chapter 30: union and labor market monopoly power econ 152 – principles of microeconomics...
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Chapter 30: Union and Labor Market Monopoly Power
ECON 152 – PRINCIPLES OF MICROECONOMICS
Materials include content from Pearson Addison-Wesley which has been modified by the instructor and displayed with permission of the publisher. All rights reserved.
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Craft UnionsLabor unions composed of workers who
engage in a particular trade or skill Knights of Labor American Federation of Labor
Industrialization and Labor Unions
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Collective BargainingBargaining between the management of a
company or of a group of companies and the management of a union or a group of unions for the purpose of setting a mutually agreeable contract on wages, fringe benefits, and working conditions for all employees in all the unions involved
Industrialization and Labor Unions
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The Congress of Industrial Organization (CIO) was formed in 1938.
It was composed mainly of industrial unions. Industrial unions consist of workers in a
particular industry, regardless of the skills they use on the job.
Industrialization and Labor Unions
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Industrialization and Labor Unions Congressional control over labor unions
The Wagner Act (1935) Gave unions the right to organize workers and to engage
in collective bargaining Taft-Hartley Act of 1947
Allow right-to-work laws Laws that make it illegal to require union membership as a
condition of continuing employment in a particular firm Made closed shops illegal
A business enterprise in which employees must belong to the union before they can be hired and must remain in the union after they are hired
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Closed Shop An enterprise in which employees must belong to the union before they can be hired and must remain in the union after they are hired
Union Shop An enterprise in which employees must belong to the union after they are hired and complete a probationary period of employment
Agency Shop An enterprise in which employees must pay the equivalent of union dues whether they choose to, or not to, belong to the union after they are hired and complete a probationary period of employment
Open ShopAn enterprise in which employees are never required to join a union or pay the equivalent of union dues if they choose not to belong to the union
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Congressional control over labor unionsTaft-Hartley Act of 1947 (..continued)
Prohibited jurisdictional disputes Disputes involving two or more unions over which
should have control of a particular jurisdiction
Prohibited sympathy strikes A strike by a union in sympathy with another union’s
strike or cause
Prohibited secondary boycotts A boycott of companies or products sold by companies
that are dealing with a company being struck
Industrialization and Labor Unions
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Congressional control over labor unionsTaft-Hartley Act of 1947
Established the 80-day-cooling-off period A court injunction can be used to delay a strike if
it would imperil the nation’s safety or health.
Industrialization and Labor Unions
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Decline in U.S. Union Membership
Figure 30-2
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Explaining the fall in union membershipDeregulation ImmigrationShift from manufacturing to servicesLabor legislationForeign competition
Industrialization and Labor Unions
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Union Goals and Strategies
Strikes: the ultimate bargaining toolPurpose is to impose costs and reduce profits
of the employerWorkers do not receive wages during the time
of the strike, but they may receive some compensation from the union strike fund.
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Union Goals and Strategies
Strikebreakers can reduce the bargaining power of the strike
Temporary or permanent workers hired by a company to replace union members who are striking
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Union Goals and Strategies
One of the major roles of a union that establishes a wage rate above the market clearing wage rate is to ration available jobs among the excess number of workers who wish to work in unionized industries.
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Unions Must Ration Jobs
Figure 30-3
S
D
WUB
QS
We E
Qe
A
QD
Quantity of Labor per Time Period
Wa
ge R
ate
pe
r H
our
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Union Goals and Strategies
Unions must ration the available jobs by:SeniorityApprenticeship
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Union Goals and Strategies
Unions are monopoly sellers of a service Three wage and employment strategies
Employ all union membersMaximize member incomeMaximize wages for certain workers
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Union Goals and Strategies
Figure 30-4
D
W1
Q1
W2
Q2
W3
Q30
Maximum total unionmember income earned
MR
Quantity of Labor per Time Period
Wa
ge R
ate
pe
r H
our
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Union Goals and Strategies
Limiting entry over timeOne way to raise wage rates without
specifically setting wages is for a union to limit the size of its membership to the size of its employed workforce when the union was first organized.
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Restricting Supply Over Time
Figure 30-5
If union membership limitedto Q1, wages increase to 21instead of 20 and employmentis reduced
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Union Goals and Strategies
Altering the demand for union labor Increasing worker productivity Increasing the demand for union-made goodsDecreasing the demand for non-union-made
goods
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Economic Effects of Labor Unions
Unions are able to raise wages if they can successfully limit the supply of labor in a particular industry.
Economists estimate that the average union wage premium is $2.25 an hour.
But annual earnings for union workers are not necessarily higher, because they work somewhat fewer hours.
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Economic Effects of Labor Unions
How do unions affect labor productivity?There is some evidence that featherbedding
creates inefficiency in the unionized industries.
Some economists argue that unions actually enhance productivity by reducing labor turnover.
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Monopsony: A Buyer’s Monopoly Assumptions
Firm is perfect competitor in the product market: it cannot alter the price of the product it sells and it faces a perfectly elastic demand curve for its product
The firm is the only buyer of a particular input
The buyer of labor is called a monopsonist, the single buyer.
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Monopsony: A Buyer’s Monopoly The monopsonist faces an upward-sloping
supply curve of labor. Consequently, the marginal factor cost of
increasing the labor input by one unit is greater than the wage rate.
Thus the marginal factor cost curve always lies above the supply curve.
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Derivation of a Marginal Factor Cost Curve
Figure 30-7, Panel (a)
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Derivation of a Marginal Factor Cost Curve
Figure 30-7, Panel (b)
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Monopsony: A Buyer’s Monopoly Monopsonistic Exploitation
Exploitation due to monopsony power: It leads to a price for the variable input that is less than its marginal revenue product. Monopsonistic exploitation is the difference between marginal revenue product and the wage rate.
Bilateral Monopoly A market structure consisting of a monopolist and a
monopsonist
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Wage and Employment Determinationfor a Monopsonist
Hire Qm whereMFC = MRP andpay Wm
MRP > W
Figure 30-8
Wm
S
MRP
MFC
We
Qe
A
Qm
Labor Input (worker-weeks)
MFC
, M
RP,
and W
age R
ate
per
Work
er-
Week
($)
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Firm operating in perfectcompetition in both input and output markets
Pricing and EmploymentUnder Various Market Conditions
Figure 30-9, Panel (a)
Panel (a)
Quantity of Labor perTime Period
Qe
We
Labor supply
MRPc
Wag
e R
ate
and
Mar
gina
lR
even
ue P
rodu
ct p
er H
our(
$)
Competitive Input, Competitive Output
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Firm operating in perfectcompetition in the inputmarket but a monopoly inthe output market
Pricing and EmploymentUnder Various Market Conditions
Figure 30-9, Panel (b)
Panel (b)
Quantity of Labor perTime Period
Qm
We
Labor supply
MRPmWhy are fewer workershired in this market compared to perfectcompetition in both markets?
Wag
e R
ate
and
Mar
gina
lR
even
ue P
rodu
ct p
er H
our(
$)
Competitive Input, Monopoly Output
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Firm operating asmonopsonist in the input market and a perfect competitor in the output market
• Hire where MFC = MRPc
• W = WC
• WC < MRP
Figure 30-9, Panel (c)
Pricing and EmploymentUnder Various Market Conditions
Panel (c)
Quantity of Labor perTime Period
Q 1
Wc
S
cMRP
MFC
Wag
e R
ate,
Mar
gina
l Fac
tor
Cos
t, an
dM
argi
nal R
even
ue P
rodu
ct p
er H
our
($)
Monopsony Input, Competitive Output
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Firm operating asa bilateral monopoly
• Hire where MFC = MRPm
Pricing and EmploymentUnder Various Market Conditions
Figure 30-9, Panel (d)
Panel (d)
Quantity of Labor perTime Period
Q 2
Wm
S
MRPm
MFCW
age
Rat
e, M
argi
nal F
acto
r C
ost,
and
Mar
gina
l Rev
enue
Pro
duct
per
Hou
r ($
)
Monopsony Input, Monopoly Output
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Repeated on one page…
Pricing and EmploymentUnder Various Market Conditions
Competitive Input, Competitive Output
Competitive Input, Monopoly Output
Monopsony Input, Competitive Output
Monopsony Input, Monopoly Output
Chapter 30: Union and Labor Market Monopoly Power
ECON 152 – PRINCIPLES OF MICROECONOMICS
Materials include content from Pearson Addison-Wesley which has been modified by the instructor and displayed with permission of the publisher. All rights reserved.