The Effects of Unions on Wages and Employment

The Effects of Unions on Wages and Employment In Competitive and Monopsonistic Labor Markets

Assumptions • Two labor markets – Market 1 is competitive – Market 2 is monopsonistic • Each labor market is in an initial equilibrium illustrated by the graphs • A union exists in each of the markets

1. Competency test required: the union is successful in requiring that new teachers pass a state competency test to be employed • Competitive • Monopsonistic MRC Wage Rate S S D labor Wage Rate ______ Employment ______ MRP labor Wage Rate ______ Employment ______

1. Competency test required • Competitive • Monopsonistic S 1 MRC 2 MRC S 1 Wage Rate S S D labor Wage Rate HIGHER Employment LOWER MRP labor Wage Rate HIGHER Employment LOWER

2. National advertising campaign: the labor union conducts a successful advertising campaign urging people to buy union made goods • Competitive • Monopsonistic MRC Wage Rate S S D labor Wage Rate ______ Employment ______ MRP labor Wage Rate ______ Employment ______

2. National advertising campaign: • Competitive • Monopsonistic MRC D 1 Wage Rate S S MRP 1 D labor Wage Rate HIGHER Employment HIGHER MRP labor Wage Rate HIGHER Employment HIGHER

3. Increased Productivity: the labor union educates workers in new methods of production, which leads to increased productivity • Competitive • Monopsonistic MRC Wage Rate S S D labor Wage Rate ______ Employment ______ MRP labor Wage Rate ______ Employment ______

3. Increased Productivity: • Competitive • Monopsonistic MRC D 1 Wage Rate S S MRP 1 D labor Wage Rate HIGHER Employment HIGHER MRP labor Wage Rate HIGHER Employment HIGHER

4. Quotas/Tariffs on Foreign Competition: the labor union promotes national legislation, which gets passed, to increase tariffs and/or quotas on foreign competitors • Competitive • Monopsonistic MRC Wage Rate S S D labor Wage Rate ______ Employment ______ MRP labor Wage Rate ______ Employment ______

4. Quotas/Tariffs on Foreign Competition: • Competitive • Monopsonistic MRC D 1 Wage Rate S S MRP 1 D labor Wage Rate HIGHER Employment HIGHER MRP labor Wage Rate HIGHER Employment HIGHER

5. Wage Increase Above Equilibrium Rate: the labor union bargains for and wins an increase in the wage rate above the equilibrium wage rate • Competitive • Monopsonistic MRC Wage Rate S S D labor Wage Rate ______ Employment ______ MRP labor Wage Rate ______ Employment ______

5. Wage Increase Above Equilibrium Rate: • Competitive MRC S Wage Rate Wu Wage Rate • Monopsonistic Wc S Wu Wc D labor Wage Rate HIGHER Employment LOWER MRP labor Wage Rate HIGHER Employment indeterminate

6. Only Union Members Hired: the labor union signs an agreement with employers that forces employers to hire only union members who have gone through the union’s apprenticeship program • Competitive • Monopsonistic MRC Wage Rate S S D labor Wage Rate ______ Employment ______ MRP labor Wage Rate ______ Employment ______

6. Only Union Members Hired: • Competitive • Monopsonistic S 1 MRC 2 MRC S 1 Wage Rate S S D labor Wage Rate HIGHER Employment LOWER MRP labor Wage Rate HIGHER Employment LOWER