4. Trade Unions

Question 1

What are the two main models for trade unions?

Answer 1

Labour demand curve (right to manage) model
Efficient bargain model

Question 2

Labour demand curve model

Answer 2

Unions and employers negotiate wage but employment is determined by the employer

Question 3

How does the steepness of the labour demand curve impact the model?

Answer 3

The steeper the curve, the more the unions can afford to raise wages without employment dropping

Question 4

Efficient bargain model

Answer 4

Unions and employers negotiate over wages and employment

Question 5

What do Macdonald and Solow show in the efficient bargain model?

Answer 5

That for any given wage employment combination on the demand curve, there exists some combination off the curve which benefits both parties

Question 6

Strongly efficient contracts

Answer 6

If the contract is vertical, the deal between the union and firm is strongly efficient because the firm is hiring at the competitive level of employment

Question 7

To what extent do unions bargain over employment in reality?

Answer 7

Oswald found only 1/6 unions directly bargain over employment

Question 8

Why don’t unions bargain over employment much in reality?

Answer 8

Each person within the Union only cares about their own wages so no incentive to increase employment. There is also asymmetric info since the union doesn’t know if increasing employment will be bad for the business

Question 9

Under monopoly union theory what does the level of employment in union firms depend on?

Answer 9

Union wage, not competitive wage

Question 10

Under strongly efficient bargaining theory what does the level of employment in union firms depend on?

Answer 10

Competitive wage but is also related to union wage

Question 11

Wage gain

Answer 11

The difference between what the same worker would be paid when working in a union or not in a union

Question 12

Wage gap

Answer 12

The difference between what union and non union workers are paid

Question 13

What are indirect effects of unions on competitive wages

Answer 13

•firms may raise wages to prevent unions from forming
•spillover effects of union workers joining competitive workforce and driving down wages

Question 14

Wait unemployment

Answer 14

Where workers who lose a union job will wait for other union sector jobs to open up rather than entering the competitive market

Question 15

Problems with regression approach

Answer 15

•simultaneity bias
•omitted variable bias

Question 16

Empirical findings of union effect on wages

Answer 16

•different union vary
•pilots have generated wage gaps of 25-30%
•on average few unions succeed in producing a wage gap greater than 30%

Question 17

How do trade unions affect wage dispersion?

Answer 17

Wage dispersion is 25% lower in union firms and 10% lower in aggregate economy

Question 18

How do unions treat skilled workers?

Answer 18

Unionised firms offer their workers a lower payoff for skills than non-union firms.
Raises wages of less skilled workers relative to higher skilled workers within the same union.
Reduces the payoff to human capital investments

Question 19

Exit voice hypothesis

Answer 19

Unions give workers a voice for communicating issues directly to management without feeling their career could be jeopardised

Question 20

How does exit voice hypothesis affect efficiency?

Answer 20

•perhaps increases productivity by improving worker morale and cooperation
•unionised firms respond to the average worker rather than the marginal worker
•turnover should be lower
•surprisingly studies find unionised workers to be less satisfied with their jobs. This could be because they want to be heard

Question 21

How do unions impact productivity?

Answer 21

•may encourage investment in human capital through lower turnover
•may limit productivity by limiting power of employer
•may lead to less investment since wages are higher
•any rise in productivity which might occur fails to offset union wage effects

Question 22

How do unions affect profitability?

Answer 22

Clark finds union businesses have 12% lower rate of return on capital. When additional controls are added, the effect rises to 19%

Question 23

How does trade union membership in UK compare to OECD

Answer 23

•union membership is 28% (slightly higher than OECD)
•union coverage is 33% (just below OECD)

Question 24

Trade union act 2017

Answer 24

•employers must be given 14 days of notice before strike
•set a 6 month time limit for industrial action so that mandates are always recent
•report more detailed information on industrial action and ballot results

Question 25

Hicks paradox

Answer 25

The fact that irrational strikes occur

Question 26

What do most models find the reason for striking to be?

Answer 26

Workers aren’t well informed about the firms financial status