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Labor Unions, Collective Bargaining, and Discrimination.

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Presentation on theme: "Labor Unions, Collective Bargaining, and Discrimination."— Presentation transcript:

1 Labor Unions, Collective Bargaining, and Discrimination

2 Why Unions?

3 Union Membership by Industry, 2008

4 Union Membership by Occupation, 2008

5 Union Membership by Public Sector Status, 2008

6 Union Membership by Demographic Group, 2008

7 Unionization by State CT MA MD NJ RI

8 Unionism’s Rise and Fall

9 Labor Law Primer  Clayton Act (1914) exempted unions from Sherman Act  Railway Labor Act (1926) mandated collective bargaining in RR, Airlines  Norris-LaGuardia Act (1932) Restricted use of yellow-dog contracts Restricted use of injunctions by firms  Wagner Act (NLRA; 1935) Established right to organize and CB Defined ULP by firms Created NLRB Strikes by federal workers made illegal  Taft-Hartley Act (1947) Defined ULP by unions Outlawed closed shops Created FMCS

10 Unionism’s Decline  Change in labor laws  Structural Hypothesis Shift to services Globalization Shift to sunbelt Smaller firms Demographics: women, young Part-time work  Managerial Opposition Hypothesis Reagan and PATCO  Substitution Hypothesis Growth of gov’t provided benefits

11 Models of Union Behavior L0L0 W0W0 LuLu WuWu D S Labor  Competitive market: W 0, L 0  Economic models: Maximizers  Wage rates?  Employment?  Wage bill? Monopoly union Efficient contracts I1I1 π1π1 I2I2

12 Strategies to Raise Union Wages  Increase Labor Demand Increase product demand Increase worker productivity Increase price of substitutes Increase number of employers  Decrease Labor Supply Decrease immigration Decrease entry into occupation Increase nonwage income Tariffs on foreign goods Minimum wage/Davis-Bacon Domestic content laws Apprenticeships/Licensing Social Security benefits

13 Why Do Strikes Occur?  Accident Model Misperceptions regarding other’s concession curve  Asymmetric Information Models Info gap between union leadership and membership Info gap between union and firm Expected Strike Length Union Resistance Employer Concession $ t* W*

14 Economic Impact of Unions  Wage advantage  Efficiency and productivity  Profitability  Distribution of earnings  Macroeconomic effects

15 Union Wage Advantage Pure wage advantage = (W u – W n )/W n

16  Spillover effect: laid-off union workers spill over into non-union sector  Threat effect: non-union firms pay higher wages (W T ) to deter union  Product market effect: shift consumer demand to non-union markets  Wait unemployment effect: mitigates spillover effect  Superior worker effect: firms hire better workers  CWD effect: unions jobs have fewer amenities  Spillover effect: laid-off union workers spill over into non-union sector  Threat effect: non-union firms pay higher wages (W T ) to deter union  Product market effect: shift consumer demand to non-union markets  Wait unemployment effect: mitigates spillover effect  Superior worker effect: firms hire better workers  CWD effect: unions jobs have fewer amenities Union Wage Advantage D SNSN SUSU WUWU WNWN D SNSN S spill WSWS WTWT LULU LSLS LNLN LNLN Union sectorNon-Union sector

17 Union Wage Advantage

18 Efficiency and Productivity  Negative view Restrictive work rules Strikes Labor misallocation  Since W U > W N, we know that MRP U > MRP N  Positive view Collective voice  Improve info flow  Increase morale through team effort  Reduce turnover  Provide OTJ Technological progress  capital substitution Estimate: 0.10 percent of GDP is lost ($14 billion or $46 per person) Empirical evidence regarding the impact of unions on productivity is mixed

19  Nearly all studies find that unions reduce profits. If unions reduce profits in monopolistic industries, then no efficiency loss occurs. If unions reduce profits in competitive industries, then an efficiency loss occurs since firms will leave the industry. (Output will be lower and prices higher) Firm Profitability The empirical evidence is mixed on whether there is an efficiency loss. Voos and Mishell (1986): unionization causes 20% to 23% reduction in profits

20 Distribution of Earnings  Increasing inequality Spillover effect lowers non-union wages Increase wages of skilled blue-collar workers relative to unskilled blue-collar workers  Decrease inequality Equalize wages within firms Equalize wages across firms Reduce the white-collar/blue-collar differential Empirical evidence is that unions reduce earnings inequality on net

21 Macroeconomic Effects  Inflation Unions are not a cause of inflation  Unemployment Unions may reduce downward wage flexibility  increases unemployment Reduce worker turnover  decreases unemployment High union wages may increase unemployment by attracting new entrants Empirical evidence is that unions have only a small effect on unemployment

22  Gender  Race Demographic Differences in Labor Market Outcomes

23 ”If your valuation is of the male from twenty years even to sixty years old, then your valuation shall be fifty shekels of silver, after the shekel of the sanctuary. Or if it is a female, then your valuation shall be thirty shekels.” Leviticus 27:3-4

24 Black/White Earnings Ratio


26 Earnings by Education, Race, and Sex, 2007

27 Occupational Distribution by Gender, 2008

28 Occupational Distribution by Race, 2008

29 Educational Attainment, 2007

30  Wage discrimination  Employment discrimination  Occupational discrimination  Human Capital discrimination Labor Market Discrimination

31 Taste for Discrimination Model  Gary Becker (1957)  Society is willing to forgo output and profit to engage in discrimination Employers Employees Customers  Discrimination coefficient: d = psychic costs Hiring Rule: MRP = W Assume: MRP w = MRP b Prejudiced employer will be indifferent if: W w = W b + d University of Chicago 1992 Nobel Prize in Economics Implies that: W b < W w Ex: W w = $10 and d = 3  W b = $7

32  A decrease in discrimination will lengthen the horizontal portion of the demand curve and reduce the slope of the downward sloping portion.  The size of the black-wage gap varies directly with the supply of black labor. Taste for Discrimination Model SbSb DbDb Number of Black Workers L1L1 W b /W w Non-discriminators Discriminators The demand for black workers is formed by arraying employers from lowest to highest discrimination coefficients. Competitive markets should force discriminators to go bankrupt

33 Measuring Discrimination: Residual Approach Education $ Black Wage Function White Wage Function EWEW EBEB $300 = W B $500 = W W $420 = W* B W W – W B = observed wage gap W w – W* B = explained wage gap W* B – W B = unexplained wage gap = 500 – 300 = 200 = 500 – 420 = 80 = 420 – 300 = 120 Assume:  Blacks receive lower wages for any given E  Blacks have less education than whites “residual” Due to discrimination

34 Mean Values of Worker Characteristics and Percentage of Wage Gap Explained White Men Black Men Hispanic Men White Women Black Women Hispanic Women Years of formal education Years of experience Percent Full-time employed Percent Represented by Union Annual Earnings$23,279$17,117$16,291$14,006$13,873$11,963 Percentage of wage gap explained Percentage of wage gap unexplained Source: Based on Garey Durden and Patricia Gaynor, “More on the Cost of Being Other Than White and Male: Measurement of Race, Ethnic, and Gender Effects on Yearly Earnings,” American Journal of Economics and Sociology 57 (January 1998), Table 1 and unpublished tables.

35 Statistical Discrimination Model  Occurs when individual is judged on basis of the average characteristics of a group  Results from imperfect information used during the screening process G MC GHGH GRE scores number Marietta CollegeHarvard Employer is not harmed by SD—it is an efficient response to imperfect information—therefore SD can persist.

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