SummaryCh15 - S u m m ar y The theory of union behaviour...

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Summary • The theory of union behaviour has long been a subject of debate. Some advocate an “economic” approach that assumes the union seeks to maxi- mize an objective function subject to constraints. Others criticize this approach as not paying enough attention to the union as a political institu- tion in which union leaders are elected to repre- sent the wishes of the members and may perhaps also pursue their own objectives. The modern approach to union behaviour recognizes some merit in both positions in that the union is mod- elled as attempting to maximize a well-defined util- ity function, but attention is paid to the political nature of union decision-making, especially the relationship between the preferences of individual members and those pursued by union leaders. • Union objectives refer to the goals of the organiza- tion.The relationship between the preferences of the members, those of the union leaders, and the objectives of the organization as a whole depend on several factors, including (1) the information available to the rank-and-file about the available options,(2) the nature of the union’s political deci- sion-making process, and (3) the degree of homo- geneity of the individual members’ preferences. • Union utility is postulated to be a function of the union wage and the employment of union mem- bers. Union indifference curves are downward sloping in wage-employment space, because a higher wage is needed to compensate for a reduc- tion in employment, holding utility constant. Further, it is plausible to hypothesize that union preferences display a diminishing marginal rate of substitution between wages and employment, so that the indifference curves are convex in shape. • Union objectives also depend on the price level and the alternative wage available to union mem- bers in their best alternative job. What matters to union members is their real wage, that is, the wage rate relative to the cost of living. The benefits to union members of belonging to the union also depend on the union or contract wage relative to their best alternative wage. • The general union utility function depends on the real union wage, total employment of union mem- bers, and the real alternative wage. Some special cases of this utility function that have been pro- posed include (1) maximizing the (real) wage rate, which places no weight on employment in union preferences, (2) maximizing employment, which places no weight on the union wage, (3) maximiz- ing the wage bill—the product of employment and the wage rate—which ignores the alternative wage,and (4) maximizing economic rent,the prod- uct of employment and the difference between the union wage and the alternative wage.The latter is the most plausible of these special cases, and is analogous to the union acting as a monopoly seller of labour to the firm and maximizing the “total return” or profit. • The task of deriving union objectives from the
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This note was uploaded on 02/05/2011 for the course ECON 3240 taught by Professor Noordeh during the Winter '11 term at York University.

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SummaryCh15 - S u m m ar y The theory of union behaviour...

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