Labor markets and labor unions


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Labor markets and labor unions

  1. 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. 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. 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. 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. 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. 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. 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. 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. 9. Nonwage Determinants of Labor Supply • • • • Other Sources of Income Nonmonetary Factors The Value of Job Experience Taste for Work
  10. 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. 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. 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. 13. • Collective Bargaining – the process by which union and management negotiate a labor agreement
  14. 14. • Mediator – an impartial observer who helps resolve differences between union and management
  15. 15. • Binding Arbitration – negotiation in which union and management must accept an impartial observer’s resolution of a dispute
  16. 16. • Strike – a union’s attempt to withhold labor from a firm to stop production
  17. 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. 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