Labor Unions,
Collective Bargaining, and
Discrimination
Why Unions?
Union Membership by Industry,
2008
Union Membership by Occupation,
2008
Sales Workers
Managers
Clerical Workers
Service Workers
Production
Install and Repair
Transportation
Professional and Technical
Construction
0
5
10
Percent Union Membership
15
20
Union Membership by
Public Sector Status, 2008
Union Membership by
Demographic Group, 2008
Unionization by State
11.3
13.5
12.9
21.0
13.1
8.0
7.2
16.8
7.2
14.7
25.4
16.1
20.4
10.0
9.5
14.0
6.1
15.5
5.2
11.2
11.9
16.9
12.2
13.0
9.3
8.6
11.4
15.5
17.2
17.0
14.7
4.1
6.8
7.7
4.2
5.8
9.7
6.0
11.5
7.2
7.3
10.0
6.5
5.9
23.8
25.9
CT
16.5
MA
15.3
MD
14.8
NJ
21.6
RI
16.0
Unionism’s Rise and Fall
Percent Union Membership
35
30
25
20
15
10
5
0
1880
1900
1920
1940
1960
1980
2000
Labor Law Primer
 Clayton Act (1914)
 exempted unions from Sherman Act
 Railway Labor Act (1926)
 mandated collective bargaining in RR, Airlines
 Norris-LaGuardia Act (1932)
 Restricted use of yellow-dog contracts
 Restricted use of injunctions by firms
 Wagner Act (NLRA; 1935)




Established right to organize and CB
Defined ULP by firms
Created NLRB
Strikes by federal workers made illegal
 Taft-Hartley Act (1947)
 Defined ULP by unions
 Outlawed closed shops
 Created FMCS
Unionism’s Decline
Change in labor laws
Structural Hypothesis
 Shift to services
 Globalization
 Shift to sunbelt
 Smaller firms
 Demographics: women, young
 Part-time work
Managerial Opposition Hypothesis
 Reagan and PATCO
Substitution Hypothesis
 Growth of gov’t provided benefits
Models of Union Behavior
 Competitive market: W0, L0
I1
 Economic models:
 Maximizers
 Wage rates?
 Employment?
 Wage bill?
 Monopoly union
 Efficient contracts
I2
S
Wu
W0
π1
D
Lu
L0
Labor
Strategies to Raise Union Wages
Increase Labor Demand
 Increase
 Increase
 Increase
 Increase
Tariffs on foreign goods
product demand
worker productivity
price of substitutes Minimum wage/Davis-Bacon
number of employers Domestic content laws
Decrease Labor Supply
 Decrease immigration
 Decrease entry into occupation
 Increase nonwage income
Apprenticeships/Licensing
Social Security benefits
Why Do Strikes Occur?
$
Employer Concession
W*
Union Resistance
t*
Expected Strike Length
 Accident Model
 Misperceptions regarding other’s concession curve
 Asymmetric Information Models
 Info gap between union leadership and membership
 Info gap between union and firm
Economic Impact of Unions
Wage advantage
Efficiency and productivity
Profitability
Distribution of earnings
Macroeconomic effects
Union Wage Advantage
Pure wage advantage = (Wu – Wn)/Wn
Union Wage Advantage
SU
SN
WU
SN
Sspill
WT
W
N
W
D
LU L N
Union sector
S
D
LN
LS
Non-Union sector
 Spillover effect: laid-off union workers spill over into non-union
sector
 Threat effect: non-union firms pay higher wages (WT) to deter union
 Product market effect: shift consumer demand to non-union markets
 Wait unemployment effect: mitigates spillover effect
 Superior worker effect: firms hire better workers
 CWD effect: unions jobs have fewer amenities
Union Wage Advantage
Efficiency and Productivity
 Negative view
 Restrictive work rules
 Strikes
 Labor misallocation
Estimate: 0.10 percent of GDP is lost
($14 billion or $46 per person)
Number
of W
Strikes
Involving 1000+ Workers
 Since
WU >
N, we know that MRPU > MRPN
Number of Workers Involved in Strikes with 1000+ Workers
Number of Work Days Lost
Days Lost (millions)
Number of Workers (thousands)
500

Positive view
3000
45070
 Collective voice
2500
60
400
 Improve info flow
35050
2000
 Increase morale through team effort
300
40
 Reduce turnover
250
1500
30
 Provide OTJ
200
Empirical evidence regarding the impact
1000
20  Technological progress
150
of unions on productivity is mixed
 capital substitution
10
100
500
50 0
0 01947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
1947 1952
1952 1957
1957 1962
1962 1967
1967 1972
1972
1947
1977
1977
1982
1982
1987
1987
1992
1992
1997
1997
2002
2002
2007
Firm Profitability
 Nearly all studies find that unions reduce profits.
Voos and Mishell (1986): unionization causes 20% to 23% reduction in profits
 If unions reduce profits in monopolistic industries, then
no efficiency loss occurs.
 If unions reduce profits in competitive industries, then an
efficiency loss occurs since firms will leave the industry.
(Output will be lower and prices higher)
The empirical evidence is mixed on
whether there is an efficiency loss.
Distribution of Earnings
Increasing inequality
 Spillover effect lowers non-union wages
 Increase wages of skilled blue-collar workers
relative to unskilled blue-collar workers
Decrease inequality
 Equalize wages within firms
 Equalize wages across firms
 Reduce the white-collar/blue-collar differential
Empirical evidence is that unions reduce
earnings inequality on net
Macroeconomic Effects
Inflation
 Unions are not a cause of inflation
Unemployment
 Unions may reduce downward wage
flexibility  increases unemployment
 Reduce worker turnover  decreases
unemployment
 High union wages may increase
unemployment by attracting new
entrants
Empirical evidence is that unions have
only a small effect on unemployment
Demographic Differences in
Labor Market Outcomes
Gender
Race
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1975
Female/Male Earnings Ratio
”If your valuation is of the male from
twenty years even to sixty years old,
then your valuation shall be fifty
shekels of silver, after the shekel of
the sanctuary. Or if it is a female,
then your valuation shall be thirty
shekels.”
Leviticus 27:3-4
1980
1985
1990
1995
2000
2005
2010
Black/White Earnings Ratio
Unemployment Rates
25%
20%
15%
10%
5%
0%
1975
White Male
1980
1985
1990
White Female
1995
2000
Black Male
2005
2010
Black Female
Earnings by Education, Race,
and Sex, 2007
Occupational Distribution
by Gender, 2008
Occupational Distribution
by Race, 2008
Educational Attainment, 2007
Labor Market Discrimination
 Wage discrimination
 Employment discrimination
 Occupational discrimination
 Human Capital discrimination
Taste for Discrimination Model
 Gary Becker (1957)
 Society is willing to forgo output and profit to engage in
discrimination
 Employers
 Employees
 Customers
 Discrimination coefficient: d = psychic costs
 Hiring Rule: MRP = W
 Assume: MRPw = MRPb
University of Chicago
1992 Nobel Prize in Economics
 Prejudiced employer will be indifferent if: Ww = Wb + d
Ex: Ww = $10 and d = 3
 Wb = $7
Implies that: Wb < Ww
Taste for Discrimination Model
Wb/Ww
The demand for black workers is formed
by arraying employers from lowest to
highest discrimination coefficients.
Sb
1.00
Non-discriminators
0.80
Competitive markets should force
discriminators to go bankrupt
Db
L1
Number of Black Workers
 A decrease in discrimination will lengthen the horizontal portion of the
demand curve and reduce the slope of the downward sloping portion.
 The size of the black-wage gap varies directly with the supply of black
labor.
Measuring Discrimination:
Residual Approach
$
White
Wage
Function
Assume:
 Blacks receive lower wages
for any given E
 Blacks have less education
than whites
$500 = W W
$420 = W*B
Due to
discrimination
Black
Wage
Function
$300 = W B
EB
WW – WB = observed wage gap
= 500 – 300 = 200
Ww – W*B = explained wage gap
= 500 – 420 = 80
W*B – WB = unexplained wage gap = 420 – 300 = 120
EW
“residual”
Education
Mean Values of Worker Characteristics
and Percentage of Wage Gap Explained
White
Men
Black
Men
Hispanic
Men
White
Women
Black
Women
Hispanic
Women
Years of formal education
13.4
12.4
10.0
13.1
12.7
10.9
Years of experience
19.4
19.0
17.8
19.0
18.7
17.6
Percent Full-time employed
76.0
71.0
76.0
61.0
68.0
61.0
3.9
5.0
3.6
2.5
3.7
2.3
$23,279
$17,117
$16,291
$14,006
$13,873
$11,963
Percentage of wage gap explained
81
99
72
70
78
Percentage of wage gap unexplained
19
1
28
30
22
Percent Represented by Union
Annual Earnings
Source: Based on Garey Durden and Patricia Gaynor, “More on the Cost of Being Other Than White and Male: Measurement of Race,
Ethnic, and Gender Effects on Yearly Earnings,” American Journal of Economics and Sociology 57 (January 1998), Table 1 and
unpublished tables.
Statistical Discrimination Model
 Occurs when individual is judged on basis of the
average characteristics of a group
 Results from imperfect information used during the
screening process
number
Marietta College
Harvard
GMC
GH
GRE scores
Employer is not harmed by SD—it is an efficient response
to imperfect information—therefore SD can persist.