve depends on the shapes of the firm’s isoprofit curves and the union’s indifference curves. • A vertical contract curve at the competitive employment level is called a strongly efficient contract curve.
10.4 What do Unions Want? Efficient Contracts Model • In general, the efficient contract outcome will result in lower wage and more employment than the monopoly union outcome. • Economists have suggested this helps explain the requirements for excess labor in union contracts. • These stipulations or “feather bedding” take the form of work rules specifying minimum work crew sizes or narrow job descriptions.
10.4 What do Unions Want? Empirical Evidence • A direct test of the efficient contracts model is whether unions bargain over employment as well as wages. • Contrary to the efficient contracts model, union contracts almost always allow firms to unilaterally set the employment level. • Some researchers have suggested they may indirectly affect employment by bargaining over capital-labor ratios.
10.4 What do Unions Want? Empirical Evidence • Indirect tests of the efficient contracts model rely on the fact that efficient contracts and monopoly union models have different predictions regarding which factors affect the level of union employment. • Monopoly union predicts union employment level should be related to the union wage, but it should have no relationship with the competitive wage.
10.4 What do Unions Want? Empirical Evidence • Strongly efficient contract model predicts union employment level should be related to the competitive wage, but it should have no relationship with the union wage. • The findings from these indirect tests yield mixed support for the efficient contracts model.
10.5 Strikes and the Bargaining Process • Accident Model
10.5 Strikes and the Bargaining Process Asymmetric Information Models • Two types of strike models based on asymmetric information have been developed. • The first model focuses on the information gap between the union leadership and rank and file union members. • Union leaders have better information about bargaining possibilities. • Union members have unrealistic demands • Union leaders call strike to moderate demands
10.5 Strikes and the Bargaining Process Asymmetric Information Models • The second type of strike model emphasizes the information differences between the union and the firm. • Firm has more information about the current and future profitability of the firm than the union. • The firm has an incentive to understate the profitability of firm since it can reduce the wage settlement by doing so