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UNIONS
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CHAPTER OUTLINE
Why Unions Exist
A Union as a Monopolist
The History of Labor Unions
Where Unions Go from Here
Kick It Up a Notch
Summary
LEARNING OBJECTIVES
LO1: Describe why labor unions exist and model how they alter the bargaining relationship between employers
and employees.
LO2: Distinguish between a competitive labor market and one where there is market power only with the
employer, only with the employee, and when both have power.
LO3: Differentiate between labor unions that seek to raise wages by reducing supply and those that seek to raise
wages by using collective bargaining as a monopolist.
LO4: Use knowledge of the history of unions in the United States to predict the future of unionization in the
United States.
KEY TERMS
Monopsony- A market with only one buyer.
Marginal revenue product of labor- The additional revenue generated from hiring an additional worker.
Marginal resource cost (MRC)- The increase in total labor costs to the firm of buying increasing amounts of
labor.
DISCUSSION QUESTIONS
1. Under what conditions is the labor market perfectly competitive?
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2. What determines the wage and the quantity of labor hired in a perfectly competitive market?
3. What is a monopsony?
4. What is the marginal resource cost? How does the MRC compare with the supply curve and the wage?
5. Assume that there is only one employer in a small town. What determines the wage and the quantity of labor
hired in this labor market where the employer is a monopsonist? How do the wages and the number of
workers hired compare to a perfectly competitive labor market?
6. What impact do unions and professional organizations have in a perfectly competitive labor market when they
set high standards for licensing and restrict the number of openings for training?
7. What determines the wage and the quantity of labor hired in a labor market in which the workers are
unionized?
8. What determines the wage and the quantity of labor hired in a labor market with both a monopolist and a
monopsonist?
9. What conditions are necessary for a union strike to be successful?
10. What does the future hold for unions in the twenty-first century?
11. Which groups of the workers (faculty, professional staff, secretaries, custodians, etc.) are organized into
collective bargaining units at your college/university?
12. What significance does President Regan have in labor history?
THE WEB-BASED QUESTION
The labor movement in the United States has been a long struggle for basic human rights of workers. Many of the
rich, well-educated elite, who tightly held the economic and political reigns of power in this country, functioned
as a monopsonist in their industry or region. They were slow to change the working conditions that allowed them
to exploit the impoverished, poorly educated, and often immigrant workforce. The leaders that guided the labor
movement were men and women of integrity who were trusted and respected by their union members to confront
and to defy management at a time when this was a very courageous and dangerous act. As the union movement
gained strength and political support, it was able to counterbalance the market power of the monopsonists, to
change the social order that was created during the industrial revolution, and to improve the lives of the American
workforce.
Visit the following websites to learn about two labor leaders that helped to shape American history and read about
a tragic factory fire that helped change the public attitude toward the labor movement and the rights of the
workers.
Unions
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Samuel Gompers: The McKeldin Library at the University of Maryland in College Park houses the
Samuel Gompers Papers, and the following website has an enormous amount of information on his
life and work.
www.history.umd.edu/Gompers/index.htm
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The Triangle Factory Fire: The Kheel Center for Labor-Management Documentation and Archives
at Cornell University’s School of Industrial and Labor Relations houses many original documents
and secondary sources related to the fire that broke out at the Triangle Shirtwaist Company on
March 25, 1911. The following website summarizes the tragic event and provides links to photos,
eyewitness accounts, and newspaper articles.
www.ilr.cornell.edu/trianglefire
ANSWERS TO STUDY QUESTIONS
SUGGESTED ANSWERS TO THE DISCUSSION QUESTIONS
1. The labor market is perfectly competitive when there are many independent firms and many independent
workers so that no one can control the wage.
2. In a perfectly competitive market, the wage and the quantity of labor hired are determined at the wage where
the demand curve intersects the supply curve, and the quantity demanded equals the quantity supplied. Labor
is paid the marginal revenue product, which is the value of labor. Both employers and employees are better
off after the exchange. Firms receive the consumers’ surplus and workers receive the producers’ surplus.
3. There is a monopsony when there is only one buyer in a market. In the labor market, this means there is only
one employer.
4. The marginal resource cost is the increase in total labor costs to the firm from hiring one additional unit of
labor. With the exception of the first worker hired, the marginal resource cost (MRC) will be greater than the
wage (supply curve).
5. If there is only one employer in a town, the monopsonist will hire labor up to the point where the value of the
next worker to the firm equals the additional cost of hiring the worker (MRPL = MRC). The wage is
determined by the supply curve at this quantity of labor. Workers will receive wages that are lower than the
value of their labor, the MRPL. The wages will be lower and fewer workers will be hired than they would have
been in a perfectly competitive market.
6. When unions and professional organizations set high standards for licensing, the higher costs for required
training causes the supply curve of labor to decrease and shift to the left. If unions and professional
organizations restrict the openings for training, the pool of available workers will be limited, and the supply
curve will become perfectly inelastic at that number.
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7. In a labor market in which the workers are unionized, the union functions as a monopolist. Workers will be
hired until the marginal revenue, the additional revenue to the union members when one more worker is hired,
equals the supply curve (the marginal cost of work to the workers). The employers will have to pay the
workers their marginal revenue product (the additional revenue to the firm from hiring the last worker). After
unionization, wages will be higher than the wages in a non-union labor market, and there will be fewer
workers employed.
8. In a labor market with both a monopolist and a monopsonist, the wage will be determined by the bargaining
strengths of the two parties. The wage could range anywhere between the low wage of the monopsonist and
the high wage of the union. The quantity of labor hired will depend on the negotiated wage, and it will equal
either the quantity demanded or the quantity supplied at that wage, whichever is lower.
9. In order for a union to strike and to successfully negotiate and settle with management, the workers must be
difficult to replace, and the firm must fear that it would lose market share to its competitors during a long
sustained strike.
10. Private unions are likely to remain weak in the twenty-first century due to the fear that foreign workers
through international competition can replace domestic workers. Public unions will dominate the labor
movement because they provide a local service and they cannot be easily replaced through international
competition.
11. The answer to this question will vary depending upon several factors, such as right to work laws, whether the
college/university is public or private, and how workers are treated by management.
12. President Regan is the first and only president who belonged to a labor union. Ironically, he fired all striking
air traffic controllers in the summer of 1981, replacing them with military air traffic controllers, until nonunion controllers could be hired and trained.
SUGGESTED ANSWER TO THE WEB-BASED QUESTION

Samuel Gompers 1850–1924
Samuel Gompers was born in England in 1850. He apprenticed as a shoemaker and then as a cigarmaker.
In 1863, he moved with his family to the Lower East Side in New York City, and there he joined the
Cigar Makers’ International Union in 1864. By 1875, he was the president of his local union and by 1886,
he became president of the international union.
Gompers recognized the need for a national organization to bring about change, and in 1881 he helped to
organize the Federation of Organized Trades and Labor Unions of the United States and Canada
(FOTLU). As a union leader, Gompers lobbied Congress and worked toward legislation, which included
laws that would ensure compulsory school attendance, the regulation of child labor, and the eight-hour
day. He remained president until he passed away in 1924.
Samuel Gompers is quoted as saying, “Our mission has been the protection of the wage-worker, now; to
increase his wages, to cut his hours off the long workday, which was killing him; to improve the safety
and the sanitary conditions of the workshop; to free him from the tyrannies, petty or otherwise, which
served to make his existence a slavery.”
Unions
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The Triangle Factory Fire March 25, 1911
The Triangle Shirtwaist Company was on the ninth floor of the Asch Building in New York City. On
Saturday afternoon, March 25, 1911, a fire broke out on the work floor and the burning cloth quickly
helped the fire to spread throughout the factory. The doors had apparently been locked so many were
unable to escape. The fire escapes were inadequate and gave way, bending under the weight. The fire
equipment of that time could not reach the ninth floor, and nothing could be done to save the lives of the
workers as witnesses watched in horror from below.
The Triangle factory fire claimed 146 lives, and many were young teenage immigrant girls. The owners
of the factory were cleared of any criminal wrongdoing, and in a civil trial, they paid $75 per death to the
families of the victims.
The grief and horror of the event clearly demonstrated to the public the greed and irresponsibility of the
employers and the need for laws to ensure workers safe and sanitary working conditions.
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