Bài giảng Labour Market Economics - Chapter 15 Wage and Employment Determination Under Collective Bargaining

Chapter FifteenWage and Employment Determination Under Collective Bargaining Created by: Erica Morrill, M.Ed Fanshawe College1© 2002 McGraw-Hill Ryerson Ltd.Chapter FocusUnion behaviourInteraction between firms and unionsInefficient production decisionsInefficient union practicesBargaining power2© 2002 McGraw-Hill Ryerson Ltd.Theory of Union BehaviourUnions attempt to maximize objectives given economic constraints Ability to characterize preferences of unions is difficult3© 2002 McGraw-Hill Ryerson Ltd.Union ObjectivesFactors influencing preferences information availableunion’s political decision-making processdegree of homogeneity4© 2002 McGraw-Hill Ryerson Ltd.Union ObjectivesUtility is a positive function of wage rate and employmentIndifference curve is downward sloping higher wage is needed to compensate for lower employment Curves have a convex shape diminishing marginal rate of substitution5© 2002 McGraw-Hill Ryerson Ltd.DLFigure 15.1 Union Objectives and ConstraintsReal WageRateWPWaPEmployment Ea2a1U0a3U2a0U16© 2002 McGraw-Hill Ryerson Ltd.Special Cases of Objective FunctionsMaximize the Wage rate indifference curves are horizontal straight linesMaximize Employmentindifference curves are vertical straight linesMaximize the (real) wage bill curve out from the origin-disregards alternative wage rateMaximize economic rentcurve out from the intersection of alternative wage7© 2002 McGraw-Hill Ryerson Ltd.Additional ConsiderationsDeriving union objectives is simplest when:preferences are homogeneousleaders are constrained by democratic decision-making processes union membership is exogenously determined8© 2002 McGraw-Hill Ryerson Ltd.Union Constraints (Wage Only)Unions negotiate wages taking into account the consequencesThe firm decides the employment levelmaximizing profits according to LD curveLD curve is analogous to a budget constraint Equilibrium is the tangent of the iso-utility curve and LD curve9© 2002 McGraw-Hill Ryerson Ltd.Factor in the Firms Iso-profit CurvesCombinations of wage and employment of equal profitsHigher profits on lower curvesFirm cannot pay wages below the alternative wageWage will lie between the alternative wage rate and the bargaining wage10© 2002 McGraw-Hill Ryerson Ltd.Figure 15.4 The Firm’s and Union’s Preferred Wage-Employment OutcomesEWDLU*Iu0=0W0Wu*IfWf = Wa11© 2002 McGraw-Hill Ryerson Ltd.Relaxing the Demand ConstraintUnions will attempt to alter the constraintincreasing labour demandmaking demand more inelasticRestricting substitution possibilitiescollective bargaininginfluencing public policyInfluence product marketsupporting quotas, tariffs and restrictions on foreign competition12© 2002 McGraw-Hill Ryerson Ltd.Efficient Wage and Employment ContractsNegotiating over wage and employment is mutually advantageous Pareto-efficient wage-employment outcomes union’s indifference curve tangent to the firms iso-profit curve13© 2002 McGraw-Hill Ryerson Ltd.UFigure 15.5 Efficient and Inefficient Wage-Employment ContractsDLAWEBA’A’’CC’Wa14© 2002 McGraw-Hill Ryerson Ltd.Contract CurveLocus of the Pareto-efficient wage-employment outcomes Union cares about wages and employment CC must lie to the right of LD curveFirms and unions are better off negotiating an outcome on the contract curveMoving up on the CC unions better off Moving down the firm better off15© 2002 McGraw-Hill Ryerson Ltd.Obstacles to Reaching Efficient ContactsInformation needed may not be availableAn agreement about employment difficult to enforceConcession bargaining16© 2002 McGraw-Hill Ryerson Ltd.Efficient Versus Inefficient ContractsLabour demand curve modelfirm unilaterally sets employmentContract curvenegotiate over wage and employmentMonitoring and enforcing efficient contracts are too high in most settings17© 2002 McGraw-Hill Ryerson Ltd.Figure 15.6 Inefficient, Approximately Efficient, and Efficient ContractsEWC’CDLCDL18© 2002 McGraw-Hill Ryerson Ltd.Theory of BargainingPredicting the outcome and explaining depend factors Common featuresSet of possible outcomesMinimum for each partyVoluntary agreementNeither will agree to an outcome worse than minimum19© 2002 McGraw-Hill Ryerson Ltd.Figure 15.7 The Bargaining Problem and Nash SolutionFUFUSANUNfNdTdf0CU0f1U1AfNUNNf2U2BThe bargaining problemThe Nash solution20© 2002 McGraw-Hill Ryerson Ltd.Solutions to the Bargaining ProblemTwo bargaining theoriesprocessoutcomeNash’s TheoryPareto-efficiencySymmetryTransformation invarianceIndependence of irrelevant alternatives21© 2002 McGraw-Hill Ryerson Ltd.Solutions to the Bargaining ProblemRubinstein’s Theorysome concepts of non-cooperative game theorybargainers take turns making offerscounter offers can be madeutility shrinks in each round22© 2002 McGraw-Hill Ryerson Ltd.fAUAABUBfBf1f2fRURRFigure 15.8 The Rubinstein Solution to the Bargaining ProblemFUFRU1f1ddf4U0Rubinstein’s SolutionEffect of delay CostsU4f3f2f3fRURU223© 2002 McGraw-Hill Ryerson Ltd.Union Bargaining PowerTwo meaningspower is related to elasticityability to raise wages24© 2002 McGraw-Hill Ryerson Ltd.Union Power and Labour SupplyCraft Unionsraise wage by controlling entry through apprenticeship systemsdiscrimination, nepotism, high dues and closed shop, union shop, agency shop Professional Associations occupational licensing and certification25© 2002 McGraw-Hill Ryerson Ltd.End of Chapter Fifteen26© 2002 McGraw-Hill Ryerson Ltd.