14.3 Market Power on the Supply Side of Labor Markets: Unions

Labor unions wield significant power in the job market, negotiating better wages and conditions for workers. They use collective bargaining to secure benefits, but their influence can lead to higher unemployment and decreased labor demand. This dynamic showcases the complex interplay between worker representation and market forces.

Union membership in the U.S. has declined due to economic shifts, globalization, and changing attitudes. Despite this, collective bargaining remains a crucial tool for workers, addressing both wage and non-wage issues. The process involves negotiations, potential strikes, and is influenced by various economic and legal factors.

Labor Unions and Market Power

Union Impact

• Labor unions represent workers in negotiations with employers to increase wages, improve working conditions, and secure benefits for their members
• Collective bargaining process where unions negotiate with employers on behalf of their members resulting in collective bargaining agreements (CBAs) that set employment terms (wages, hours, benefits)
• Unions can increase wages above the competitive equilibrium level creating a wage differential between union and non-union workers in similar jobs known as the union wage premium
• Higher union wages can decrease the quantity of labor demanded by employers as they may hire fewer workers or invest in labor-saving technology potentially resulting in higher unemployment among union members and potential members
• Unions can make labor demand less elastic by negotiating job security provisions and work rules meaning employers are less responsive to changes in wages potentially leading to higher unemployment

Decline in U.S. Union Membership

• Structural shifts in the economy marked by decline in manufacturing jobs with high union membership rates and growth of service sector jobs with lower union membership rates
• Globalization and increased competition from import competition putting pressure on unionized industries and threat of offshoring jobs weakening unions' bargaining power
• Technological change like automation reducing demand for certain types of labor particularly in manufacturing
• Changes in labor laws and regulations such as right-to-work laws in some states prohibiting mandatory union membership or dues payment and weakening of the National Labor Relations Board's ability to enforce labor laws
• Changing attitudes towards unions with decline in public approval and perception that unions are less necessary in a modern economy

Collective Bargaining

• Collective bargaining process where unions and employers negotiate employment terms (wages, benefits, working conditions, job security)
• Collective bargaining agreements (CBAs) are legally binding contracts setting employment terms for a specified period
• Unions secure higher wages and better benefits for their members through collective bargaining leading to a union wage premium and improved working conditions
• Collective bargaining addresses non-wage issues like grievance procedures for resolving disputes, seniority systems for promotions and layoffs, and health and safety standards
• Threat of strikes (work stoppages initiated by unions) and lockouts (initiated by employers) can influence collective bargaining outcomes
• Effectiveness of collective bargaining depends on factors like bargaining power of the union and employer, economic conditions in the industry and overall economy, and legal and regulatory environment surrounding labor relations