Chapter 28. Labor Unions

Chapter 28Labor Unions28-1Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesA short history of the labor movementLabor legislationThe economic power of unions and employersThe economic power of monopsoniesCollective bargainingThe strike 28-2Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.A Short History of the Labor Movement Labor unions are a traditional American institutionUntil the 1940s most Americans had unfavorable opinions of unionsThe AF of L rang in the modern era of unions in 1886With the emergence of the large corporation, individual workers had little bargaining powerThousands of workers banded together did have some leverage28-3Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.A Short History of the Labor Movement Employers fought labor unions tooth and nailUnion members were blacklistedThose who were suspected of union sympathies were firedCourt orders were obtained to prevent strikesSome times private detectives , labor goons, and sympathetic local police were used to put down strikes violently 28-4Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Key Labor LegislationThe National Labor Relations Act (The Wagner Act, 1935)The Wagner Act put the force of government behind collective bargainingThe Taft-Hartley Act (1945) was put forth as a measure to protect “employers” rights 28-5Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Key Labor LegislationThe Landrum-Griffin act (1959)This act protected union members from abuses by their own union leadershipThis act also attempted to cut down on embezzlement of union funds by union leaders28-6Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Union Membership, 1900-200028-7Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Union membership reached its peak in the late 1970sUnion Membership, 1900-200028-8Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Union membership as a percentage of the labor force reached its peak in the late 1950sUnion Membership As a Percentage of Employed Labor Force, Selected Nations, 199928-9Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.America is one of the least unionized industrial nations in the worldThe Economic Power of Labor UnionsAre unions a monopoly?We define a monopoly as the seller of a good or service for which there are no close substitutesTechnically, labor is not really a good or service, but rather a factor that helps produce a good or serviceIf we brush aside that technicality, then for all intents and purposes unions are sometimes monopolies28-10Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Economic Power of Labor UnionsUnions have two ways of exerting powerThe method of inclusionTake in as members virtually everyone who works in a particular craft or industryThe power is in the numbersThe method of exclusionYou don’t take in just anyoneYou need experienceYou must take testWho you know wouldn’t hurt your chancesBy keeping people out, you limit the supply and wages amazingly go way up28-11Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Inclusive and Exclusive Unions28-12Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The wage rate is set by supply and demandThe Economic Power of Large EmployersUnions have become quite powerfulCorporations not only have remained powerful, but this power is becoming increasingly concentrated because of the rapid pace of corporate mergersAn extreme case of corporate power is that of monopsony28-13Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.MonopsonyMonopsony is the market situation in which there is only a single buyer for a productThe most common kind of monopsony is a labor market where there is only a single employerSometimes 60 to 80% of jobs in some areas are provided by a single employer28-14Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.MonopsonyThe monopsonist faces the entire supply curve of laborBecause that curve sweeps upward to the right, to induce more people to work more, it has to pay them a higher wage rateThe best know monopsonists these days are professional baseball, football, and basketball leagues 28-15Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Bilateral MonopolyWhen a union that controls the supply of labor is opposed by an employer that controls the demand for labor, we have a bilateral monopolySome examples areAuto workers, professional sports, teachers in most large school districts, and aerospace workersLike the competitive oligopolists, a union dealing with a monopsony employer knows that any move it makes will invite a countermove by the firmAt the bargaining table, who ends up with what depends largely on the relative power on both sides28-16Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Collective Bargaining ProcessCollective bargaining is the main arena of the power struggle between labor and managementLabor generally tries to secure substantial increases in wages, fringe benefits, and perhaps better working conditionsManagement, of course, offers considerably less than labor wantsAnd so they bargain28-17Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Collective Bargaining ProcessLabor’s ultimate weapon is the strikeManagement’s ultimate weapon is its ability to take a strikeSometimes management has been know to “lock out” their workersBut, does it really make any sense to lock out workers who are about to leave anyway?It might if you lock them out right before paydayConversely, the best time to begin a strike is right after payday28-18Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Collective Bargaining ProcessThe ability to take a strike varies from firm to firmManufacturing fares better than services because inventories can be built up in anticipation of a strikeService industries cannot make up for lost sales because their competitors will have picked up the slackA diversified firm can ride out a strike more easily than can a firm that produces a single good or serviceA multinational corporation might simply shift operations to another country 28-19Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The Collective Bargaining ProcessA union might be hesitant to strike a company that was about to go underYou might win the strike and lose your jobIf a company is financially weak union demands will likely be moderateDuring the 1981-82 recession, some unions actually negotiated not only no wage increases but even wage reductionsSaving jobs can sometimes take precedence over anything else28-20Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Pressure to Reach a SettlementThe cost of a strike can be extremely highGeneral Motors lost $90 million a day during a 67-day strike in 1970This was approximately $5.7 billion totalThe United Auto workers lost $50-$60 million a day (almost $4 billion total)Real issues are presented and discussedCOLAs, productivity, wages are always keyPattern setting is always a major consideration on both sides28-21Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The StrikeIn fact, very few strikes have disrupted the U.S. economyOnly two have caused major economic disruptionsThe 1959 steel strike and the UAW strike against General Motors in 1970With the exception of 1946, in no year did strikes result in as much as a 1% loss in total labor hours worked1946 was an aberration because unions had been restricted from striking during the war28-22Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Work Time Lost Because of Strikes, 1945-200028-23Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Why People StrikeMost union members do not make any kind of cost-benefit analysisSometimes the opposing sides are further apart than is realizedWorkers think the strike will be settled quicklyWorkers exhibit a combination of machismo and credibility28-24Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Averting StrikesCollective bargaining is the basic way of averting strikesThe two sides sit down togetherAfter some tough bargaining, they hammer out an agreement both can live withWhat if they can’t reach agreement, or even agree to sit down together in the same room?This is where mediation and arbitration come in28-25Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.MediationA mediator is literally a go-betweenA mediator tries to speed up the process of negotiation, getting each side to give a little more and take a little lessA mediator does not have the power to impose a settlement but can play a valuable role as an expediter28-26Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.ArbitrationThe job of an arbitrator is to impose a settlementUnder compulsory arbitration, a labor contract or law actually stipulates that if the two parties cannot reach an agreement, an arbitrator will make the decisionThis takes the decision out of the hands of labor and managementThis makes arbitration a situation both sides want to avoid28-27Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Have Unions Raised Wages?The answer is yes, but the real question is by how much?Various studies indicate that unions have raised the wages of their members by 10 to 45%In 2000, total compensation for unionized workers averaged $24.75, compared to $18.20 for nonunion workers [but unions have effects on nonunion work pay/conditions] 28-28Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.Have Unions Raised Wages?Unions have tended to spring up in relatively productive occupations, often in very profitable industriesThere is evidence that even without unions the pay would be better than in the other non unionized sectorsThe decline in the nation’s industrial sector may contribute to a decline in the differentials between unionized and non unionized workers 28-29Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.The American Medical Association (AMA)The AMA has been amazingly successful in raising the median wage rate of doctors – which is well in excess of $200,000 a year – by restricting their numbersThis process work the same with sheet metal workers, bricklayers, and electricians, but the AMA does it better28-30Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.CommentsUnions do raise wagesUnions provide a badly needed measure of job securityUntil unions were organized, workers were powerless to bargain with huge corporationsNow many fear the power has shifted too far the other way28-31Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.