merged

Chapter 25 Labor Unions
The primary source of household income for most Americans is from selling their labor in labor
markets. Labor markets tend to be highly competitive. Workers find that they are in competition
with many other workers for the available jobs. Individual workers will typically find that they have
little or no bargaining power in negotiating with their employer. Workers can increase their
bargaining power and avoid competing with one another by forming a labor union.
A labor union is an organization of workers. The union represents all of the eligible workers in
negotiating with management over wages and other issues. This is called collective bargaining.
The union provides the workers with a monopoly or cartel position in selling their labor.
Most cartels are illegal under U.S. antitrust law. However, unions have been specifically
exempted from antitrust law by the Clayton Act of 1914 and by judicial interpretations of the
National Labor Relations Act of 1935.
Types of Labor Unions
There are different types of labor unions:
1. Craft union. This is a union made up of workers who practice the same craft, such as actors,
musicians, carpenters, electricians, plumbers, airline pilots, etc.
2. Industrial union. This is a union made up of workers in the same industry, such as
autoworkers, teamsters, steelworkers, etc.
3. Public employee union. This is a union made up of workers employed by the government,
such as school teachers, municipal employees, firefighters, etc.
Union membership has been declining in the American workforce. In the 1950s, around one-third
of the labor force was unionized. According to the Bureau of Labor Statistics, the percentage of
wage and salary workers who were union members had fallen to 20% by 1983, and had fallen to
11.3% by 2013.
Unionization rates are much higher for public sector employees than for private sector
employees. In 2013, 35.3% of public sector employees were union members. Only 6.7% of
private sector employees were union members.
One reason that unionization rates are higher among public sector employees is that public
sector employees are more likely to be employed by a monopsony employer than are private
sector employees. Workers employed by a monopsony employer can potentially gain a great deal
from unionization and collective bargaining. Monopsony employers will be discussed later in the
chapter.
Demand Curve for a Union
As a cartel, a labor union has market power (the ability to affect the market wage rate). A union
faces a downward sloping demand curve for its labor. Thus, a labor union faces a trade-off
between wages and employment. If a union negotiates a higher wage rate, this will generally
mean fewer union members employed.
Example 1A: Assume that the graph on the next page represents the labor demand curve faced
by a labor union. If the union negotiates a wage rate of $15, the quantity of labor employed will be
12,000 hours. If the union negotiates a wage rate of $18, the quantity of labor employed will
decrease to 9,000 hours.
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
25 - 1 Labor Unions