The Effects of Unions on Wages and Employment

1
The Effects of Unions on Wages and Employment

• In
• Competitive and Monopsonistic
• Labor Markets

2
Assumptions

• Two labor markets
• Market 1 is competitive
• Market 2 is monopsonistic
• Each labor market is in an initial equilibrium
  illustrated by the graphs
• A union exists in each of the markets

3
1. Competency test required the union is
successful in requiring that new teachers pass a
state competency test to be employed

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate ______
Wage Rate ______
Employment ______
Employment ______
4
1. Competency test required

• Competitive

• Monopsonistic

S1
MRC 2
MRC
S1
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate HIGHER
Wage Rate HIGHER
Employment LOWER
Employment LOWER
5
2. National advertising campaign the labor union
conducts a successful advertising campaign urging
people to buy union made goods

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate ______
Wage Rate ______
Employment ______
Employment ______
6
2. National advertising campaign

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D1
MRP1
D
MRP
labor
labor
Wage Rate HIGHER
Wage Rate HIGHER
Employment HIGHER
Employment HIGHER
7
3. Increased Productivity the labor union
educates workers in new methods of production,
which leads to increased productivity

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate ______
Wage Rate ______
Employment ______
Employment ______
8
3. Increased Productivity

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D1
MRP1
D
MRP
labor
labor
Wage Rate HIGHER
Wage Rate HIGHER
Employment HIGHER
Employment HIGHER
9
4. Quotas/Tariffs on Foreign Competition the
labor union promotes national legislation, which
gets passed, to increase tariffs and/or quotas
on foreign competitors

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate ______
Wage Rate ______
Employment ______
Employment ______
10
4. Quotas/Tariffs on Foreign Competition

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D1
MRP1
D
MRP
labor
labor
Wage Rate HIGHER
Wage Rate HIGHER
Employment HIGHER
Employment HIGHER
11
5. Wage Increase Above Equilibrium Rate the
labor union bargains for and wins an increase in
the wage rate above the equilibrium wage rate

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate ______
Wage Rate ______
Employment ______
Employment ______
12
5. Wage Increase Above Equilibrium Rate

• Competitive

• Monopsonistic

MRC
S
Wu
S
Wage Rate
Wc
Wu
Wage Rate
Wc
D
MRP
labor
labor
Wage Rate HIGHER
Wage Rate HIGHER
Employment LOWER
Employment indeterminate
13
6. Only Union Members Hired the labor union
signs an agreement with employers that forces
employers to hire only union members who have
gone through the unions apprenticeship program

• Competitive

• Monopsonistic

MRC
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate ______
Wage Rate ______
Employment ______
Employment ______
14
6. Only Union Members Hired

• Competitive

• Monopsonistic

S1
MRC 2
MRC
S1
S
S
Wage Rate
Wage Rate
D
MRP
labor
labor
Wage Rate HIGHER
Wage Rate HIGHER
Employment LOWER
Employment LOWER