Final Notes - Chapter 10 Economic Impacts of Unions and...

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Chapter 10: Economic Impacts of Unions and Collective Bargaining Consequences of Union Wage Increases Stage 1: Primary union effects: Compensation received by members o If unions don’t raise wages, they would have a hard time recruiting and retaining members. Thus, the primary union wage effect is positive. o Union bargaining power higher wages Stage 2: Management Adjustments: Management takes a number of actions in response to the union’s primary wage effects. The central motivation for the employer is to try to recoup costs associated with union-negotiated improvements in wages through productivity increases or other measures. Increases in labor cots result in some combination of the following responses by the firm: o 1. Reduction in the scale if output and employment o 2. An increase in the price of the product o 3. A substitution of capital for labor o Technological change o Change in employment levels o “Shock” effect of improving productivity Increases in wages, may induce employees to quit less and thereby reduce hiring and training costs to the firm Higher wages should attract better workers or will increase worker productivity Stage 3: Secondary union effects o Occurs when management responds to increased wage costs by reducing the number of jobs in the bargaining unit and increasing the pace of work, for example, the union may react to these changes in working conditions. o The union might seek more elaborate job security language and stricter seniority rules in subsequent contract negotiations. Wage Effects of Unions Relative Union Wage Effect o The percentage difference in wages between similarly situated union and nonunion workers –unionized workers earn 15-20% more than non-unionized workers Threat Effect: o To avoid the threat of unionization, nonunion firms raise nonunion wages in response to union wage increases. This reduces the relative union wage effect. Thus, estimates of the relative union wage effect may understate the absolute effect of unions on wages because they do not fully account for the extent that union wages have spilled over to the nonunion sector. Supply Effect: 1
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o High union wages reduce employment at union firms. This displaces workers and increases the supply of nonunion labor, reducing nonunion wages. This increases the relative union wage effect Union Effects on Employment Outcomes Wages: Increased by 15-20% Fringe Benefits: Increased, e.g., retirement plans and medical insurance and sick leave pay, vacation pay, and unemployment benefits. Turnover: o Layoffs are increased o Quit rate is decreased- by 5-6% points o E.g., a nonunion workplace might average 11% annual turnover and a similar unionized workplace would average 5% turnover Productivity: Increased by mixed evidence Profits: Decreased Union Effects on Work Rules Just cause protection: o Instead of employment-at-will Job Control: o Detailed job descriptions Seniority rights:
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This note was uploaded on 06/06/2011 for the course ILRCB 2050 taught by Professor Givanr during the Fall '06 term at Cornell.

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Final Notes - Chapter 10 Economic Impacts of Unions and...

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