merged

As a cartel, a labor union faces a trade-off between wages and employment. A higher wage rate
will generally mean fewer union members employed. Given the trade-off between wages and
employment, all unions will tend to have certain goals. One goal will be to reduce the elasticity of
demand for union labor. This goal can be achieved by reducing the availability of substitute
factors and by reducing the availability of substitute products.
A second union goal will be to increase the demand for union labor. This goal can be achieved
by; (1) increasing product demand, (2) increasing the MPP of union workers, and (3) increasing
the prices of substitute factors.
A third union goal will be to decrease the supply of union labor. The ideal situation to allow a
union to control the supply of labor is a closed shop agreement, which requires union
membership as a condition for employment. Closed shop agreements were made illegal by the
Taft-Hartley Act. Most states permit union shop agreements, which require employees to join the
union within a specified time. The Taft-Hartley Act gave states the power to pass right-to-work
laws, which prohibit union shop agreements.
Unions can directly affect wage rates through collective bargaining. Collective bargaining is where
a union bargains with management on behalf of the workers. A union might use the threat of a
strike to negotiate a wage rate above equilibrium. Collective bargaining will generally result in
higher wages and fewer workers employed.
A monopsony is a lone buyer in a factor market. A monopsony faces an upward sloping labor
supply curve, and a twice as steeply upward sloping marginal factor cost curve. A monopsony will
employ workers where marginal revenue product equals marginal factor cost, which will be a
lesser quantity of workers at a lower wage compared to a perfectly competitive employer. A union
negotiating with a monopsony may be able to obtain both a higher wage and a greater quantity of
labor employed.
Research indicates that unions increase the wages of union employees, but decrease the wages
of nonunion employees. Higher union wages will also result in higher prices for union made
products (or higher taxes for union-produced government services).
The traditional view holds that unions hurt productivity due to; (1) strikes, (2) unnecessary staffing
requirements, and (3) keeping willing employers and employees apart. An alternative view is that
unions increase productivity by; (1) providing union workers with a collective voice, and (2)
attracting higher quality workers.
Questions for Chapter 25
Fill-in-the-blanks:
1. A ____________________ ____________________ agreement requires union
membership as a condition for employment.
2. A ____________________ ____________________ agreement requires employees to join
the union within a specified time.
3. Right-to-work laws prohibit ____________________ shops.
4. ____________________ bargaining is where a union bargains with management on behalf
of the workers.
5. ____________________ is a lone buyer in a factor market.
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
25 - 11 Labor Unions