Chapter 10 Labor Unions

1. Chapter 10 Labor Unions Union gives strength. —Aesop

2. 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.

3. 10.2 Labor Unionism: Facts and Figures • Union Membership by Industry, 2006

4. 10.2 Labor Unionism: Facts and Figures • Union Membership by Occupation, 2006

5. 10.2 Labor Unionism: Facts and Figures • Union Membership by Public Sector Status, 2006

6. 10.2 Labor Unionism: Facts and Figures • Union Membership by Demographic Group, 2006

7. 10.2 Labor Unionism: Facts and Figures • High Unionization States, 2006

8. 10.2 Labor Unionism: Facts and Figures • Low Unionization States, 2006

9. 10.3 Unionism’s Decline • Union Membership

10. 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.

11. 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.

12. 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

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 10.4 What do Unions Want? • Monopoly Union Model

20. 10.4 What do Unions Want? • Efficient Contracts Model

21. 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.

22. 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.

23. 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.

24. 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.

25. 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.

26. 10.5 Strikes and the Bargaining Process • Accident Model

27. 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

28. 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