back start next

[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [ 61 ] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75]


petitive buyers of labor, monopsonists must bid up vage rates in order to increase employment. Consequently, they restrict the number of workers hired. With fewer workers hired in a labor market, wage rates are lower than under competidon.

Employees of monopsonists have a strong defense against such exploitadon: they can move. For example, even though UCSB is the only research institution in a hundred mile radius, professors are not monopsonisdcally exploited. If UCSB paid less than comparable institutions, it couldnt retain its facility. Professional athletes face a different situation. Under the draft system, the team with the worst record is given the exclusive (monopsonistic) right to bid for new players entering professional sports. As such, salaries are lower than they would be under open bidding. Eat your heart out Shaq.


Labor unions may function in either competitive or monopsonistic markets. We begin with the competitive case. Figure IX shows the familiar supply and demand for labor in which competitive wage and employment levels are uiitially Wc and Nc respectively. One union strategy for raising wages above Wc is for workers to fix the price of labor at a higher union wage rate, Wu. (This would be a conspiracy in violation of U.S. antitrust laws but for special exemptions won through the use of union political power.) Such an agreement, in effect, changes the supply curve of labor so that the portion out to Nj becomes infinitely elastic at the union wage, Wu . Below this wage rate no labor whatsoever is offered. Thereafter, the supply curve rises in the usual way.

A parallel with minimum wage legislation is apparent. In both cases, the collecdvely bargained (or minimum) wage rate, Wu exceeds the competidve one, Wc . But also in both cases, the union (or minimum wage) level of employment, Ni, , is less than competitive one, Nc. Consequendy, unions employing this strategy must normally accept some trade off between unemployment and higher wages. For example, at the wage rate Wu, Nj workers are supplied but onh Nu will be put to work. Therefore we have imemployment in Figure IX equal to N5 - Nu . Not everyone who wants work at the prevailing wage of W,, can have it. This unemployment would be still higher if the collectively bargained wage, Wu , were greater

Collectively bargained wages involve diree serious aiid interrelated problems. First, some means must be found to prevent workers from working at wages

Fig. IX A Collectively Bargaineii Wage

.4 1

1 \ 1

NĄ \ \

below Wu . Otherwise the whole scheme would collapse and wed be back to the competidve wage of W-. If the union achieves sufficient political power, this can sometimes be accomplished with government help; in other cases illegal violence against non<olluding workers and/or the property of their employers is used. In still other situations, the amount of labor available at wages below Wu is too small to justify production.

Second, if the union does achieve the wage Wu, some means must be found to ration the existing work over the excess supply of labor Job access rules based upon seniority represent one answer Disguising unemployment as a union vacation or early retirement "benefit" is another Under such schemes, workers who would prefer higher incomes to more leisure must nonetheless accept involuntary vacations or retirement.

Finally, unions utilizing collective bargaining methods must often negotiate very detailed working condition agreements. We leave it to the student to determine why such agreements might be especially necessary under collective bargaining. (Consult Price Floors in Section III if you need help).

Unions have an alternative method of raising wages, that of reducing the supply of labor through discrimination schemes. As weve seen, employers may be reluctant to discriminate because it costs them profits. Unions, on the other hand, may be eager to discriminate because the practice can dramatically raise wages. Figure X shows the hypodieucal supply and demand for plumbers in such an environment. The competitive labor supply is the curve labeled S. (You can ignore the other supply curve S for now.) The equilibrium wage rate is W and employment is N. Now imagine that the plumbers union successfully lobbies

local government for a law requiring union labor on all construction jobs "in the public interest" Such a law essentially shields the union from compeddon by making non-union transactions illegal: Nobody has the legal right to buy or sell plumbing services except through the union monopoly.

Those controlling the union politically may now find il in dieir interest lo restrict the supply of plumbers. While this has often taken the form of racial di-scriminadon, other types appear as well. For instance, it may be all but impossible to join the union without a relauve in it (discriminadon against nonunion families), or unless one has reached a certain age (age discriminadon), or is male, a state resident, or has completed a union approved apprendceship program (Sorry, no applicadons being taken right now), hi practice, many other discriminatory mechanisms are used. The effect shown in the union market of Figure X, is to decrease the supply of labor from S to S", to raise the wage to W, and to decrease the employment of plumbers to N. Note that no unemployment threatens to bring the wage down. The market fully clears. Nonetheless, incendves exist to transact illegally with non-union labor or to "do it yourself legally. Often considerable public resources are expended in delecting and blocking such non-union tiansactions. But the union doesnt bear the costs. The taxpayers do.

The victims of union discrimination are thrown into non-union labor markets in Figure XI, where they increase the supply from S to S and lower wages from W to W. Thus, unionization often creates purely artificial increases in the degree of income inequahty which the private competitive market would

not tolerate. Ironically, the same government which facilitates these discrimination schemes with its pro-union policy, may attempt to oppose the effects of its own policy through progressive taxauon and anti-poverty programs. While contradictory policies may seem folly when judged on the basis of their effects they may make excellent sense when judged on the basis of the interests oftheir proponents both within and without the government

Regardless of whether the union achieves its wage goals via collective bargaining, through discrimination, or through some mixture of the two, the effect on consumers in the product market is the same. As we saw in Section III, an increase in the price of labor inputs decreases the supply and raises the products price. These effects are shown in the product market graph of Figure XII. Unionization is in this respect anti-consumer.

Unions can also achieve wage increases by increasing the product demand. Often times products are advertised as union made by American unionists in an effort to increase the product demand, raise the market price, and shift the labor demand curve to the right as in Figure XIII. To that extent the wage rate rises from W to W and employment rises from N to N. Such advertising campaigns can backfire, however. When received by anti-union households, they can end-up decre2ising, rather than raising, demand. As a result, such advertising is usually channeled toward union families.

A more powerful way to increase the demand for union-made products is to lobby the government for restrictions of one kind or another on competing foreign goods. Tariffs, quahty and safety standards,

Fig. X The Impact of Discrimination in Union & Non-Union Markets Fig. XI


Unionized Market


Non-Union Market

Fig. Xll The Impact of Unionism in the Product Market

Q- Q °

quotas, and so forth all raise the price of foreign-made products. As such, the demand for domesdc products increases, thereby raising the derived demand for domestic labor as in Figure XIII. Unions in the steel, auto, and electronics industries are particularly likely to use such tactics against their Japanese competition.


Labor unions are not alone in manipulating the supply in order to increase incomes. For example, the incomes of physicians are three to five times larger than the incomes of Ph.D. chemists because physicians, unlike chemists, have been able to restrict entry into their profession through control over professional education. Figure XIV shows what the supply of physicians would look like if medical schools admitted

most qualified applicants. The wage rale would be W and the number of doctors would be N. Instead, the American Medical Association through its sister organization, the Association of American Medical Colleges, tightly limits the number of candidates trained for medicine, thereby decreasing the supply to S, raising the wage rate to \A, and decreasing the number of doctors to N.

The limited access to medical education is not caused by a 1 1 scarcit) of training facilities. The number of private facilities potentially capable of training doctors extends to the hundreds in California alone. After all, many hospitals train specialists whove already completed medical school; surely only a few minor modifications would be necessary to meet the relatively modest requirements of general medical training. Since the value of a medical education is extremely high, why dont some of these hospitals open profit-making private medical schools? The answer is that such schools are illegal under the laws of every state in the country.

The impact of this system on the quality of treatment is unclear. Since entry into medicine is restricted and price-competition is banned, non-price competition for access into medical education, particularly academic competition, is intense. Doctors are presumably betterJrained an<ijnore..cpjmpetent, but that does not mean patients receive better care overall. After all, there are fewer practitioners, so patient contacts are both briefer and less frequent. Moreover, the price of a doctors visit is higher, so people substitute into relatively inferior substitutes such as chiropractors, nutritionists, osteopaths, podiatrists, and others. Some people simply go without. Thus, when such rel-

Fig. XIll The Labor Market Impact of a Product Demand Increase





/ ; > o=p.MPP

MM "

Fig. XIV The Restricted Supply of Physicians


[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [ 61 ] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75]