Unformatted text preview: 151 lecture Models of Union Behavior: Union Goals and Wage Determination We first examine union goals and behavior under conditions of a fixed demand curve for labor. Then we will examine strategies unions can adopt to improve productivity and otherwise increase labor demand—through seeking “mutual gains.” A. Union goals with a given labor demand schedule 1. Suppose that the union’s goals are to increase wages and jobs for its members, but in what combination? 2. Alternative specifications: Do they maximize wages, or jobs, or the wage bill of the members or the wage bill of those with jobs, or dues? Are they even maximizing organizations? 3. What is the impact of having contracts ratified by union votes? Of elections for union leaders? 4. What is the impact of the “employer’s right to manage” clause in union contracts? B. Some formal models of union behavior We will consider the monopoly union model, efficient contracts model and median voter model. 1. The union monopoly model The union has 100 percent density and dictates the wage to the employers. Employers then hire according to the demand for labor schedule. Clearly, wages can be higher and employment will be lower than in a perfectly competitive environment. Union can maximize jobs for its members, but at the competitive (nonunion) wage rate. Then, why bother?
1 Union can maximize wage rate for it employed members, but then it becomes progressively smaller (UMWA). It can maximize the wage bill = wN. 2. Monopoly model with union indifference curve for (w, N). Trade-off between w, N and aggregated preference of union’s members. Then union uses its bargaining power to set wage at highest indifference curve and employer chooses N. [see slide] Outcome is similar to a monopoly model. 3. Efficient contracts model Monopoly union model is inefficient in the Pareto optimality sense: both parties can be made better off. See slide for iso-profit curves, shaded area is the contract zone. The line represents all the efficient contracts—a contract curve. Point chosen on the contract curve will depend upon relative bargaining power of the two parties. A key weakness of this model: it calls for the two parties to negotiate both the wage and the level of employment. But hardly any contracts specify employment levels. This comes under the employer’s “right to manage. 4. Median voter model If layoffs are in inverse order of seniority, then different workers will have different preference regarding (w, N) combinations. They have different probabilities of being the ones who lose their jobs. [Unlike worksharing practices in Europe.] Median voter model builds upon this key point: See slide.
2 Heterogeneous preferences mean that the efficient contracts solution will result in gains for some workers—higher wages—but big losses for others who lose jobs. If a large proportion of the members are asked to take what amounts to a wage cut, in order to provide additional jobs to a minority, the majority might refuse and the contract proposal will not be ratified by the membership. So efficient contracts model might not be relevant for this reason as well. The majority might stand up for the minority under conditions of “union solidarity.” Alternatively, the union might bargain for two-tier contracts, which imply lower wages for new hires. These are easier to accept at first, but then inequities can cause problems later—cf. experience with airline pilots. We next go beyond these formal models, which are only partly helpful, to examine union behavior. C. Positive strategies unions can adopt for mutual gains or high road partnerships. 1. Increasing product demand for union labor -- advertising their product: “look for the union label” -- influencing government to buy union-made goods and services --get local governments to require “neutrality” for contractors and subsidy recipients --lobby for staffing requirements on behalf of quality standards Examples: Nurse-patient ratios; teacher-student ratios 3 Crew members in an airplane cockpit, number of flight attendants 2. Increasing productivity --joint union-management cooperation on quality circles, teamwork, training programs, dispute resolution, health and safety --greater worker input on the shop floor 3. Influence prices of related inputs that are subject to regulation ! for example, IBEW concerned with price of energy in CA ! prevailing wage laws—floors on nonunion wages in public construction D. 1. Restrictive strategies Increase product demand --join with employers for policies to limit imports or require “domestic content” 2. Restrict supply of labor In crafts and in medicine-- by limiting number of slots in training programs. By creating occupational license requirements Promoting retirement benefits, disability benefits, unemployment compensation. E. Conclusion to this point Range of possible outcomes includes both positive and negative effects of unions on wages, wage inequality, productivity and growth. Conclusions must be based not just on theoretical models, but on empirical studies that determine which effects are most important. 4 5 ...
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