Unions And Collective Bargaining

A union is a worker association that bargains with employers over wages, benefits, and working conditions- Whereas only 12 percent of U.S. workers now belong to unions, unions played a much larger role in the US. labor market in the past.

union a worker association that bargains with employers over wages, benefits, and working conditions

In the 1940s and 1950s, when unions were at their peak, about a third of the U.S. labor fvrcc km unionized.

Moreover, for a variety of historical reasons, unions continue to play a large role in many European countries. In Belgium, Norway, and Sweden, for instance, more than half of workers belong to unions. In France and Germany, a majority of workers have wages set by collective bargaining by law,even though only siime of these workers are themselves union members. In the»' cases, wages are not determined by the equilibrium of supply and demand in competitive labor markets.

collective bargaining the process by which unions and firms my«* on tNt terms of empteyment

•trlke the organised withdrawal of Ubor from * firm by

The Economics of Unions

A union is a type of cartel. Like any cartel, a union is a group of Sellers acting together in the hope of exerting their joint market power. Most workers in the l,'.S. economy discuss their wages, benefits, and working conditions with their ctttpkiycrs as individuals. By contrast, workers in a union do so as a group. The process by which unions and firms agree on the terms of employment is called collective bargaining.

When a union bargains with a firm, it asks for higher wages, better benefits, and better working conditions titan the firm would offer in the absence of a union. If the union ami the firm do not reach agreement, the union can organize a withdrawal of labor from the firm,called a strike Becausca strike redttccs padduction, sales, and profit, a firm facing a strike threat is likely to agree to pay higher wages than it otherwise would. Economists who sludv the effects of unions typically find that union workers earn about 10 to 20 perccnt more than similar workers who do not belong to unions.

When a union raises the wage above the equilibrium level, it raises the quantity of labor supplied and reduces the quantity of labor demanded, resulting in unemployment. Workers who remain employed at the higher wage are better off, but those who were previously employed and are now unemployed are worse off. Indeed, unions are often thought to cause conflict between different groups of workers—between the insiders who benefit from high union wages and the outsiders who do not get the union job».

The outsiders can respond to their status in one of two ways. Some of them remain unemployed and wait for tin* chance to become insiders and earn the high union wage. Others take job* in firms that are not unionized. Thus, when unions raise wages in one part of the economy, the supply of labor increases in other parts of the economy. This increase in labor supply, in turn, reduces wages in industry's that are not unionized- In other words, workers in unions reap the benefit of collective bargaining, while workers not in unions bear some of the cost.

The role of unions in the economy depends in part on the laws that govern union organization and collcctivc bargaining. Normally, explicit agreements among members of a cartel are illegal. When firms selling similar products agree to set high prices, the agreement is considered a "conspiracy in restraint of trade," ami the government presccutes the firms in civil and criminal court for violating the antitrust laws. By contrast, unions are exempt from these laws. The policymakers who wrole the antitrust laws believed that workers needed greater market power as they bargained with employers. Indeed, various laws are designed to encourage the formation of unk-ns. In particular, the Wagner Act of 1935 prevents employers from Interfering when workers try to organize unions and requires employers to bargain with unions in good faith. The National Labor Relations Board (NLRBl is the government agency that enforces workers' right to unionize.

Legislation affecting the market power of unions is a perennial topic of political debate. State lawmakers sometimes debate right-foment taws, which give workers in a unionized firm the right to choose whether to join the unkm. In the absence of such laws, unions can insist during collective bargaining that firms make union membership a requirement for employment. At times, lawmakers in Washington have debated a proposed law that would prevent firms from hiring permanent replacements for workers who are on strike. This law would make strikes more costly for firms, thereby increasing the market power of unions. I hese and similar policy decisions will help determine the future of the union movement.

Arh Unions Good or Bad for tiif. Economy?

Economists disagree about whether unions are good or bad for the economy as a whole. Let's consider both sides of the debate

Critics argue that unions are merely a type of cartel. When unions raise wages above the level that would prevail in competitive markets, they reduce the quantity of labor demanded, cause some workers to be unemployed, and reduce the wages in the rest of the economy. The resulting allocation of labor is, critics argue, both inefficient and inequitable. It is inefficient because high union wages reduce employment in unionized firms below the efficient, competitive level. It is inequitable because some workers benefit at the expense of other workers.

Advocates contend that unions are a necessity antidote to the market power of the firms that hire workers. The extreme case of this market power is the "company town," where a single firm dix;s most of the hiring in a geographical region. In a company town, if workers do not accept the wages and working conditions that the firm offers, they have little choice but to move or stop working. In the absence of a union, there-fore, the firm could use its market power to pay lowe-r wages and offer worse working conditions than would prevail if it had to compete with other firms for the same workers. In this case, a union may balance the firm's market power and protect the- workers from being at the me-rcy of the firm's owne-rs.

Advocates of unions also daim that unions are important for helping firms respond efficiently to workers' concerns. Whenever a worker lakes a job, the worker and the firm must agree on many attributes of the job in additkm to the wage: hours of work, overtime, vacations, sick leave, health benefits, promotion schedules, job security,and so on. By representing workers' views on these issues, unions allow firms to provide the right mix of job attributes. Even if unions have the adverse effect of pushing wagers above the equilibrium level and causing unemployment, they have the benefit of helping firms keep a happy and productive workforce.

In the end, there is no consensus a truing economists abc«ut whether unions ate good or bad for the economy. Like many institutions, their influence is probably beneficial in some circumstance's and adverse in others-

QUICK QUIZ Now do®4 a union in the auto industry affect wages and employment at General Motor» and Ford? How does it affect wages and employment in other industries?

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