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Unions and Labor Markets

Unions and Labor Markets. Countervailing Forces in Employment. Labor Unions: A Brief History. Craft Unions—Pre-Civil War Associations of skilled tradesmen that bargained as units Knights of Labor—Civil War to Depression 8-hour work days Equal pay for men and women

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Unions and Labor Markets

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  1. Unions and Labor Markets Countervailing Forces in Employment

  2. Labor Unions: A Brief History • Craft Unions—Pre-Civil War • Associations of skilled tradesmen that bargained as units • Knights of Labor—Civil War to Depression • 8-hour work days • Equal pay for men and women • Replace free market with socialism • American Federation of Labor—1886 • Dissidents from Knights of Labor • Lead by Samuel Gompers

  3. The Government’s Changing View • Pre-World War I • Government actively supported business against organized labor • Provided troops and police protection • World War I • Government began to support unions • Union membership hit 5 million • Post-World War I • Government turned on unions and re-aligned itself with business once again. • Union membership fell dramatically

  4. The Effect of the Great Depression • National Industrial Recovery Act of 1933 • Unions given the right to collective bargaining • NIRA declared unconstitutional by Supreme Court opposed to FDR’s plans • National Labor Relations Act of 1935 • Otherwise known as the Wagner Act • Right to organize • Right to collectively bargain • Right to join union

  5. Growth of Unions • Industrial Unions • Union represents workers from an entire industry, regardless of employer • Congress of Industrial Organizations (CIO) • Formed by John L. Lewis, President of the United Mine Workers (UMW) • CIO mergers with AFL in 1955 • Neither was garnering many new members • Powerhouse AFL-CIO results • Eventually, another merger will occur: • United Steelworkers of America • International Association of Machinists • Union will represent 2 million workers

  6. Congressional Control of Unions • The Labor-Management Relations Act of 1947 • Otherwise known as the Taft-Hartley Act • Allowed states to pass right-to-work laws • Makes it illegal to require union membership as condition of employment • Makes a closed shop illegal • Does not make a union shop illegal • Taft-Hartley also made the following illegal • Jurisdictional disputes • Sympathy strikes • Secondary boycotts • Taft-Hartley also gave the President of the United States the right to declare an 80-day cooling-off period

  7. Union Tactics and Strategies • Contract negotiations • Union representatives meet with representatives of a company’s management to negotiate the provisions of a contract that will apply to all union members in that company • Pattern bargaining • The union will select one company in an industry, negotiate a contract with that company, then use that contract as a model for subsequent negotiations with other companies in that industry • Work slowdown • To demonstrate willingness and ability to strike, union will order workers to lower output for a period of time • “Blue flu” tactic • Work stoppage • Brief period of no output by workers • Strike • Workers cease all activity until union orders them back to work • Sanctioned strike • Wild-cat strike

  8. Corporate Response Tactics and Strategies • Hard-ball negotiations • Corporation(s) takes hard line on contract negotiations • Financial distress claim • Corporation represents that it is in financial trouble, so union must make concessions in new contract • Anti-union propaganda • Criticize union to workers • Claim union is not acting in workers’ best interests • Influence of union election to install pro-business slate of union officials • Court actions • Back-to-work order • Cooling-off period • Claim of illegal union actions • Injunctions • Anti-strike actions • Lock-out • Scabs • Thugs

  9. Union Goals • Restriction of Labor Supply • By requiring union membership and certain requirements to join, a union can reduce the supply of labor available to a given industry, thus increasing the wage rate in that industry • Increasing Demand for Labor (of union members) • By specifying the number of workers per task in contract negotiations, unions can increase the number of workers on a company’s payroll, and also increase the number of dues-paying union members • featherbedding

  10. Competitive Supply of Labor • A firm that operates in a perfectly competitive labor market will face a perfectly elastic supply curve for labor at the prevailing wage rate, wc. • In other words, it can acquire as much labor as it needs at that prevailing wage rate, which is set at the industry level by the industry’s (downward-sloping) demand for labor and (upwardly-sloping) supply of labor. • In such a market, the Marginal Factor Cost curve will coincide with the labor Supply curve, and the firm will set the labor it uses, Lc where the Marginal Factor Cost of labor (in this case, also the Supply of labor) equal to the Marginal Revenue Product of labor. w wc SL=MFCL MRPL Lc Labor

  11. Monopsony Demand for Labor • When there is only one demander for labor, that firm faces the entire industry’s downward-sloping demand curve. • Whereas the competitive equilibrium would be at labor usage Lc and wage rate wc, now that the Marginal Factor Cost curve is above the Supply of labor curve, the firm is (still) setting MFCL=MRPL, and the result is different: • Labor usage falls to LM, which is associated with the (lower) wage rate wM on the Labor Supply curve. MFCL w SL wc wM MRPL LM Lc Labor

  12. Unions and Labor Markets Presented by Professor Alan B. Cring for Economics 101 at

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