Transcript Monopoly Unions - Wayne State College

Unions
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Let’s begin by looking at some of the history of unions in the
United States.
Note that a yellow-dog contract are contracts between workers
and firms and in the contract the worker agrees to not join a
union. The author of our text tells us that in 1917 the Supreme
Court upheld the constitutionality (said they could be used) of
the yellow-dog contracts. But legislation starting in the 1930’s
began to change the way unions and private sector firms
interacted.
Norris-LaGuardia Act of 1932
This act made yellow-dog contracts unenforceable in federal
courts.
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Wagner Act or the National Labor Relations Act of 1935
The act has several feature:
employers must bargain in good faith
employers can not interfere with worker’s right to organize
workers in unions can not be discriminated against or fired
without cause
The National Labor relations Board – NLRB – was formed by the
act to enforce provisions of the act. The NLRB has the power to
investigate unfair practices and can make firms stop said practices.
The NLRB also runs certification elections to determine if a union
will represent workers at a particular company.
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Taft-Hartley Act or the Labor – Management Relations Act of
1947
Union power was curbed by allowing states to pass right-to-work
laws. A right-to-work state means unions can exist in the state but
the union can not make joining the union as a condition of
employment in a unionized firm.
Plus workers can also get rid of a union with a successful
decertification election.
Landrum-Griffin Act or the Labor-Management Reporting and
Disclosure Act of 1959
The act requires the complete disclosure of union finances. Plus
unions must hold regularly scheduled elections of the union
leadership.
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Monopoly Unions
Here we look at a labor union as a
single seller of labor.
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Remember
firms demand labor to help in making output the firm would like
to sell and maximize profit. If the firm sells output in a
competitive market then the value of the marginal product equals
the price taken by the firm for output times the marginal product
of each unit of labor. The value of the marginal product is the
basis for the demand for labor by a firm.
dollars
D = VMP
employment
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The union
Here we will assume the union wants to maximize utility and
utility depends on wages and employment. Unions would
always prefer more of both, so indifference curves are of the
usual shape we saw before.
In the absence of a union the wage would be determined in the
market and say it would be wc in the graph. There is no reason
dollars
to believe the wage would maximize
utility for the union. Here the union
wu
would prefer wu.
Would workers
wc
join a union that
D = VMP
wanted a wage
< wc?
employment
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Eu Ec
On the previous slide we could think of the firm demand curve
as constraining the union. The union would pick the wage it
wants for its workers and then the firm would read off its
demand curve how many units of labor it desired. The result
with the union would be higher wages and lower employment.
Now, the whole economy is not unionized so we want to explore
the impact of unionization of the economy. On the next slide I
will show two general labor markets, one unionized and one not
unionized. But in the absence of unions we would expect the
wage to be the same in both graphs due to the law of one wage.
Call this the competitive wage wc. We will also assume supply
curves are vertical lines and the labor employed in both markets
will stay the same in total.
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s2
s1
wu
wc
A
B
C
D
E
a
wN
D1
h1’ h1
b
cf
d
e
D2
h2 h2 + (h1 - h1’)
nonunion
Union
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From the previous slide, in the graph on the left we see the wage
start at wc with employment h1 before unionization. After the
union picks the wage wu, higher than wc, the firms take less labor
and employment falls by h1 - h1’.
The labor dislodged from the union sector moves to the non-union
sector and lowers the wage there to wn. Employment does rise by
h1 - h1’, the amount lost in the unionized market.
Remember that the area under the demand curve out to a level of
labor employed equals national income because labor is needed to
make output and the area represents all the values of the marginal
products added up.
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before union after union after - before
value of output A+B+C+D+E A+B+D
-C-E
in union
value of output
a+b+d a+b+c+d+e +c+e
in non-union
So, in the union area the value of output is lost and in the nonunion the value of output rises. The net change is
-C-E+c+e = -C-E+c+e+f-f by chicanery :)
and since E = c+e+f, check it out, same base and same height,
the net change is -C-f. The net change in the value of output is
thus negative. Let’s next find out the value of lost output.
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Value of lost output
C = .5(wu-wc)(h1-h1’)
f = .5(wc-wN)(h1-h1’)
Now -C-f = -.5(wu-wc)(h1-h1’)- .5(wc-wN)(h1-h1’).
Digress
-abc-adc = -a(b+d)c.
Thusly
-C-f = -.5[wu-wc+wc-wN](h1-h1’)
= -.5(wu -wN)(h1-h1’)
SO, the value of the lost output can be found by the difference in
wages and the labor displaced by the union. This could be
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called the deadweight loss due to unions.