Unions and Wages
… a core concept in Economic Analysis and Atlas102
Click for MRU video
Alex Tabarrok (reference below, video on right) explores the question of the effect of unions on the level of wages in an economy.
Tabarrok concludes that unions (including professional associations such as those representing doctors) can raise the wages for particular groups of workers if they are able to restrict the supply of labour but unions do not raise the wages generally and can reduce overall wages if industrial relations conflicts disrupt the economy.
http://www.mruniversity.com/node/301762, accessed 9 May 2016.
The main reason that an immigrant earns more when he moves from Algeria to France is because the French have strong labor unions.
Unions raise the wages and the number of individuals employed in a particular sector of the economy.
Today, unions only exist in the manufacturing sectors of the economy.
As we saw, unions can raise wages in a sector of the economy by restricting the number of workers in that sector. Let’s see what tends to happen to the workers who don’t get jobs in those favored unionized sectors. Consider a fictitious computer programming industry (table below is the same as a previous question for another video) with 100 workers. In 2084, after decades of complaining about low wages, the programmers at Robotron have a secret-ballot vote and form a union. Their new union bargains for a wage of $80 per hour, and the newly unionized programmers are very excited. How many workers will Robotron hire at the new, higher wage?
How many Robotron workers just got laid off? First calculate how many workers would have worked at Robotron without a union-imposed minimum wage and compare it to your answer above. Hint: the numbers may not work out exactly for how many workers are employed without a union-imposed minimum wage – so use your judgment to come up with a good answer.
A natural choice for the other programmers is to look for work at Korrexia: As before, the remaining workers have perfectly inelastic labor supply, so all 100 workers are going to work at one of the two firms. What’s the wage for the nonunion Korrexia workers?
You might think that one solution is to unionize both firms and lift wages for all the programmers. If the unions negotiate a high-wage contract and unionized wages rise to $110 at both firms, how many of the 100 workers will have jobs?
Alex Tabarrok, Do Unions Raise Wages (5-minute video), Marginal Revolution University, at
http://www.mruniversity.com/courses/principles-economics-microeconomics/do-labor-unions-raise-wages-workers, accessed 9 May 2016.
Atlas topic and subject
Labour Markets, Transfers, and Personal Taxes (core topic) in Economic Analysis and Atlas102 Economic Analysis.
Page created by: Ian Clark, last modified on 19 May 2016.
Image: Alex Tabarrok, minute 0:15 from Do Unions Raise Wages (5-minute video), Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/do-labor-unions-raise-wages-workers, accessed 9 May 2016.from from the videos cited above.