Labor Unions

1. Labor Unions

2. Supply & Demand for Union Services • Demand Side: Other things equal, the higher the price of union services (as measured by monthly dues, initiation fees, & the value of time expected to devote to union activities), the lower the proportion of workers that will want to join a union. (We will discuss union services or benefits shortly.) • Supply Side: It is costly to provide union services. The higher the price of union services the more willing the unions are to provide the services.

3. Supply & Demand for Union Services Price of Union Membership % of Work Force Unionized

4. Supply & Demand for Union Services Price of Union Membership Demand % of Work Force Unionized

5. Supply & Demand for Union Services Price of Union Membership Supply % of Work Force Unionized

6. Supply & Demand for Union Services Price of Union Membership Supply Demand % of Work Force Unionized

7. Supply & Demand for Union Services Price of Union Membership Supply equilibrium Demand % of Work Force Unionized

8. Supply & Demand for Union Services Price of Union Membership Supply equilibrium P* Demand % of Work Force Unionized

9. Supply & Demand for Union Services Price of Union Membership Supply equilibrium P* Demand Q* % of Work Force Unionized

10. Union Membership • In 2008, 12.4 percent of employed wage and salary workers were union members. • Union membership varies with many factors.

11. 2008 Union Membership (% of employed workers)by Gender, Race, & Hispanic Ethnicity Union membership is higher among men than among women. Blacks are more likely than Whites to be union members, & Hispanics are less likely than non-Hispanics to be union members. (From the Statistical Abstract of the United States, 2010.)

12. 2008 Union Membership (% of employed workers)by Age Union membership was higher among middle-aged workers & lower among younger & older workers. (From the Statistical Abstract of the United States, 2010.)

13. 2008 Union Membership (% of employed workers)by Sector Union membership is much higher among the public sector (government employees) than among the private sector. (From the Statistical Abstract of the United States, 2010.)

14. 2008 Union Membership (% of employed workers)by Industry Union membership varies with industry. Membership is considerably greater in transportation, construction, & manufacturing than in other industries. (From the Statistical Abstract of the United States, 2010.)

15. 2008 Union Membership (% of employed workers)by Selected States Union membership ranged from a low of 3.5% for North Carolina to a high of 24.9% for New York. (From the Statistical Abstract of the United States, 2010.)

16. Union Shop • An employer is a union shop if a worker must join the union within a specified time period in order to remain with the employer. • The argument in favor of the union shop concerns the “free-rider” problem. The workers get the benefits gained by the union and should therefore contribute to the union and not “ride free.” • The argument against the union shop is the individual worker rights argument. A worker should be able to decide if he/she wants to be a member of the union.

17. “Right-to-Work” Law • Many states, especially many southern states, have “Right-to-Work” laws. • These laws outlaw union shops & make it hard to unionize.

18. Strike • an attempt to deny the firm the labor services of all union members.

19. Whether a strike is successful in enabling a union to win concessions from management depends on • the monopoly power of the firm in the product market; • the ability of the firm to stockpile product in anticipation of a strike; • the firm’s financial resources to withstand a strike; & • the union members’ financial resources to withstand a strike.

20. Monopoly power of the firm in the product market • Note: To say that a firm has some monopoly power does not mean that the firm is necessarily a monopoly. Rather, it means that the seller has some control over the price of its product. • So, if a firm has some monopoly power, it can raise its price without losing all its business. • Consequently, it can pass some of the cost of higher wages along to its customers in the form of higher prices. • Thus, a union will be better able to win concessions from a firm with monopoly power.

21. Ability of the firm to stockpile product in anticipation of a strike • A firm that can stockpile its product is able to accumulate inventory. • Durable goods, such as cars, can be stockpiled; perishable goods, such as fresh fruit, can not be stockpiled. • If a firm can stockpile its product, then it will still have product to sell in the event of a strike. • Thus, the firm will be in better condition and able to hold out longer without giving in to union demands. • Thus, a union will be less able to win concessions from a firm that has a stockpile of product.

22. Firm’s financial resources to withstand a strike • A firm will greater financial resources can hold out longer during a strike without going bankrupt. • Thus, a union will be less able to win concessions from a firm that has considerable financial resources.

23. Union members’ financial resources to withstand a strike • If a union’s members have substantial financial resources, they will be able to hold out longer during a strike and still be able to pay bills and eat. • Thus the union will be better able to win concessions from the firm.

24. Firm’s Concession Curve • Because a strike imposes costs on a firm (loss of production, sales, & profit), the employer will pay more to avoid a strike of a particular length. • The longer the expected duration of strike, the greater the wage increase they are willing to concede.

25. Union’s Resistance Curve • Because a strike imposes costs on employees (loss of income), they will accept less to avoid a strike of a particular length. • The longer the expected duration of strike, the smaller the wage increase they are willing to accept.

26. There is an expected strike duration at which the employer & the union will accept the same wage. This point is the Settlement Point, where the employer & the union come to an agreement.

27. Settlement Point % wage increase Expected duration of strike

28. Settlement Point Firm concession curve % wage increase Expected duration of strike

29. Settlement Point % wage increase Union resistance curve Expected duration of strike

30. Settlement Point Firm concession curve % wage increase Union resistance curve Expected duration of strike

31. Settlement Point Firm concession curve % wage increase settlement pt. Union resistance curve Expected duration of strike

32. Settlement Point Firm concession curve % wage increase settlement pt. Union resistance curve S* Expected duration of strike

33. Settlement Point Firm concession curve % wage increase settlement pt. W* Union resistance curve S* Expected duration of strike

34. Arbitration • when a third party is brought in to settle a dispute between labor & management • Types of arbitration include: • Splitting-the-difference arbitration • Final offer arbitration

35. Splitting-the-difference arbitration • The arbiter selects a solution halfway between the union’s offer & the employer’s offer. • Example: • union offer: $20 • Employer offer: $10 • Arbiter’s decision is halfway between 10 & 20 which is $15.

36. Final-Offer arbitration • The arbiter asks each of the two parties for their final offer and selects the offer that he/she thinks is most reasonable. • Example: • union offer: $18 • Employer offer: $6 • If the arbiter thinks the appropriate wage is $15, he/she would pick the offer closest to that value, in this case, $18.

37. Union Membership Around the World • Internationally, union membership rates vary considerably. Membership in the United States is much lower than in many other countries.

38. Union Membership As a % of Total Paid Employees

39. Gender Differences in Union Preferences • Women have traditionally had lower union representation than men. • There is no evidence that women have less of a preference for unions than men. • In fact, survey evidence indicates that women tend to be more supportive of collective action to achieve goals than men and are more likely to vote for a union.

40. Reasons for Gender Differences in Union Membership Women tend to be concentrated in industries and occupations where unionization is below average. Traditionally, unionization has been highest among blue-collar workers in manufacturing, whereas women have been concentrated in clerical and service occupations, which have lower rates of unionization. Within the manufacturing sector, women are concentrated in more competitive industries, while unionization is greater in monopolistic industries.

41. 75% of the difference in unionization between men and women is explained by the underrepresentation of women in highly organized occupations and sectors.

42. Effects of Union Policies on Women’s Union Membership • Male craft unions did not begin to admit women until the late 1800s and were not hospitable to women (and blacks) long after they no longer formally excluded them. Unions have been criticized for having made little effort to organize women workers and for not supporting women’s own efforts to unionize. Only recently has emphasis been placed on the provision of benefits such as parental leave and day care, which are important to women.

43. Union Membership Decline • Union membership has declined from a little over 25% in the mid-1950s.

44. Women’s unionization has declined more slowly than men’s. The change in the relative unionization of men and women is partly attributable to the decline in the size of the heavily unionized and predominately male manufacturing sector. • Also contributing is an increase in unionization in sectors in which women are heavily represented, such as the public sector, and among white collar and service workers, including clerical and health care workers.

45. Women are still underrepresented in unions in comparison with their share of the labor force. • In 1999, they represented 48% of employed workers, but only 40% of unionized workers. • This is a cause for concern because women enjoy the benefits of union membership to a lesser extent than men.

46. What are the benefits of unions? • They increase the wages of their members. Overall, the relative wage advantage of union members is about 15%. • Research indicates that unions raise women’s wages at least as much as they raise men’s. • As women become more attached to the labor force and gain seniority, the economic advantages of unionization to them may increase because unions tend to provide greater benefits to workers with more seniority.

47. Other Benefits of Unions Unions increase the fringe benefits of their members relative to nonmembers. They provide members with nonpecuniary benefits by giving them greater opportunity to shape their work environment by communicating their preferences to employers through the collective bargaining process, and by providing for grievance procedures. Unions have the potential to reduce tension between work and family by negotiating for family leave, on-site day care, and flexible schedules.

48. A Social Benefit of Unions • On balance, unions reduce wage inequality among all workers by providing relatively high paying job opportunities for many less skilled workers. • This means that deunionization has contributed to rising wage inequality.

49. As long as women remain underrepresented in unions (compared to their representation in the labor force), the impact of unions is to widen the male-female pay gap, since men benefit from the union wage premium to a greater extent than women. The decrease in unionism has contributed to a reduction in the male-female wage gap because it has been associated with a decrease in the male advantage in unionization.

50. We have seen that unions offer many advantages to workers, such as higher wages and fringe benefits. • However, since the quantity of labor demanded is negatively related to wages, these higher wages are associated with lower employment. • Hence, the gains of the employed workers are at the expense of those who are not hired due to unionization.