Labor Unions
Types of Labor Unions
  1. Craft union – a union made up or workers who practice the same craft.
  2. Industrial union – a union made up of workers in the same industry.
  3. Public employee union – a union made up of workers employed by government.
As a kind of cartel, a labor union faces a trade-off between wages and employment.  A higher wage rate will generally mean fewer union members employed.
Union Goals:
  1. Reduce the elasticity of demand for union labor.
    • by reducing the availability of substitute factors
    • by reducing the availability of substitute products
  2. Increase the demand for union labor
    • by increasing product demand
    • by increasing the MPP of union workers
    • by increasing the prices of substitute factors
  3. Decrease the supply of union labor
Unions can directly affect wage rates through collective bargaining. 
  • Collective bargaining is where a union bargains with management on behalf of the workers
  • Collective bargaining will generally result in higher wages and fewer workers employed
A union might use the threat of a strike to negotiate a wage rate above equilibrium
  • a lone buyer in a factor market.
  • A monopsony faces an upward sloping labor supply curve, and a twice as steeply upward sloping MFC curve
  • A monopsony will employ workers where MRP = MFC, which will be a lesser quantity of workers at a lower wage compared to a perfectly competitive employer.
  • A union negotiating with a monopsony may be able to obtain a higher wage rate and a greater quantity of labor employed.
Research indicates that unions increase the wages of union employees, but decrease the wages of nonunion employees.
Higher union wages will also result in higher prices for union made products (or higher taxes for union-produced government services)

The traditional view holds that unions hurt productivity due to:

  1. Strikes
  2. Unnecessary staffing requirements (featherbedding) 
  3. Keeping willing employers and employees apart

back to the  top of this page
back to the  Microeconomics Home Page
back to  Professor Fisher's Home Page

this page is maintained by Reed Fisher
last updated January 15, 2011