Modern Labour Economics

Chapter 13

Unions and the Labour Market

Table 13.1 – Union Membership and Bargaining Coverage,

Selected Countries, 1980 and 1984

Figure 13.1 – Union Membership and Membership as a Proportion

of Non-Agricultural Paid Workers, 1921-2002

Table 13.2 – Percentage of All Wage and Salary Workers Covered by a Collective

Agreement, 1997 and 2001

Figure 13.2 – Effects of Demand Growth and Wage Elasticity of

Demand on the Market Constraints Faced by Unions

Simple union model-4 assumptions

DL known

Layoffs based on seniority—LIFO Ui = f(Yi)---self-interest Wage policy is determined by majority vote. What happens? Simple model leads to problems.

Figure 13.3 – Union Maximizes Utility Subject to the Constraint of

the Labour Demand Curve: Monopoly Union

Maximize TWB and Max.Rent

TWB= W*N Economic Rent R=W-OC These are special cases of the indifference

curve approach. Here, U=f(TWB) OR U=f(∑Rents) With TWB, equilibrium is where ED=1.MD=0

With Rent max. equilibrium is at MD=OC

Union Wage Rigidity

Cartter developed a union WPP Points of tangency of DL and indifference

curves. Kink at existing wage makes WPP

asymmetrical Assumed shape of indifference curves

provides the Cartter result.

Who gets the monopoly rents?

Craft versus industrial unions-entry restricting vs. wage-setting.

Both generate a queue-excess supply—who is chosen?

Could be random or there could be favouritism. Use market-taxi medallions.

http://freakonomics.blogs.nytimes.com/2009/11/05/unfree-enterprise/

Monopoly Union Model

Max. TWB, Max Rents and Max. u=f(W,N) are all variants on the monopoly union model.

In this model, unions maximize subject to the constraint of the employer’s labour demand curve.

In response to ∆W, employers are free to lay off workers

The efficient contracts approach focuses on bargaining about both W&N

Figure 13.4 – Employer Isoprofit Curves

Figure 13.5 – The Contract Curve–-The Locus of Efficient

Contracts

Rees model-misallocation costs

http://www.jstor.org/pss/724852 Rees reference-need to access through

library website or go to hard copy in library. Unions distort the allocation of labour

resource and generate a deadweight loss. Rees estimates how large this is.

Figure 13.6 – The Demand for and Supply of Unionization

Figure 13.7 – Union Membership as a Proportion of All Workers,

Canada and United States, 1980-1997

Figure 13.8 – Work Stoppages in Canada, 1901-2000 –peaks with

inflation

Figure 13.9 – Hicks’s Bargaining Model and Expected Strike

Length

Figure 13.10 – Spillover Effects of Unions on Wages and

Employment

Figure 13.11 – Threat Effects of Unions on Wages and

Employment in Nonunion Sector

Table 13A.1 – Percentage of U.S. Wage and Salary Workers Who

Are Union Members, by Selected Characteristics, 2000