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Labor markets and labor unions
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Labor markets and labor unions


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  • 1. • • • • • • • Theory of time allocation Backward-bending labor supply curve Nonwage factors in labor supply Why wages differ Unions and collective bargaining Union wages and employment Trends in union membership
  • 2. LABOR SUPPLY Labor Supply and Utility Maximization Two sources of utility: 1)The consumption of goods and services 2)The enjoyment of leisure
  • 3. “Spare time would be more fun if I had less to spare.” The more leisure time you have, the less you value an additional hour of it. ©
  • 4. 1) Market work – time sold as labor 2) Nonmarket work – time spent getting an education or producing goods and services for personal consumption 3) Leisure – time spent on nonwork activities
  • 5. • Work and Utility Disutility – the oppose of utility Increasing marginal utility – the more you work, the greater the marginal disutility of working another hour Net utility of work – the utility of consumption made possible through earnings minus the disutility of the work itself • Utility Maximization
  • 6. Wages and Individual Labor Supply • Substitution Effect of a Wage Increase – a higher wage encourages more work because other activities now have a higher opportunity cost
  • 7. • Income Effect of a Wage Increase – a higher wage increases a worker’s income, increasing the demand for all normal goods, including leisure, so the quantity of labor supplied to market work decreases
  • 8. (see Exhibit 1) • Backward-Bending Labor Supply Curve – as the wage rises, the quantity of labor supplied may eventually decline; the income effect of a higher wage increases the demand for leisure, which reduces the quantity of labor supplied enough to more than offset the substitution effect of a higher wage
  • 9. Nonwage Determinants of Labor Supply • • • • Other Sources of Income Nonmonetary Factors The Value of Job Experience Taste for Work
  • 10. Market Supply of Labor (see Exhibit 2) * The supply of labor to a particular market is the horizontal sum of all individual supply curves
  • 11. Why Wages Differ (see Exhibit 3) • Differences in Training, Education, Age, and Experience (see Exhibit 4) • Differences in Ability • • • • Winner-Take-All Labor Markets – entertainment and pro sports Differences in Risk Geographic Differences Job Discrimination Union Membership
  • 12. UNIONS AND COLLECTIVE BARGAINING 1) Labor Union – a group of workers who organize to improve their terms of employment 2) Craft Union – a union whose members has a particular skill or work at a particular craft, such as plumbers or carpenters 3) Industrial Union – a union both skilled and unskilled workers from a particular industry
  • 13. • Collective Bargaining – the process by which union and management negotiate a labor agreement
  • 14. • Mediator – an impartial observer who helps resolve differences between union and management
  • 15. • Binding Arbitration – negotiation in which union and management must accept an impartial observer’s resolution of a dispute
  • 16. • Strike – a union’s attempt to withhold labor from a firm to stop production
  • 17. UNION WAGES AND EMPLOYMENT Three ways unions might increase wages: 1)By forming an inclusive, or industrial, unions: Negotiating a Higher Industry Wage (see Exhibit 5 & 6) 2)By forming an exclusive, or craft, unions: Reducing Labor Supply (see Exhibit 7) 3)By increasing the demand for union labor • • • • Increase Demand for Union-Made Goods Restrict Supply of Nonunion-Made Goods Increase Productivity of Union Labor Featherbedding – union efforts to force employers to hire more workers than wanted or needed
  • 18. Recent Trends in Union Membership • Right-to-work states – states where workers in unionized companies do not have to join the union or pay union dues (see Exhibit 8) Unionizing Information Technology Workers