If total membership in the union is Q 1 , and the union’s objective is employment for all its members, it chooses W 1 . If the objective is to maximize the total wage bill, it chooses W 2 , where the elasticity of demand for labor equals 1. If the union’s objective is to maximize the income of a limited number of union workers (represented by Q 3 ), it chooses W 3 .
Availability of Substitute Products: unions would attempt to reduce the availability of substitutes for the products they produce, through such means as import restrictions.
Availability of Substitute Factors: Two general substitutes for Union labor: Nonunion labor and certain types of machines; unions would attempt to reduce the availability of nonunion labor and nonhuman workers by opposing relaxation of immigration laws, supporting a high minimum wage, and opposing automation substitutes for labor.
For union A , which has an inelastic demand for its labor between W 1 and W 2 , a higher wage rate brings about a smaller cutback in the quantity of labor than for union B , which has an elastic demand for its labor between W 1 and W 2 . We predict that union B will be less likely to push for higher wages than union A because of its wage-employment tradeoff is more pronounced.
The purpose of a strike is to convince management that the supply curve is what the union says it is. This often depends on the ability of striking union employees to prevent nonstriking and nonunion employees from working for management at a lower wage rate than the union is seeking through collective bargaining.
We start at a wage rate of W 1 . The union’s objective is to increase the wage rate to W 2 . This means the union holds that the new supply curve is S S – the heavy supply curve. To convince management that the new supply curve looks as the union says it does, the union will have to either threaten a strike or call one. We assume that the union is successful at raising the wage rate to W 2 . As a consequence, the quantity of labor employed is less than it would have been at W 1 .
Most studies show that some unions have increased their members’ wages substantially whereas other unions have not increased their members’ wages at all.
There are theoretical and empirical reasons for believing that labor unions increase the wages of union employees and decrease the wages of nonunion employees.
The percentage of the national income that goes to labor (Union plus nonunion) has been fairly consistent over time.
Median Weekly Earnings in the Union and Nonunion Sectors, Selected Industries, 1998
In five of the six industries shown, union workers earned a higher weekly salary in 1998 than did nonunion workers. Overall in 1998, the median weekly salary was $659 for a union worker and $499 for a nonunion worker.
SOURCE: Statistical Abstract of the United States, 1999.
The Effect of Labor Unions on Union and Nonunion Wages
We begin at a wage rate of W1 in both unionized sector (a) and the nonunionized sector (b). Next, the union manages to increase its wage rates to W2 either through collective bargaining or by decreasing the supply of labor in the unionized sector (shown). Fewer persons now work in the unionized sector, and we assume that those persons who lose their jobs move to the nonunionized sector. The supply of labor in the nonunionized sector rises and the wage rate falls.
Higher union wages ill cause higher prices for the products the union labor produces.
Lower nonunion wages mean lower costs for the firms that employ nonunion labor and thus lower prices for the products produced by nonunion labor
Unions’ Effects on Productivity & Efficiency: The Traditional View
Labor unions have a negative impact on productivity and efficiency.
They often have unnecessary staffing requirements and insist that only certain persons be allowed to do certain jobs.
Strikes disrupt production and prevent the economy from realizing its productive potential.
Labor Unions drive an artificial wedge between the wages of comparable labor in the union and nonunion sectors of the labor market.
Union’s Effects on Productivity & Efficiency: A New View
Without a labor union, workers who are disgruntled with their jobs, who feel taken advantage of by their employers, or who feel unsafe in their work will leave their jobs and seek work elsewhere.
The labor union makes the employees feel more confident, less intimidated, and more secure in their work. Such positive feelings usually mean happier, more productive employees. Some proponents of this view also hold that the employees are less likely to quit their jobs.