Union goals • Increase compensation (wages + benefits) • improve working conditions • influence hire / fire decisions
Jan 04, 2016
Union goals
• Increase compensation (wages + benefits)
• improve working conditions
• influence hire / fire decisions
National Labor Relations Act
(NLRA)
Great Depression & New Deal Policies
Defined and prohibited unfair employer labor practices
Taft Hartley
Act
Swings the balance back by defining and prohibiting some union tactics (Closed Shop)
Peaks at 36%In 1953-54
Structural change in the economy (e.g., decline in manufacturing) accounts for roughly 15% of the decline. Other factors such as changes in the legal environment explain little of the decline.
Union Tax in an Increasingly Competitive Environment
Union Tax = Wage Premium + Productivity Losses – Productivity Gains
Rigid Work Rules
2007 master contract (UAW & Ford)
• 2,215 pages• 22 pounds• Height = 2 x Coke Can
Job Bank / Rubber Room
Occupational Licensing imposes Work Rules on Firms: Teeth Whitening
Union Tax = Wage Premium + Productivity Losses – Productivity Gains
Worker’s “Voice” – public good
• Non-excludable• Non-rival
“Dr Clay Hallberg was the company doctor at Iowa Ham when it was bought by Gillette in 1992. Within a year, he’d called the plant manager, an old friend who’d worked with Clay’s cousin years before at a Hy-Vee grocery store in Cedar Rapids. Clay told the manager that he’d noticed an unsettling decline in the morale of the workers coming to see him since they’d lost their benefits. Clay was worried about the increase in drug use as well; more and more workers, suffering from depression now that they’d lost two thirds of their income overnight, were turning to meth. The plant manager said he’d look into it. A week later, Clay was fired.” (Methland, p. 53)
Union Tax in an Increasingly Competitive Environment
Construction
Manufacturing
Union Tax = Wage Premium + Productivity Losses – Productivity Gains
Economist Barry Hirsch assessment of the evidence is that “unions have, at most, small positive (but variable) effects on productivity insufficient to offset the substantial compensation gains.”
Union Tax > 0 and in some cases >> 0
The effect of the union tax on profits depends on the proportion of firms within the industry that are unionized. For example, nearly every car sold in the United States in 1962 was produced by General Motors, Ford or Chrysler, all of which were unionized. By 2008, the market share of the Big-3 had decreased to less than 50 percent and most of the other companies were not unionized.
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100
10
20
30
40
50
60
70
80
90
100
Market Share of U.S. Vehicles, 1961-2010.
US-Made (Big Three+)
1962: 95% market share
2008: 47% market share
Incidence of the Union Tax
1962
Incidence of the Union Tax
2008
2008: 47% market share
Since there were virtually no substitutes to union-made cars in 1962, the demand for them was inelastic, which allowed the Big-3 to pass most of the union tax onto consumers in the form of higher prices. By 2008, the greater availability of substitutes increased the elasticity of the demand for union-made cars. Facing a more elastic demand curve for their cars reduced the ability of the Big-3 to pass the union tax onto consumers and, as a result, reduced their profitability and helped push General Motors and Chrysler into bankruptcy.
Demand:
measured in thousands of dollars
measured in millions of cars per year
In 1962, suppose
No-Tax Supply:
Tax: t = 5 thousand per car
0 2 4 6 8 10 12 14 16 18 200
2
4
6
8
10
12
14
16
18
20
22
24
Figure 1. Incidence of Union Tax when Market Share
Price of Cars(thou of $)
Quantity of Cars(Millions per year)
𝐷62
𝑆62𝑁𝑇
0 2 4 6 8 10 12 14 16 18 200
2
4
6
8
10
12
14
16
18
20
22
24
Figure 1. Incidence of Union Tax when Market Share
Price of Cars(thou of $)
Quantity of Cars(Millions per year)
𝐷62
𝑆62𝑁𝑇
𝑆62𝑇
𝒕=𝟓
𝒕=𝟓
The union tax causes the supply curve to shift vertically by $5 thousand
0 2 4 6 8 10 12 14 16 18 200
2
4
6
8
10
12
14
16
18
20
22
24
Figure 1. Incidence of Union Tax when Market Share
Price of Cars(thou of $)
Quantity of Cars(Millions per year)
𝐷62
𝑆62𝑁𝑇
𝑆62𝑇
𝒕=𝟓
𝒕=𝟓
The union tax causes the supply curve to shift vertically by $5 thousand
Consumer Burden
Producer Burden
DeadweightLoss
Demand:
measured in thousands of dollars
measured in millions of cars per year
In 2008, suppose
No-Tax Supply:
Tax: t = 5 thousand per car
0 2 4 6 8 10 12 14 16 18 200
2
4
6
8
10
12
14
16
18
20
22
24
Figure 2. Incidence of Union Tax when Market Share
Price of Cars(thou of $)
Quantity of Cars(Millions per year)
𝐷08
𝑆62𝑁𝑇
𝑆62𝑇
𝒕=𝟓
𝒕=𝟓
DeadweightLoss
Producer Burden
Consumer Burden
Listen to economist Barry Hirsch
“Unionization is associated with lower investment in physical and intangible capital and slower growth.”
Surprising: higher cost of labor higher return to labor saving capital
Possible Explanations:
• lower profits less internal investment funds• immobile capital union will increase the tax
“Although [management] and unions have different views as to how a firm’s revenues are to be divided, they have a mutual interest in maintaining employer’s financial health.”