Modern Labour Economics
Chapter 13
Unions and the Labour Market
Table 13.1 – Union Membership and
Bargaining Coverage, Selected Countries,
1980 and 1984
Figure 13.1 – Union Membership and
Membership as a Proportion of NonAgricultural Paid Workers, 1921-2002
Table 13.2 – Percentage of All Wage and
Salary Workers Covered by a Collective
Agreement, 1997 and 2001
Figure 13.2 – Effects of Demand Growth
and Wage Elasticity of Demand on the
Market Constraints Faced by Unions
Simple union model-4
assumptions
 DL known
 Layoffs based on seniority—LIFO
 Ui = f(Yi)---self-interest
 Wage policy is determined by majority vote.
 What happens?
 Simple model leads to problems.
Figure 13.3 – Union Maximizes Utility
Subject to the Constraint of the Labour
Demand Curve: Monopoly Union
Maximize TWB and Max.Rent
 TWB= W*N
 Economic Rent R=W-OC
 These are special cases of the indifference
curve approach.
 Here, U=f(TWB) OR U=f(∑Rents)
 With TWB, equilibrium is where ED=1.MD=0
 With Rent max. equilibrium is at MD=OC
Union Wage Rigidity
 Cartter developed a union WPP
 Points of tangency of DL and indifference
curves.
 Kink at existing wage makes WPP
asymmetrical
 Assumed shape of indifference curves
provides the Cartter result.
Who gets the monopoly rents?
 Craft versus industrial unions-entry
restricting vs. wage-setting.
 Both generate a queue-excess supply—who is chosen?
 Could be random or there could be
favouritism. Use market-taxi medallions.
 http://freakonomics.blogs.nytimes.com/2009/
11/05/unfree-enterprise/
Monopoly Union Model
 Max. TWB, Max Rents and Max. u=f(W,N) are all
variants on the monopoly union model.
 In this model, unions maximize subject to the
constraint of the employer’s labour demand curve.
 In response to ∆W, employers are free to lay off
workers
 The efficient contracts approach focuses on
bargaining about both W&N
Figure 13.4 – Employer Isoprofit Curves
Figure 13.5 – The Contract Curve–-The
Locus of Efficient Contracts
Rees model-misallocation costs
 http://www.jstor.org/pss/724852
 Rees reference-need to access through library
website or go to hard copy in library.
 Unions distort the allocation of labour
resource and generate a deadweight loss.
 Rees estimates how large this is.
Figure 13.6 – The Demand for and Supply of
Unionization
Figure 13.7 – Union Membership as a
Proportion of All Workers, Canada and
United States, 1980-1997
Figure 13.8 – Work Stoppages in Canada,
1901-2000 –peaks with inflation
Figure 13.9 – Hicks’s Bargaining Model and
Expected Strike Length
Figure 13.10 – Spillover Effects of Unions
on Wages and Employment
Figure 13.11 – Threat Effects of Unions on
Wages and Employment in Nonunion Sector
Table 13A.1 – Percentage of U.S. Wage and
Salary Workers Who Are Union Members, by
Selected Characteristics, 2000