4. Trade Unions Flashcards
What are the two main models for trade unions?
Labour demand curve (right to manage) model
Efficient bargain model
Labour demand curve model
Unions and employers negotiate wage but employment is determined by the employer
How does the steepness of the labour demand curve impact the model?
The steeper the curve, the more the unions can afford to raise wages without employment dropping
Efficient bargain model
Unions and employers negotiate over wages and employment
What do Macdonald and Solow show in the efficient bargain model?
That for any given wage employment combination on the demand curve, there exists some combination off the curve which benefits both parties
Strongly efficient contracts
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
To what extent do unions bargain over employment in reality?
Oswald found only 1/6 unions directly bargain over employment
Why don’t unions bargain over employment much in reality?
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
Under monopoly union theory what does the level of employment in union firms depend on?
Union wage, not competitive wage
Under strongly efficient bargaining theory what does the level of employment in union firms depend on?
Competitive wage but is also related to union wage
Wage gain
The difference between what the same worker would be paid when working in a union or not in a union
Wage gap
The difference between what union and non union workers are paid
What are indirect effects of unions on competitive wages
•firms may raise wages to prevent unions from forming
•spillover effects of union workers joining competitive workforce and driving down wages
Wait unemployment
Where workers who lose a union job will wait for other union sector jobs to open up rather than entering the competitive market
Problems with regression approach
•simultaneity bias
•omitted variable bias
Empirical findings of union effect on wages
•different union vary
•pilots have generated wage gaps of 25-30%
•on average few unions succeed in producing a wage gap greater than 30%
How do trade unions affect wage dispersion?
Wage dispersion is 25% lower in union firms and 10% lower in aggregate economy
How do unions treat skilled workers?
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
Exit voice hypothesis
Unions give workers a voice for communicating issues directly to management without feeling their career could be jeopardised
How does exit voice hypothesis affect efficiency?
•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
How do unions impact productivity?
•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
How do unions affect profitability?
Clark finds union businesses have 12% lower rate of return on capital. When additional controls are added, the effect rises to 19%
How does trade union membership in UK compare to OECD
•union membership is 28% (slightly higher than OECD)
•union coverage is 33% (just below OECD)
Trade union act 2017
•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
Hicks paradox
The fact that irrational strikes occur
What do most models find the reason for striking to be?
Workers aren’t well informed about the firms financial status
