CHAPTER 8
Empolyment, Labor, and Wages
Section 1: The Labor Movement
• Main Idea: Labor unions are organizations that
attempt to improve the working conditions of
their members through joint action.
• Objectives:
• Explain why unions are still important today..
• Discuss the development of the labor movement from
the late 1700s to the 1930s.
• Relate labor’s successes during the Great Depression.
• Describe the major labor developments since World
War II.
Section 1 Introduction
• Labor issues appear in the news all the time.
After all, working for a living is one of the single
most important things we do.
• How well we do, as measured by the satisfaction
we get and the income we receive, affects
virtually every other aspect of our lives.
• Accordingly, any study of economics that ignores
the way the “labor” factor of production earns its
income would be incomplete.
Section 1 Introduction (cont.)
• The study of labor is part of macroeconomics.
• Macroeconomics is the branch of economics
that deals with the economy as a whole,
including employment, gross domestic
product, inflation, economic growth, and the
distribution of income.
• For example, the population of the United
States by mid-2003 was approximately 291
million people.
Section 1 Introduction (cont.)
• Slightly more than half, or about 146 million,
belonged to the civilian labor force–men and
women 16 years old and over who are either
working or actively looking for a job.
• For example, the population of the United States
in 1999 was approximately 274 million people.
• The civilian classification excludes members of
the armed forces, the prison population, and
other institutionalized persons.
Introduction (cont.)
• Nearly 85 percent of
those employed had no
connection with
unions, 13.2 percent
were members of
unions, and 1.4 percent
were nonunion
members being
represented
by unions.
Introduction (cont.)
• Although the percentage of union workers is
small, unions are important for two reasons.
• First, they played a major role in promoting legislation
that affects pay levels and working conditions today.
• Second, unions are a force in the economy, with
membership of nearly 16 million people.
Introduction (cont.)
• Historically, unions
tended to be
concentrated in
heavy manufacturing
industries.
• More recently, unions
have made inroads in
the service sector,
especially among
government workers.
Figure 8.2
Union Membership and
Representation by Industry
Early Union Development
• The nation’s first unions were comprised of
skilled workers.
• After the Civil War, as industry expanded, the
labor force became more unified.
• Two types of unions developed—the trade
union and the industrial union.
• Unions used strikes, pickets, and boycotts to
help members get better pay, better hours,
and job security.
Early Union Development (cont.)
• Employers resisted unions through lockouts,
firings, and even setting up company unions.
• Historically, the courts have viewed unions
with hostility.
Early Union Development (cont.)
Figure 8.3
Trade (Craft) and Industrial Unions
Labor During the
Great Depression
• Unemployment and cut wages marked the
decade of the Great Depression and
encouraged unions to organize workers.
• The government began to pass laws protecting
unions.
Labor Since World War II
• After World War II, new laws began to limit
union activity.
• The AFL-CIO was created when two powerful
unions joined forces.
• Independent unions are those that do not
belong to the AFL-CIO.
Section 2: Resolving Union and
Management differences
• Main Idea: Unions and management negotiate
contracts through a process that is known as
collective bargaining.
• Objectives:
• Explain the differences among kinds of union
arrangements.
• Describe several ways to resolve labor and
management differences when collective bargaining
fails.
Section 2 Introduction
• Over the years, many disputes have occurred between
labor and management.
• Sometimes employees take action against their
employer, as during the 1981 air traffic controllers’
strike.
• Sometimes the employer takes action against its
employees, as in the case of the 1998–1999 NBA
lockout.
• While the NBA was finally able to settle its difficulties,
there are still other ways to resolve the deadlock had
they
needed them.
Kinds of Union Arrangements
• In a closed shop, the employer agrees to hire
only union members.
• In a union shop, most workers belong to a
union.
• In a modified union shop, workers cannot be
made to join the union.
• In an agency shop, workers must pay union
dues, whether or not they are union
members.
Kinds of Union Arrangements
Figure 8.4
Right to Work, State by State
Collective Bargaining
• When labor and management agree to
mediation, a neutral person helps settle the
dispute.
• With arbitration, labor and management agree to
abide by a third party’s decision.
• Disputes also can be resolved through factfinding, in which a neutral third party presents
non-binding recommendations.
• The government also can get involved in labor
disputes by issuing injunctions or resorting to
seizures.
Collective Bargaining (cont.)
• The president can intervene by publicly
appealing to both parties to resolve their
differences, by firing federal workers who have
broken their oath not to strike (1981 air traffic
controllers), and in some cases by using
emergency powers (1997 American Airline
pilots).
Section 3: Labor and Wages
• Main Idea: Wages differ for a variety of
reasons, including skills, type of job, and
location.
• Objectives:
• Identify four main categories of labor.
• Explain the importance of noncompeting labor grades.
• Describe three different approaches to wage
determination.
Section 3 Introduction
• Investment in human capital is one of the
more important investments we
can make.
• The extent to which we invest in our own level
of skills, experience, and knowledge even
affects the way we describe and classify labor.
Categories of Labor
• Unskilled laborers make some of the lowest
wages.
• Semiskilled workers do jobs that require a
minimum amount of training.
• Skilled workers hold jobs that require
experience and training.
• Professional workers do jobs that require a
high level of knowledge-based education and
managerial skills.
Noncompeting Labor Grades
• People must have the ability, the initiative,
and the money to obtain additional education
and training.
• Sometimes people are faced with a lack of
opportunity for additional training and
education.
• Sometimes people lack the initiative they
need to get ahead.
Wage Determination
• The traditional theory of wage determination
says that supply and demand together will
determine the equilibrium wage rate.
• The theory of negotiated wages uses
organized labor’s bargaining strength to help
explain wage differentials.
• According to the signaling theory, employers
are willing to pay more for those people with
certain indicators of superior ability.
Wage Determination (cont.)
Figure 8.5 A
The Traditional Theory
of Wage Determination
Wage Determination (cont.)
Figure 8.5 B
The Traditional Theory
of Wage Determination
Wage Determination (cont.)
Figure 8.6
Median Weekly Earnings
by Occupation and Union
Affiliation
Regional Wage Differences
• Wages can vary when demand for certain
skilled positions exceeds supply.
• Employers tend to offer higher wages in areas
where the cost of living is higher than normal.
• People sometimes are willing to accept lower
wages if the location of the job is attractive to
them.
Section 4: Employment Trends and
Issues
• Main Idea: Important employment issues
include union decline, unequal pay, and the
minimum wage.
• Objectives:
• Explain why union membership has declined.
• Describe reasons for the discrepancy in pay between
men and women.
Section 4 Introduction
• Important issues abound in today’s
labor market.
• The two-tier wage structure and other issues
have an enormous impact on morale–and
consequently, productivity–
in the economy.
Decline of Union Influence
• Union membership has declined because of
unfriendly businesses, new workers with little
loyalty to organized labor, and cutbacks in
production by unionized companies.
• Businesses are using givebacks, bankruptcy
claims, and two-tier wage systems to lower
union-negotiated wages.
Decline of Union Influence (cont.)
Figure 8.7
Union Membership
Lower Pay for Women
• Women, on the whole, have less experience
and education to bring to the working world
then their male counterparts.
• Some higher paying jobs have a larger
percentage of male workers, while some lower
paying jobs have a larger percentage of female
workers.
• The glass ceiling is an example of the
discrimination women face in the workplace.
Lower Pay for Women (cont.)
• The Equal Pay Act and the Civil Rights Act both
work to prevent wage and salary
discrimination.
• Some states hope to close the gender income
gap by defining jobs of comparable worth
(equal pay for equal work).
• Set-aside contracts are contracts that will be
made only with a specific group.
Lower Pay for Women (cont.)
Figure 8.8
Median Female Income as a Percentage of Male Income
Part-Time Workers
• Part-time workers cost employers less in
benefits.
• Critics say part-time employment’s low wages
and lack of benefits make it difficult for
workers to earn a decent living.
The Minimum Wage
• Opponents claim the minimum wage does not
promote economic freedom.
• In current dollars, the minimum wage appears
to have risen over time.
• Measurements in real dollars take inflation
into account.
• The ratio of minimum wage to manufacturing
wage has been steadily decreasing for the past
30 years.
Key Terms
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Macroeconomics
civilian labor force
craft union
trade union
industrial union
strike
picket
boycott
lockout
company union
Great Depression
right-to-work law
independent union
closed shop
union shop
modified union shop
agency shop
grievance procedure
mediation
arbitration
fact-finding
injunction
Seizure
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unskilled labor
semiskilled labor
skilled labor
professional labor
noncompeting labor grades
wage rate
traditional theory of wage determination
equilibrium wage rate
theory of negotiated wages
seniority
signaling theory
labor mobility
Giveback
two-tier wage system
glass ceiling
comparable worth
set-aside contract
part-time worker
minimum wage
current dollars
real or constant dollars
base year