Chapter 16: Union Impact on Wage and Nonwage Outcomes The Union Wage Impact: What is the average effect of unionization on a worker's wage? • the impact of unions on wages has received more attention from economists than any other aspect of union behaviour • most of the empirical research has been directed at measuring the union-nonunion wage differential, the (percentage) difference in wages between union and otherwise comparable nonunion workers • the first problem that one confronts is that the average wage of nonunion members may not be the same as the average wage that would prevail in the complete absence of unions from the labour market • unions affect not only the wages of union members but also the wages of others and a general equilibrium model must be used to analyze the union-nonunion wage differential o in our analysis of union wage and employment determination in the previous chapter, we assumed that the union wage alternative (the nonunion wage) was exogenously given • Figure 16.1a illustrates the effect of unions on wages and employment in a two-sector labour market 1
o the two sectors A and B can be thought of as two different industries employing the same type of labour, which is assumed to be homogeneous o competition in the labour market will equalize the wage rate at W o in both sectors • now assume that a union organizes the workers in sector A and is able to raise the wage rate to W u ; assuming that the firm determines employment according to the demand for labour curve, employment in sector A declines from E o to E 1 o by raising the wage rate from W o to W u , (E o – E 1 ) former employees in sector A lose their jobs and must find work in sector B 2
• in the non-union sector B, the (E o – E 1 ) displaced workers from sector A shift the labour supply curve to the right (from S B to S' B ) and the excess supply of labour in sector B bids the wage rate down from W o to W N in Figure 16.1a o the new equilibrium employment level in sector B increases from E o to E 1 ; but given an upward-sloping labour supply curve, not all of the displaced workers from sector A are employed in sector B (some displaced workers drop out of the labour force because the new equilibrium wage W N in sector B is below their reservation wage) • unionization has created an equilibrium wage differential of W u – W N between union and nonunion workers; this union-nonunion wage differential (W u – W N ) is larger than the difference between the union wage W u and the competitive wage W o
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- Spring '12
- Economics, Nonunion, unionnonunion wage