[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

When a union goes on strike, the firm may be able to hire some workers, but it is
costly to bring in and train a whole new labor force. Indeed, most of the knowledge
needed to train the new laborers is in the hands of the union members. While one
bushel of wheat may be very much like another, one worker is not very much like
another. Workers outside the firm are not perfect substitutes for other workers,
particularly skilled ones, inside.
The Threat of Replacement In industries in which skills are easily transferable
across firms or in which a union has not succeeded in enlisting the support of
most of the skilled workers, a firm can replace striking workers, and union power will
be limited. Caterpillar, a manufacturer of tractors and road-making equipment,
weathered a seventeen-month strike by the UAW that began in 1993. Eventually,
management announced that if workers did not return to their jobs, they would be
replaced. The union caved in shortly after the firm made good its threat.
In today’s global economy, the threat to move jobs overseas provides another
limit to union power. Even if the union has a monopoly on all workers in an industry,
its reach does not extend to foreign workers. The ability of firms to relocate to other
countries reduces a union’s ability to gain higher wages.
In many cases, however, workers’ skills are specific to the firm. Just as, from the
employer’s perspective, workers outside the firm are not perfect substitutes for
workers within the firm, so from the workers’ perspective one job is not a perfect
substitute for another. Thus, there is often value to both workers and to firms in
preserving ongoing employment relationships.
The Threat of Unemployment Unions understand that in the long run, higher
wages—other things being equal—mean lower levels of employment. When job
opportunities in general are weak, concern about the effects of union contracts on
employment increases. Maintaining jobs rather than raising wages may become the
union’s chief priority if the industry is shrinking, perhaps owing to increased competition
from imports or owing to technological changes that have increased the
industry’s competition from new products. A rise in overall unemployment in
the economy is also likely to limit a union’s ability to seek wage hikes.
Wrap-Up
UNIONS AND IMPERFECT COMPETITION
IN THE LABOR MARKET
Economic effects of unions:
Higher wages for union members, with fewer union jobs and lower wages
for nonunion members
Improved job security, sometimes at the expense of innovation and economic
efficiency
Minimum wages, restrictions on imports, improved working conditions,
and other gains achieved through the political process
LABOR UNIONS ∂ 361