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CHAPTER 31 -- Part 2: LABOR UNIONS
Basketball teams enjoyed monopsonistic power in 1977.
The team losing a free agent had to be "com tracts" because of the reserve clause.
Individual players could negotiate with their draft choices.
The pro basketball players were a single team.
They couldn't move to another free agent in 1980.
The option was to either take it or leave because of the weakened monopsonistic power.
The average baseball salary went up from the wage offer.
The reserve clause was used by team owners to hold down a player.
Monopsony power was given to team owners because of reserve clauses.
Athletes' wages were below competitive equilibrium.
That was changed by free agency.
When buyers have limited market power, the demand for resources is likely to be more competitive.
A monopsony is when only one buyer has access to a particular market.
Most of the industry's employment is accounted for by a few firms.
In labor markets, this means using fewer workers.
The market wage rate is influenced by the hiring decisions of labor market monopsonies.
Each firm can hire as much labor as it needs at the prevailing wage in a competitive labor market.
If there is an increase in the quantity of labor demanded, the monopsonist will have to increase the labor supply curve in order to find more workers.
When the price of a resource changes as a result of a firm's purchases, a distinction between marginal cost and price must be made.
One of the little headaches is making this distinction.
A one-unit increase in the quantity of a factor is the result of a change in total costs.
The monopsonist will have to pay a wage of at least $2 an hour.
The firm will have to offer higher wages if it wants more labor.
The quantity of labor increased to two workers per hour.
The wage rate can be increased.
If all the workers perform the same job, the first worker will demand higher wages.
The marginal factor cost curve is shown in Figure 31.5.
It starts at the bottom of the labor supply curve.
Given the impact of its hiring decision on the market wage rate, the monopsonist must now decide how many workers to hire.
The firm doesn't have to pay that much.
The clash creates intense bargaining that spills over into politics, the courts, and open conflict.
Wages and employment aren't determined by labor market outcomes in such a market.
Direct negotiations between employers and labor unions for the purpose of determining wages, employment, working conditions, and related issues.
The boundaries of a potential settlement are usually established at the beginning of collective bargaining.
The points of contention were summarized in the News.
The negotiation of the final settlement is the most interesting part of collective bargaining.
Points outside the curve will be rejected by either side.
Collective bargaining begins with a set of demands.
The outcome is dependent on the strength and tactics of the two parties.
Bargaining power for either side comes from its ability to not hire or fire workers.
The union can cut off the flow of labor to the employer if they threaten to strike.
The employer can cut off jobs and paychecks.
Substitute workers or jobs are important in determining the effectiveness of those threats.
Labor and management suffer from either a strike or a lock out, no matter who starts it.
The strike benefits paid to workers are rarely comparable to wages they would otherwise have received, and the payment of those benefits depletes the union treasury.
The reduction in labor costs and other expenses don't compensate the employer for lost profits.
The UAW instructed its 12,600 workers to go on strike when it couldn't reach an agreement with Caterpillar.
The Caterpillar company had a strong bargaining position.
After the 1990-1991 recession, it had a huge inventory of unsold farm equipment and was not in a hurry to sell it.
When inventories got low, Caterpillar was able to find replacement workers.
The substitute labor put a lot of pressure on the union.
Despite the continuing strike, the company achieved record profits in 1994.
In 1996, a strike by UAW workers at a GM brake plant caused shutdowns at all of GM's 29 U.S. assembly plants.
More than 170,000 workers were out of work.
The parts suppliers had to lay off workers.
The heavy inventories of unsold cars gave GM a strong bargaining position.
The UAW caved in 17 days later.
The balance of power was different in 1998.
Inventory was lean and car sales were brisk.
GM was under pressure to settle when the UAW struck a key parts plant.
After 54 days, GM relented and accepted a UAW promise not to strike again for a year and a half.
The National Hockey League bargaining didn't end well.
The players lost $1 billion in pay and the team owners lost $200 million.
Both labor and management try to avoid a strike if they can because of the high potential income losses.
Over 90 percent of the 20,000 collective bargaining agreements negotiated each year are concluded without the threat of a strike.
Collective bargaining is helped by the built-in pressures for settlement.
The settlement will be located within the boundaries established in Figure 31.6.
Hard choices need to be made on both sides of the final settlement.
The U.S. has union contracts and strikes.
The Bureau of Labor Statistics should consider how management will react to higher wages in the long run.
New technology reduces its dependence on labor.
If workers are dissatisfied with their pay package, productivity will suffer.
We know that unions raise wage rates for their members.
Labor and management in the auto industry will get larger slices of the economic pie if car prices rise in step with UAW wage rates.
Workers in other industries will be affected by higher car prices.
We've noted that unions want to control the supply of labor in certain industries.
The excluded workers are forced to look for work elsewhere.
Wages in unionized industries tend to be higher than in nonunionized industries.
Estimates of the impact of union exclusionism on relative wages are fairly rare.
The unions want to shift the nonunion supply curve to the right as they take control of the market.
The workers are out of work.
Union wages are higher than nonunion wages.
B A S I C T H E O R Y is significantly higher than nonunion wages.
This differential is due to the fact that unions are more common in industries that pay high wages.
The differential narrows when comparisons are made within industries.
There is a general consensus that unions have increased their relative wages from 15 to 20 percent.
If the gains to union workers exceed the losses to nonunion workers, the labor share of total income will rise.
It's difficult to assemble evidence of unions' impact on labor's share because of the same reasons.
Labor's share increased from 56 percent in 1919 to 75 percent in 2007.
There have been huge changes in the mix of output.
The proportion of output composed of personal services is larger now than it was in 1919.
The share of income derived from personal services was always close to 100 percent.
Raising product prices is one way firms can protect their profits.
Consumers end up footing the bill if firms raise prices.
The capital share of total income might not be reduced.
The ability of firms to pass along increased union wages depends on the structure of the product markets as well as the labor markets.
It's better for a firm to protect itself in this way if it has power in both markets.
There isn't much evidence that unions contribute to cost-push inflation.
Work rules that specify how goods should be produced are bargained for by unions.
The electrician who is summoned may be required to have an apprenticeship.
It would be very expensive to change a burned-out lightbulb.
Some work rules are not so restrictive.
Work rules are designed to protect jobs and maximize employment at any given rate of output.
Work rules inflate costs and prices because they restrain productivity.
Work rules can have some beneficial effects.
The added job security provided by work rules and seniority provisions tends to reduce labor turnover and save recruitment and training costs.
Workers may be more willing to learn new skills if they are protected.
According to Richard, unions have accelerated the growth of productivity.
The general impact the union movement has on our economic, social, and political institutions is more important than any of the specific union effects.
In the United States, unions are a major political force.
Critical electoral and financial support for selected political candidates has been provided by them.
They've also fought hard for important legislation.
Minimum wage laws, work and safety rules, and retirement benefits have been established by unions.
They've been lobbying for civil rights legislation.
It's clear that our institutions and national welfare would be very different in the absence of a specific union action.
The unions have been in retreat for a long time.
The share of labor force that is unionized has fallen from 35 percent in 1950 to less than 13 percent today.
The spread of unionism among public school teachers and other government employees has maintained the modest share.
The unionization rate in the private sector is close to 9 percent.
In the last 15 years, the Steelworkers, the Auto Workers, and the Teamsters have all lost members.
Three phenomena explain the decline in unionization.
The decline in manufacturing and rapid growth of high-tech service industries are important.
Increased global competition is one of the causes of shrinking unionization.
The decline of worldwide trade and investment barriers has made it easier for firms to import products from low-wage nations.
Firms can easily resist wage demands with more options.
The labor-union movement is determined to resist these forces.
The unions are merging to increase their power.
In 1995 the Rubber Workers merged with the Steelworkers, the two major textile unions combined forces, and the Food Workers and Retail Clerks formed a new union.
The Grain Millers merged with the Paperworkers Union.
The unions hope to increase representation, gain financial strength, and enhance their political clout by merging.
They want to organize low- wage workers in the service industries to broaden their appeal.
Even if their share of total employment continues to shrink, these efforts will help unions to play a continuing role in the economy tomorrow.
Some rates are implied by power on the demand side.
Market wage rates are influenced by such power in local labor markets, where additional hiring will force up the rate.
There is power on the supply side of labor markets because of the marginal factor cost of labor and the lower market wage by unions.
The marginal revenue product is created by the downward slope of the labor demand curve.
The marginal wage and the market look at the labor supply curve to determine the wage rate wage.
The unions want a wage rate that's higher than the market wage.
Powerful employers can establish lower wage rates by establishing that rate of employment.
The marginal wage curve intersects the labor supply curve.
There is power on the demand side of labor markets.
They've increased their own in buyer concentrations such as monopsony and oligop relative wages and contributed to rising prices.
They've got Sony.
The power is usually found among the same fi rms.
Market power is exercised in product markets.
Collective bargaining sessions can start with unreason.
Farm workers are less successful than airplane workers.
Extreme 6 is when LO2 and employers begin bargaining.
Does a strike for a raise of 5 cents an hour make any difference?
Production reaches a specifi ed level.
LO1 is close to the rates paid by unionized workers.
The market power of try will be affected by union mergers.
There are numerical and graphing problems in the Student Problem Set at the back of the book.
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