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

Review and Practice
SUMMARY
1. The proportion of U.S. workers in unions has declined
since the 1950s. Possible reasons include laws that have
improved working conditions in general; the decline of
manufacturing industries, where unions have traditionally
been stronger than in service industries; increased
competition in the product market, providing firms with
less latitude to pay more than market wages; and a legal
atmosphere that has shifted away from encouraging
unions.
2. Union gains in wages are typically made at the cost of
lower employment, at least in the long run, and lower
wages in the nonunion sector. Unions also have played
an important role in enhancing job security, though
sometimes at the expense of innovation. They have
accomplished some of their gains for workers through
the political process; for instance, unions have pushed
legislation promoting occupational safety and health as
well as the minimum wage.
3. Union power is limited by the ability of companies to
bring in new, nonunion workers and to threaten union
workers with unemployment.
4. Explanations of why two workers doing the same job
may receive different wages include compensating
differentials (differences in the nature of jobs), productivity
differentials (differences in productivity
between workers), imperfect information (workers do
not know all the job opportunities that are available),
and discrimination.
5. Employers try to motivate workers and induce high
levels of effort through a combination of direct supervision,
incentives for doing well, and penalties for
doing badly. They pay wages higher than workers
could get elsewhere (efficiency wages), give promotions
and bonuses, and base pay on relative performance
(contests).
KEY TERMS
union shops
right-to-work laws
nonpecuniary attributes
compensating wage differentials
statistical discrimination
wage discrimination
job discrimination
affirmative action
piece-rate system
efficiency wage theory
fringe benefits
REVIEW QUESTIONS
1. Has the power of unions in the U.S. economy been
shrinking or growing in the last few decades? Why? In
what sector has union growth been largest? Why might
this be so?
2. What effect will successful unions have on the level of
wages paid by unionized companies? on the capital
investment for those companies? What effect will they
have on wages paid by nonunionized companies?
3. How might greater job security for union workers
possibly lead them to become less efficient?
4. Does it make sense for a union to resist the introduction
of an innovation in the short run? in the long run?
5. What are alternative explanations for wage differentials?
6. How do piece rates provide incentives to work hard? Why
is there not a greater reliance on piece-rate systems?
7. What is efficiency wage theory?
PROBLEMS
1. In what ways are labor markets similar to product
markets? In what ways are they different?
2. Explain how both these points can be true
simultaneously:
(a) Unions manage to raise the wage paid to their
members.
(b) Unions do not affect the average level of wages paid
in the economy.
REVIEW AND PRACTICE ∂ 371