Unions and Labor Market Monopoly Power - TaiLieu.VN

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29Unions and Labor MarketMonopoly PowerToday, fewer than 8 percent of all U.S. workersemployed by private firms are members of unions.In contrast, nearly 40 percent of local, state, andfederal government employees belong to unions.Recently, government employment has grown morerapidly than private-sector employment—a trend thathas contributed to the growth in the number of unionmembers employed by governments. Indeed, in thelate 2000s, the number of unionized workers in thegovernment sector surpassed the number ofunionized workers in the private sector for the firsttime in U.S. history. In this chapter, you will learnabout the goals of unions and about their place in the U.S. economy.

LE

AR

NI

NG

OB

JE

CT

IV

ES After reading this chapter, you should be

able to:

� Outline the essential history of the laborunion movement

� Discuss the current status of labor unions

� Describe the basic economic goals andstrategies of labor unions

� Evaluate the potential effects of laborunions on wages and productivity

� Explain how a monopsonist determineshow much labor to employ and whatwage rate to pay

� Compare wage and employmentdecisions by a monopsonistic firm with the choices made by firms inindustries with alternative marketstructures

MyEconLab helps you master each objectiveand study more efficiently. See end of chapter

for details.

the average employee of state and local governments in the United States receives 45 percentmore in combined wages and benefits than the average worker in the private sector? Theexplanation for this differential is that an increasing percentage of state and local governmentworkers belong to labor unions—organizations that seek to secure economic improve-ments for their members. Nonunion employees of state and local governments receiveapproximately the same wages and benefits as private workers. In contrast, unionized employ-ees of state and local governments receive wages that are at least 20 percent higher and ben-efits that are more than 70 percent greater.

Traditionally, one rationale for forming a union was that members might be able to earnmore than they would in a competitive labor market by obtaining a type of monopoly power.Because the entire supply of a particular group of workers is controlled by a single source whena union bargains as a single entity with management, a certain monopoly element enters intothe determination of employment. In such situations, we can no longer talk about a perfectlycompetitive supply of labor. Later in the chapter, we will examine the converse—a singleemployer who is the sole employer of a particular group of workers.

Industrialization and Labor UnionsIn most parts of the world, labor movements began with local craft unions. Thesewere groups of workers in individual trades, such as shoemaking, printing, or baking.Beginning around the middle of the eighteenth century, new technologies permittedreductions in unit production costs through the formation of larger-scale enterprisesthat hired dozens or more workers. By the late 1790s, workers in some British craftunions began trying to convince employers to engage in collective bargaining, inwhich business management negotiates with representatives of all union membersabout wages and hours of work.

In 1799 and 1800, the British Parliament passed laws called the CombinationActs aimed at prohibiting the formation of unions. In 1825, Parliament enacted areplacement Combination Act allowing unions to exist and to engage in limited collective bargaining. Unions on the European continent managed to convince mostgovernments throughout Europe to enact similar laws during the first half of thenineteenth century.

Unions in the United StatesThe development of unions in the United States lagged several decades behind eventsin Europe. In the years between the Civil War and World War I (1861–1914), theKnights of Labor, an organized group of both skilled and unskilled workers, pushedfor an eight-hour workday and equal pay for women and men. In 1886, a dissidentgroup split from the Knights of Labor to form the American Federation of Labor(AFL) under the leadership of Samuel Gompers. During World War I, union mem-bership increased to more than 5 million. But after the war, the government decidedto stop protecting labor’s right to organize. Membership began to fall.

THE FORMATION OF INDUSTRIAL UNIONS The Great Depression was a landmark eventin U.S. labor history. Franklin Roosevelt’s National Industrial Recovery Act of 1933gave labor the federal right to bargain collectively, but that act was declared unconsti-tutional. The 1935 National Labor Relations Act (NLRA), otherwise known as theWagner Act, took its place. The NLRA guaranteed workers the right to form unions,to engage in collective bargaining, and to be members of any union.

In 1938, the Congress of Industrial Organizations (CIO) was formed by John L. Lewis,the president of the United Mine Workers. Prior to the formation of the CIO, most labororganizations were craft unions. The CIO was composed of industrial unions, whichdrew their membership from an entire industry such as steel or automobiles. In 1955, theCIO and the AFL merged because the leaders of both associations thought a mergerwould help organized labor grow faster.

CHAPTER 29 ■ Unions and Labor Market Monopoly Power 643

Did YouKnowThat?

Labor unionsWorker organizations that seek to secureeconomic improvements for their members.They also seek to improve the safety, health,and other benefits (such as job security) oftheir members.

Craft unionsLabor unions composed of workers who engagein a particular trade or skill, such as baking,carpentry, or plumbing.

Collective bargainingNegotiation between the management of acompany or of a group of companies and themanagement of a union or a group of unionsfor the purpose of reaching a mutuallyagreeable contract that sets wages, fringebenefits, and working conditions for allemployees in all the unions involved.

Industrial unionsLabor unions that consist of workers from a particular industry, such as automobilemanufacturing or steel manufacturing.

CONGRESSIONAL CONTROL OVER LABOR UNIONS Since the Great Depression, Congresshas occasionally altered the relationship between labor and management throughsignificant legislation. One of the most important pieces of legislation was the Taft-Hartley Act of 1947 (the Labor Management Relations Act). In general, the Taft-Hartley Act outlawed certain labor practices of unions, such as imposing make-workrules and forcing unwilling workers to join a particular union. Among other things,it allowed individual states to pass their own right-to-work laws. A right-to-worklaw makes it illegal for union membership to be a requirement for continued employ-ment in any establishment.

The Taft-Hartley Act also made a closed shop illegal. A closed shop requires unionmembership before employment can be obtained. A union shop, however, is legal. Aunion shop does not require membership as a prerequisite for employment, but it can,and usually does, require that workers join the union after a specified amount of timeon the job. (Even a union shop is illegal in states with right-to-work laws.)

What group benefits most from a Chinese labor law that allows a closed shop?

644 PART 7 ■ LABOR RESOURCES AND THE ENVIRONMENT

Right-to-work lawsLaws that make it illegal to require unionmembership as a condition of continuingemployment in a particular firm.

Go to www.econtoday.com/ch29 to link tothe Legal Information Institute’s review of all the key U.S. labor laws.

Closed shopA business enterprise in which employees mustbelong to the union before they can be hired andmust remain in the union after they are hired.

Union shopA business enterprise that may hire nonunionmembers, conditional on their joining theunion by some specified date afteremployment begins.

Jurisdictional disputeA disagreement involving two or more unionsover which should have control of a particularjurisdiction, such as a particular craft or skillor a particular firm or industry.

Sympathy strikeA work stoppage by a union in sympathy withanother union’s strike or cause.

Secondary boycottA refusal to deal with companies or purchaseproducts sold by companies that are dealingwith a company being struck.

Chinese firms have operated within a closed shop environment for manyyears. In an important sense, so have Chinese workers. There is only a singleunion in China—the appropriately named All-China Federation of TradeUnions (ACFTU), which has 193 million members. Whenever groups of work-ers have tried to establish their own, separate bargaining arrangements withChinese employers, the union has successfully filed lawsuits to requireemployers to deal only with the ACFTU.

In recent years, the ACFTU has sought to expand its membership byrequiring firms based outside China to recognize the ACFTU as the sole bar-gaining agent for their Chinese employees. The ACFTU is phasing in agree-ments covering all 50,000 Chinese employees of Wal-Mart, which in most

other nations usually has chosen not to operate rather than hire union work-ers. Today, more than 90 percent of all U.S. firms operating in China, includ-ing McDonald’s and FedEx, must require their employees to join the ACFTUwhen they accept their positions.

FOR CRITICAL ANALYSISIf Chinese workers at covered foreign firms were permitted to work for afew months before joining the ACFTU, what type of legal structure gov-erning union membership would exist?

The Chinese Union Monopoly Expands to IncludeEmployees of Foreign FirmsINTERNATIONAL EXAMPLE

Jurisdictional disputes, sympathy strikes, and secondary boycotts were also madeillegal by the Taft-Hartley Act. In a jurisdictional dispute, two or more unions fight(and strike) over which should have control in a particular jurisdiction. For example,should carpenters working for a steel manufacturer be members of the steelworkers’union or the carpenters’ union? A sympathy strike occurs when one union strikes insympathy with another union’s cause or strike. For example, if the retail clerks’ unionin a city is striking grocery stores, Teamsters union members may refuse to deliverproducts to those stores in sympathy with the retail clerks’ demands for higher wagesor better working conditions. A secondary boycott is a boycott of a company thatdeals with a struck company. For example, if union workers strike a baking company, aboycott of grocery stores that continue to sell that company’s products is a secondaryboycott. A secondary boycott brings pressure on third parties to force them to stopdealing with an employer who is being struck.

Perhaps the most famous provision of the Taft-Hartley Act allows the president toobtain a court injunction that will stop a strike for an 80-day cooling-off period if thestrike is expected to imperil the nation’s safety or health.

The Current Status of U.S. Labor UnionsAs shown in Figure 29-1 on the facing page, union membership has been declining in theUnited States since the 1960s. At present, only about 12 percent of U.S. workers areunion members. Fewer than 8 percent of workers in the private sector belong to unions.

You Are ThereTo contemplate an atypical jurisdictionaldispute involving only one union, readCaught Up in an UnusualJurisdictional Dispute in Michigan, on page 656.

www.econtoday.com/ch29

A DECLINE IN MANUFACTURING EMPLOYMENT A large part of the explanation forthe decline in union membership has to do with the shift away from manufac-turing. In 1948, workers in manufacturing industries, transportation, and utilities,which traditionally have been among the most heavily unionized industries,constituted more than half of private nonagricultural employment. Today, thatfraction is less than one-fifth.

The relative decline in manufacturing employment helps explain why most of thelargest U.S. unions now draw their members primarily from workers in serviceindustries and governments. As you can see in Table 29-1 below, five of the ten largestunions now represent workers in these areas. The remaining five largest unions rep-resent the manufacturing industries, transportation, and utilities that once dominatedthe U.S. union movement.


Sources: L. Davis et al., American Economic Growth (New York: HarperCollins, 1972), p. 220; U.S.Department of Labor, Bureau of Labor Statistics.

Numerically, union membership in the United States has increased dramati-cally since the 1930s, but as a percentage of the labor force, union member-ship peaked around 1960 and has been falling ever since. Most recently, theabsolute number of union members has also diminished.

FIGURE 29-1 Decline in Union Membership

Union Industry Members

National Education Association Education 2,731,000Service Employees International Union Health care, public, 1,505,000

and janitorial servicesAmerican Federation of State, County, Government services 1,460,000

and Municipal EmployeesInternational Brotherhood of Teamsters Trucking, delivery 1,396,000United Food and Commercial Workers Food and grocery 1,312,000

International Union servicesAmerican Federation of Teachers Education 829,000United Steelworkers of America Steel 755,000International Brotherhood of Electrical Workers Electrical 705,000Laborers’ International Union of North America Construction, utilities 670,000International Association of Machinists Machine and aerospace 654,000

and Aerospace Workers

TABLE 29-1

The Ten LargestUnions in the United StatesHalf of the top ten U.S. unionshave members who work in service and government occupations.

Source: U.S. Department of Labor.

Per

cent

of L

abor

For

ce O

rgan

ized

Year

1840 1860 1880 1900 1920 1940 1960 1980 2000

25

20

15

10

5

02020

DEREGULATION AND IMMIGRATION The trend away from manufacturing is themain reason for the decline in unionism. Nevertheless, the deregulation of certainindustries, such as airlines and trucking, has also contributed, as has increasedglobal competition. In addition, immigration has weakened the power of unions.Much of the unskilled and typically nonunionized work in the United States isdone by foreign-born workers, and immigrant workers who are undocumentedcannot legally join a union.

CHANGES IN THE STRUCTURE OF THE U.S. UNION MOVEMENT After its founding in1955, the AFL-CIO remained the predominant labor union organization for 50 years.In 2005, however, seven unions with more than 45 percent of total AFL-CIO mem-bership broke off to form a separate union organization called Change to Win. Morerecently, two construction industry unions also left the AFL-CIO and joined withironworkers and bricklayers unions to form the National Construction Alliance.

Unions in these new umbrella groups, which represent mainly workers in growingservice industries, had become frustrated because they felt that the AFL-CIO was notworking hard enough to expand union membership. In addition, some of these unionswere more interested than the AFL-CIO in pursuing boycotts against companiesviewed as anti-union, such as Wal-Mart. These unions also sought strikes againstindustries trying to slow the growth of union membership, such as the hotel industry.


Union Goals and StrategiesThrough collective bargaining, unions establish the wages below which no individualworker may legally offer his or her services. Each year, union representatives and man-agement negotiate collective bargaining contracts covering wages as well as workingconditions and fringe benefits for about 5 million workers. If approved by the members,a union labor contract sets wage rates, maximum workdays, working conditions, fringebenefits, and other matters, usually for the next two or three years.

Strike: The Ultimate Bargaining ToolWhenever union-management negotiations break down, union negotiators mayturn to their ultimate bargaining tool, the threat or the reality of a strike. Strikesmake headlines, but a strike occurs in less than 2 percent of all labor-managementdisputes before the contract is signed. In the other 98 percent, contracts are signedwithout much public fanfare.

The purpose of a strike is to impose costs on stubborn management to force it toaccept the union’s proposed contract terms. Strikes disrupt production and interferewith a company’s or an industry’s ability to sell goods and services. The strike worksboth ways, though, because workers receive no wages while on strike (though they

See page 662 for the answers. Review concepts from this section in MyEconLab.

the right to form unions. The Congress of IndustrialOrganizations (CIO), composed of __________ unions,was formed during the Great Depression. The AFL andthe CIO merged in 1955.

In the United States, union membership as a percentage of the labor force peaked at nearly __________ percent in1960 and has declined since then to only about__________ percent.

The __________ __________ of __________, composed ofcraft unions, was formed in 1886 under the leadership ofSamuel Gompers. Membership increased until after WorldWar I, when the government temporarily stopped protect-ing labor’s right to organize.

During the Great Depression, legislation was passed thatallowed for collective bargaining. The ____________________ __________ Act of 1935 guaranteed workers

QUICK QUIZ

may be partly compensated out of union strike funds). Striking union workers mayalso be eligible to draw state unemployment benefits.

The impact of a strike is closely related to the ability of striking unions to preventnonstriking (and perhaps nonunion) employees from continuing to work for the tar-geted company or industry. Therefore, steps are usually taken to prevent others fromworking for the employer. Strikebreakers can effectively destroy whatever bargain-ing power rests behind a strike. Numerous methods have been used to prevent strike-breakers from breaking strikes. Violence has been known to erupt, almost always inconnection with union attempts to prevent strikebreaking.

In recent years, companies have had less incentive to hire strikebreakers becausework stoppages have become much less common. From 1945 until 1990, on averagemore than 200 union strikes took place in the United States each year. Since 1990,however, the average has been closer to 25 strikes per year.

Union Goals with Direct Wage SettingWe have already pointed out that one of the goals of unions is to set minimum wages.The effects of setting a wage rate higher than a competitive market clearing wage ratecan be seen in Figure 29-2 below. The market for labor is perfectly competitive. Themarket demand curve is D, and the market supply curve is S. The market clearingwage rate is We. The equilibrium quantity of labor is Qe. If the union establishes bycollective bargaining a minimum wage rate that exceeds We, an excess quantity oflabor will be supplied (assuming no change in the labor demand schedule). If the min-imum wage established by union collective bargaining is WU, the quantity suppliedwill be QS. The quantity demanded will be QD. The difference is the excess quantitysupplied, or surplus. Hence, the following point becomes clear:

One of the major roles of a union that establishes a wage rate above the marketclearing wage rate is to ration available jobs among the excess number of workerswho wish to work in the unionized industry.

Note also that the surplus of labor is equivalent to a shortage of jobs at wage ratesabove equilibrium.

To ration jobs, the union may use a seniority system, lengthen the apprenticeshipperiod to discourage potential members from joining, or institute other rationingmethods. This has the effect of shifting the supply of labor curve to the left in order tosupport the higher wage, WU.


StrikebreakersTemporary or permanent workers hired by a company to replace union members who are striking.

The market clearing wage rate is We, atpoint E, at which the equilibrium quantityof labor is Qe. If the union succeeds inobtaining wage rate WU, the quantity oflabor demanded will be QD, at point A onthe labor demand curve, but the quantityof labor supplied will be QS, at point B onthe labor supply curve. The union mustration a limited number of jobs among agreater number of workers. The surplus oflabor is equivalent to a shortage of jobsat that wage rate. W

age

Rat

e pe

r H

our

Quantity of Labor per Time Period

QD Qe QS

E

A B

D

S

We

WU

FIGURE 29-2 Unions Must Ration Jobs

There is a trade-off here that any union’s leadership must face: Higher wagesinevitably mean a reduction in total union employment—fewer union positions.When facing higher wages, management may replace part of the workforce withmachinery or may even seek to hire nonunion workers.

If we view unions as monopoly sellers of a service, we can identify three different typesof goals that they may pursue: ensuring employment for all members of the union, maxi-mizing aggregate income of workers, and maximizing wage rates for some workers.

EMPLOYING ALL MEMBERS IN THE UNION Assume that the union has Q1 workers. If itfaces a labor demand curve such as D in Figure 29-3 above, the only way it can “sell”all of those workers’ services is to accept a wage rate of W1. This is similar to any othermarket. The demand curve tells the maximum price that can be charged to sell anyparticular quantity of a good or service. Here the service happens to be labor.

MAXIMIZING MEMBER INCOME If the union is interested in maximizing the gross incomeof its members, it will normally want a smaller membership than Q1—namely, Q2workers, all employed and paid a wage rate of W2. The aggregate income to all membersof the union is represented by the wages of only the ones who work. Total income earnedby union members is maximized where the price elasticity of demand is numerically equalto 1. That occurs where marginal revenue equals zero.

In Figure 29-3, marginal revenue equals zero at a quantity of labor Q2. So we knowthat if the union obtains a wage rate equal to W2, and therefore Q2 workers are demanded,the total income to the union membership will be maximized. In other words, Q2 × W2(the blue-shaded area) will be greater than any other combination of wage rates and quan-tities of union workers demanded. It is, for example, greater than Q1 × W1. Note that inthis situation, if the union started out with Q1 members, there would be Q1 - Q2 membersout of union work at the wage rate W2. (Those out of union work either remain unem-ployed or go to other industries. Such actions have a depressing effect on wages innonunion industries due to the increase in supply of workers there.)

MAXIMIZING WAGE RATES FOR CERTAIN WORKERS Assume that the union wants tomaximize the wage rates for some of its workers—perhaps those with the most senior-ity. If it wants to maximize the wage rate for a given quantity of workers, Q3, it willseek to obtain a wage rate of W3. This will require deciding which workers should beunemployed and which workers should work and for how long each week or each yearthey should be employed.


Assume that the union wants to employall its Q1 members. It will attempt to getwage rate W1. If the union wants tomaximize total wage receipts (income)of members who have jobs in thisindustry, it will do so at wage rate W2,where the elasticity of the demand forlabor is equal to 1. (The blue-shadedarea represents the maximum totalincome that the union membershipwould earn at W2.) If the union wants to maximize the wage rate for a givennumber of workers, say, Q3, it will setthe wage rate at W3.

Wag

e R

ate

per

Hou

r


MR

Maximum total unionmember income earned

0 Q3 Q2 Q1

D

W3

W2

W1

FIGURE 29-3 What Do Unions Maximize?

Union Strategies to Raise Wages IndirectlyOne way or another, unions seek above-market wages for some or all of their mem-bers. Sometimes unions try to achieve this goal without making wage increases directfeatures of contract negotiations.

LIMITING ENTRY OVER TIME One way to raise wage rates without specifically settingwages is for a union to limit the size of its membership to the size of its employedworkforce at the time the union was first organized. No workers are put out of workwhen the union is formed. Over time, as the demand for labor in the industryincreases, the union prevents any net increase in membership, so larger wageincreases are obtained than would otherwise be the case. We see this in Figure 29-4above. In this example, union members freeze entry into their union, thereby obtaininga wage rate of $21 per hour instead of allowing a wage rate of only $20 per hour withno restriction on labor supply.

ALTERING THE DEMAND FOR UNION LABOR Another way that unions can increasewages is to shift the demand curve for labor outward to the right. This approachhas the advantage of increasing both wage rates and the employment level. Thedemand for union labor can be increased by increasing worker productivity,increasing the demand for union-made goods, and decreasing the demand fornon-union-made goods.

1. Increasing worker productivity. Supporters of unions have argued that unionsprovide a good system of industrial jurisprudence. The presence of unionsmay induce workers to feel that they are working in fair and just circum-stances. If so, they work harder, increasing labor productivity. Productivity isalso increased when unions resolve differences and reduce conflicts betweenworkers and management, thereby providing a more peaceful administrativeenvironment.

2. Increasing demand for union-made goods. Because the demand for labor is a deriveddemand, a rise in the demand for products produced by union labor willincrease the demand for union labor itself. One way that unions attempt toincrease the demand for goods produced by union labor is by advertising “Lookfor the union label.”


When the union was formed, it didn’taffect wage rates or employment,which remained at $19 and Q1 (theequilibrium wage rate and quantity atpoint E1). As demand increased—thatis, as the demand schedule shiftedoutward from D1 to D2—the unionrestricted membership to its originallevel of Q1, however. The new supplycurve is S1S2, which intersects D2 atE2, or at a wage rate of $21. Withoutthe union, equilibrium would be at E3,with a wage rate of $20 and employ-ment of Q2.

Wag

e R

ate

per

Hou

r ($

)

Number of Workers per Time Period

0

19

20

21

Q2Q1

D1

E1

E3

E2

D2

S2

S1

FIGURE 29-4 Restricting Supply over Time

3. Decreasing the demand for non-union-made goods. When the demand for goods thatare competing with (or are substitutes for) union-made goods is reduced, consumersshift to union-made goods, increasing the demand. The campaigns of various unionsagainst buying foreign imports are a good example. The result is greater demand forgoods “made in the USA,” which in turn presumably increases the demand for U.S.union (and nonunion) labor.

Economic Effects of Labor UnionsToday, the most heavily unionized occupations are government service, transporta-tion and material moving, and construction. Do union members in these and otheroccupations earn higher wages? Are they more or less productive than nonunionizedworkers in their industries? What are the broader economic effects of unionization?Let’s consider each of these questions in turn.

Unions and WagesYou have learned that unions are able to raise the wages of their members if they cansuccessfully limit the supply of labor in a particular industry. Unions are also able toraise wages if they can induce increases in the demand for union labor.

Economists have extensively studied the differences between union wages andnonunion wages. They have found that the average hourly wage (not including benefits)earned by a typical private-sector union worker is about $2.25 higher than the hourlywage earned by a typical worker who is not a union member. Adjusted for inflation, thisunion-nonunion hourly wage differential is only about half as large as it was two decadesago, however.

Comparisons of the annual earnings of union and nonunion workers indicatethat in recent years, unions have not succeeded in raising the annual incomes oftheir members. In 1985, workers who belonged to unions earned nearly 7 percentmore per year than nonunion workers, even though union workers worked fewerhours per week. Today, a typical nonunion employee still works slightly longereach week, but the average nonunion worker also has a higher annual income thanthe average union worker.

Even the $2.25 hourly wage differential already mentioned is somewhat misleadingbecause it is an average across all U.S. workers. In the private sector, union workersearn only about 4 percent more than nonunion workers, or a little less than 60 centsper hour. The hourly wage gain for government workers is more than six times higherat about $3.55 per hour. A state government employee who belongs to a union cur-rently earns an hourly wage more than 20 percent higher than a state governmentworker who is not a union member.


Requiring employers to pay the average nonunionizedU.S. worker about $2.25 per hour more would bring theaverage nonunion wage into line with the average unionwage. Such a rule, however, would subject nonunionizedlabor markets to the same problem of surplus labor thatconfronts unionized industries. Requiring firms to boosttheir wages above the current equilibrium levels would

induce the firms to cut back on the quantity of labordemanded.At the same time, more people would desireto supply additional labor at the higher, government-mandated union wage rate.Across all nonunionized labormarkets, the result would be excess quantities of laborsupplied, or surpluses of labor.Thus, more people wouldbe unemployed.

Why Not . . . require firms to pay union wages to nonunionized workers?

Unions and Labor ProductivityA traditional view of union behavior is that unions decrease productivity by artificiallyshifting the demand curve for union labor outward through excessive staffing andmake-work requirements. For example, some economists have traditionally arguedthat unions tend to bargain for excessive use of workers, as when an airline unionrequires an engineer on all flights. This is called featherbedding. Many painters’unions, for example, resisted the use of paint sprayers and required that their mem-bers use only brushes. They even specified the maximum width of the brush. More-over, whenever a union strikes, productivity drops, and this reduction in productivityin one sector of the economy can spill over into other sectors.

Economic Benefits and Costs of Labor UnionsAs should be clear by now, there are two opposing views of unions. One sees them asmonopolies whose main effect is to raise the wage rate of high-seniority members atthe expense of low-seniority members (and nonunion workers). The other contendsthat unions can increase labor productivity by promoting safer working conditionsand generally better work environments. According to this view, unions contribute toworkforce stability by providing arbitration and grievance procedures.

Critics point out that the positive view of unionism overlooks the fact that many ofthe benefits that unions provide do not require that unions engage in restrictive laborpractices, such as the closed shop. Unions could still provide benefits for their mem-bers without restricting the labor market.

Consequently, a key issue that economists seek to assess when judging the socialcosts of unions is the extent to which their existence has a negative effect on employ-ment growth. Most evidence indicates that while unions do significantly reduceemployment in some of the most heavily unionized occupations, the overall effects onU.S. employment are modest. On the whole, therefore, the social costs of unions inthe U.S. private sector are probably relatively low.



Unions can increase the wage rate of members by engagingin practices that shift the union labor supply curve__________ or shift the demand curve for union labor__________ (or both).

Some economists believe that unions can increase__________ by promoting safer working conditions andgenerally better work environments.

When unions set wage rates __________ market clearingprices, they face the problem of __________ a restricted num-ber of jobs to workers who desire to earn the higher wages.

Unions may pursue any one of three goals: (1) to employ__________ union members, (2) to maximize total__________ of the union’s members, or (3) to __________wages for certain, usually high-seniority, workers.

QUICK QUIZ

Monopsony: A Buyer’s MonopolyLet’s assume that a firm is a perfect competitor in the product market. The firmcannot alter the price of the product it sells, and it faces a perfectly elastic demandcurve for its product. We also assume that the firm is the only buyer of a particularinput. Although this situation may not occur often, it is useful to consider. Let’s thinkin terms of a factory town, like those dominated by textile mills or those in the miningindustry. One company not only hires the workers but also owns the businesses in thecommunity, owns the apartments that workers live in, and hires the clerks, waiters,and all other personnel. This buyer of labor is called a monopsonist, the only buyerin the market.

FeatherbeddingAny practice that forces employers to usemore labor than they would otherwise or touse existing labor in an inefficient manner.

MonopsonistThe only buyer in a market.

What does this situation mean to a monopsonist in terms of the costs of hiringextra workers? It means that if the monopsonist wants to hire more workers, it has tooffer higher wages. Our monopsonist firm cannot hire all the labor it wants at thegoing wage rate. Instead, it faces an upward-sloping supply curve. If it wants to hiremore workers, it has to raise wage rates, including the wages of all its current workers(assuming a non-wage-discriminating monopsonist). It therefore has to take accountof these increased costs when deciding how many more workers to hire.

Marginal Factor CostThe monopsonist faces an upward-sloping supply curve of the input in questionbecause as the only buyer, it faces the entire market supply curve. Each time themonopsonist buyer of labor, for example, wishes to hire more workers, it must raisewage rates. Thus, the marginal cost of another unit of labor is rising. In fact, the mar-ginal cost of increasing its workforce will always be greater than the wage rate. This isbecause the monopsonist must pay the same wage rate to everyone in order to obtainanother unit of labor. Consequently, the higher wage rate has to be offered not onlyto the last worker but also to all its other workers. We call the additional cost to themonopsonist of hiring one more worker the marginal factor cost (MFC).

The marginal factor cost of hiring the last worker is therefore that worker’s wagesplus the increase in the wages of all other existing workers. As we pointed out inChapter 28, marginal factor cost is equal to the change in total variable costs due to aone-unit change in the one variable factor of production—in this case, labor. InChapter 28, marginal factor cost was simply the competitive wage rate because theemployer could hire all workers at the same wage rate.

Derivation of a Marginal Factor Cost CurvePanel (a) of Figure 29-5 on the facing page shows the quantity of labor purchased, thewage rate per hour, the total cost of the quantity of labor supplied per hour, and themarginal factor cost per hour for the additional labor bought.

We translate the columns from panel (a) to the graph in panel (b) of the figure.We show the supply curve as S, which is taken from columns 1 and 2. (Note that thisis the same as the average factor cost curve. Hence, you can view Figure 29-5 asshowing the relationship between average factor cost and marginal factor cost.) Themarginal factor cost curve (MFC) is taken from columns 1 and 4. The MFC curvemust be above the supply curve whenever the supply curve is upward sloping. If thesupply curve is upward sloping, the firm must pay a higher wage rate in order toattract a larger amount of labor. This higher wage rate must be paid to all workers.Thus, the increase in total costs due to an increase in the labor input will exceed thewage rate. (Recall from Chapter 28 that in a perfectly competitive input market, thesupply curve facing the firm is perfectly elastic and the marginal factor cost curve isidentical to the supply curve.)

Employment and Wages Under MonopsonyTo determine the number of workers that a monopsonist desires to hire, we comparethe marginal benefit to the marginal cost of each hiring decision. The marginal cost isthe marginal factor cost (MFC) curve, and the marginal benefit is the marginalrevenue product (MRP) curve. In Figure 29-6 on page 654, we assume competition inthe output market and monopsony in the input market. A monopsonist finds itsprofit-maximizing quantity of labor demanded at A, where the marginal revenueproduct is just equal to the marginal factor cost. The monopsonist will thereforedesire to hire exactly Qm workers.


THE INPUT PRICE PAID BY A MONOPSONY How much is the firm going to pay theseworkers? The monopsonist sets the wage rate so that it will get exactly the quantity,Qm, supplied to it by its “captive” labor force. We find that wage rate is Wm. Thereis no reason to pay the workers any more than Wm because at that wage rate, the firmcan get exactly the quantity it wants. The actual quantity used is determined by theintersection of the marginal factor cost curve and the marginal revenue productcurve for labor—that is, at the point at which the marginal revenue from expandingemployment just equals the marginal cost of doing so (point A in Figure 29-6 on thefollowing page).


Panel (a)

(1)Quantityof Labor

Supplied toManagement

0

1

2

3

4

5

6

(2)

RequiredHourly

Wage Rate

—

$12

14

16

18

20

22

—

$12

28

48

72

100

132

(3)

TotalWage Bill

(3) = (1) x (2)

(4)Marginal

Factor Cost

$12

16

20

24

28

32

Mar

gina

l Fac

tor

Cos

t and

Wag

e R

ate

per

Hou

r ($

)


Panel (b)

10

S

MFC

2 3 4 5 6

34

30

26

22

18

14

10

Change in (3)Change in (1)

(MFC) =

The supply curve, S, in panel (b)is taken from columns 1 and 2 ofpanel (a). The marginal factorcost curve (MFC) is taken fromcolumns 1 and 4. It is theincrease in the total wage billresulting from a one-unit increasein labor input.

FIGURE 29-5 Derivation of a Marginal Factor Cost Curve

Notice that the profit-maximizing wage rate paid to workers (Wm) is lower thanthe marginal revenue product. That is to say, workers are paid a wage that is less thantheir contribution to the monopsonist’s revenues. This is sometimes referred to asmonopsonistic exploitation of labor.

You learned in Chapter 4 that in a perfectly competitive labor market, establishinga minimum wage rate above the market clearing wage rate causes employers to reducethe quantity of labor demanded, resulting in a decline in employment. What happensif a minimum wage rate is established above the wage rate that a monopsony wouldotherwise pay its workers?


The monopsonist firm looks at amarginal cost curve, MFC, thatslopes upward and lies above itslabor supply curve, S. The marginalbenefit of hiring additional workersis given by the firm’s MRP curve(its demand-for-labor curve). Theintersection of MFC with MRP, atpoint A, determines the number ofworkers hired. The firm hires Qmworkers but has to pay them onlyWm in order to attract them.

MF

C, M

RP,

and

Wag

e R

ate

per

Hou

r ($

)

Labor Input (worker-hours)

Qm

A

MFC

MRP

S

Wm

FIGURE 29-6 Wage and Employment Determination for a Monopsonist

POLICY EXAMPLEHow does a monopsony respond to a minimum wage law that sets a wagefloor above the wage rate it otherwise would pay its workers? Figure 29-7on the facing page provides the answer to this question. In the figure, theentire upward-sloping curve labeled S is the labor supply curve in theabsence of a minimum wage. Given the associated MFC curve and the firm’sMRP curve, Qm is the quantity of labor hired by a monopsony in the absenceof a minimum wage law. The profit-maximizing wage rate is Wm.

If the government establishes a minimum wage equal to Wmin, however,then the supply of labor to the firm becomes horizontal at the minimum wageand includes only the upward-sloping portion of the curve S above this legalminimum. In addition, the wage rate Wmin becomes the monopsonist’s mar-ginal factor cost along the horizontal portion of this new labor supply curve,because when the firm hires one more unit of labor, it must pay each unit oflabor the same wage rate, Wmin.

To maximize its economic profits under the minimum wage, the monop-sony equalizes the minimum wage rate with marginal revenue product andhires Qmin units of labor. This quantity exceeds the amount of labor, Qm, thatthe monopsony would have hired in the absence of the minimum wage law.Thus, establishing a minimum wage can generate a rise in employment at amonopsony firm.

FOR CRITICAL ANALYSISIf a government establishes a minimum wage law covering all firms withinits jurisdiction, including firms operating in both perfectly competitive and monopsonistic labor markets, will overall employment necessarilyincrease?

Can Minimum Wage Laws Ever Boost Employment?

Monopsonistic exploitationPaying a price for the variable input that isless than its marginal revenue product; thedifference between marginal revenue productand the wage rate.

BILATERAL MONOPOLY We have studied the pricing of labor in various situations,including perfect competition in both the output and input markets and monopolyin both the output and input markets. Figure 29-8 on the following page shows fourpossible situations graphically.

The organization of workers into a union normally creates a monopoly supplier oflabor, which gives the union some power to bargain for higher wages. What happenswhen a monopsonist meets a monopolist? This situation is called bilateral monopoly,defined as a market structure in which a single buyer faces a single seller. An example ofbilateral monopoly is a county education employer facing a single teachers’ union inthat labor market. Another example is a players’ union facing an organized group ofteam owners, as has occurred in professional baseball and football. To analyze bilateralmonopoly, we would have to look at the interaction of both sides, buyer and seller. Thewage outcome turns out to be indeterminate.


In the absence of a minimum wage law, a monopsony faces the upward-slopinglabor supply curve, S, and the marginal factor cost curve, MFC. To maximize itsprofits, the monopsony hires Qm units of labor, at which MFC is equal to MRP,and it pays the wage rate Wm. Once the minimum wage rate, Wmin, is estab-lished, the supply of labor becomes horizontal at the minimum wage and includesonly the upward-sloping portion of the labor supply curve above this legal mini-mum. Because the monopsony must pay the same wage rate Wmin for each unitof labor along this horizontal portion of the new labor supply curve, its marginalfactor cost is also equal to the minimum wage rate, Wmin. Thus, the monopsonyhires Qmin units of labor. Employment at the monopsony firm increases.

MR

P, M

FC

, and

Wag

e R

ate

per

Hou

r ($

)

Quantity of Labor (worker-hours)

Qm Qmin

MFC

MRP

S

Wmin

Wm

FIGURE 29-7 A Monopsony’s Response to a Minimum Wage

Bilateral monopolyA market structure consisting of a monopolistand a monopsonist.


Thus, the marginal factor cost curve always lies __________the supply curve.

A monopsonist will hire workers up to the point at which marginal __________ cost equals marginal __________ product.Then the monopsonist will find the lowest necessary wage toattract that number of workers, as indicated by the supply curve.

A monopsonist is the __________ __________ in a market.The monopsonist faces an __________-sloping supplycurve of labor.

Because the monopsonist faces an __________-sloping sup-ply curve of labor, the marginal factor cost of increasing thelabor input by one unit is __________ than the wage rate.

QUICK QUIZ


Wag

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and

Mar

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lR

even

ue P

rodu

ct p

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our

($)

Quantity of Labor perTime Period

Panel (a)

Qe

MRPc

Labor supplyWe

Wag

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and

Mar

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lR

even

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Panel (b)

Qm

MRPm

Labor supplyWe

Wag

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Mar

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Cos

t, an

dM

argi

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Panel (c)

Q1

MRPc

MFC

S

Wc WmW

age

Rat

e, M

argi

nal F

acto

r C

ost,

and

Mar

gina

l Rev

enue

Pro

duct

per

Hou

r ($

)


Panel (d)

Q2

MRPm

MFC

S

In panel (a), the firm operates inperfect competition in both the inputand output markets. It purchaseslabor up to the point where the goingrate We is equal to MRPc. It hiresquantity Qe of labor. In panel (b), thefirm is a perfect competitor in theinput market but has a monopoly inthe output market. It purchases laborup to the point where We is equal toMRPm. In panel (c), the firm is amonopsonist in the input market anda perfect competitor in the outputmarket. It hires labor up to the pointwhere MFC = MRPc. It will hirequantity Q1 and pay wage rate Wc.Panel (d) shows a situation in whichthe firm is both a monopolist in themarket for its output and a monop-sonist in its labor market. It hires the quantity of labor Q2 at whichMFC = MRPm and pays the wagerate Wm.

FIGURE 29-8 Pricing and Employment Under Various Market Conditions

Michele Berry operates a private day-care service from her homein Flint, Michigan. Recently, she was shocked to learn that theMichigan Department of Human Services had classified her as a gov-ernment employee and a union member and was withholding uniondues from payments that the state government makes on behalf oflow-income families to whom Berry provides child-care services. Theunion dues go to Child Care Providers Together Michigan (CCPTM),a union established in 2006 by the American Federation of State,County, and Municipal Employees and the United Auto Workers.

The CCPTM was certified by the state of Michigan followingan election involving 6,000 day-care providers. Afterward, thestate’s Department of Human Services decided that Berry andabout 34,000 other home-based day-care providers who acceptedstate payments were public employees who were required to join

the CCPTM. Berry, however, regards herself as self-employedand says that she “wants nothing to do with the union.” Thisunusual jurisdictional dispute—unusual because it involves onlya single union that people do not wish to join—is under reviewin a court. Meanwhile, a portion of Berry’s income still goes tothe CCPTM. The union, in turn, uses her dues to help coverexpenses of lobbying the Michigan legislature for higher paymentsto day-care operators.

Critical Analysis Questions1. Does Berry appear to be facing a right-to-work law or a law

establishing a closed shop?

2. Based on this information, what are theCCPTM’s main goals?

Caught Up in an Unusual Jurisdictional Dispute in MichiganYou Are There


Tax Dollars IncreasinglyPay Union Wages

For many industrial unions today, the relevant “industry” is the public—thatis, government—sector of the U.S. economy. An increasing percentage ofcollective bargaining agreements now cover government workers. A decliningshare of such agreements cover workers employed by private companies.

CONCEPTS APPLIED

N Industrial Unions

N Collective Bargaining

N Union Goals and Strategies

Changing U.S. Unionization TrendsPanel (a) of Figure 29-9 below shows that unionizationrates of private-sector workers have dropped steadily sincethe early 1970s. Meanwhile, the public-sector unionizationrate has generally trended very slightly upward since theearly 1980s.

The number of government workers at all levels—local,state, and federal—has also increased. Panel (b) shows aneffect of more government workers together with fallingprivate-sector and relatively steady public-sector unioniza-tion rates. The percentage of unionized workers employedin the public sector now exceeds 50 percent.

ISSUES & APPLICATIONS

who are employed in the public sector now exceeds the percentage employedin the private sector.Source: Bureau of Labor Statistics.

Panel (a) indicates that the percentage of unionized workers in the publicsector has remained stable since the early 1980s, while the percentage ofunionized private-sector workers has steadily declined. Panel (b) shows thatas a consequence of this trend, the total percentage of all unionized workers

FIGURE 29-9 Private- versus Public-Sector Unionization Rates

Per

cent

age

of E

mpl

oyee

sB

elon

ging

to a

Uni

on

1973 1980 1985 1990

50

40

30

20

10

01995 2000 2005 2010 2015

Per

cent

age

of T

otal

Uni

on W

orkf

orce

Panel (a) Panel (b)

1973 1980

Private sector

Private sector Public sector

Public sector

1985 1990

80

40

30

20

10

0

70

60

50

1995 2000 2005 2010 2015

A Union Goal of the 2010s: IncreasedAccess to Tax DollarsSince 2009, several firms employing many unionized workershave effectively been under the control of the federal govern-ment. An example is General Motors, which is largely ownedby the U.S. government and employs more than 70,000unionized workers. Naturally, if unionized workers at theseand other government-controlled firms were reclassified asemployed within the public sector, the true share of union-ized employees would rise further.

Key proponents of the U.S. government’s bailout andeffective takeover of these companies included unionsrepresenting their employees. Unions whose jurisdictionspotentially encompass government workers actively seekto recruit those workers into their ranks. These unionshave determined that tax revenues provide a more stablesource of income to unions and their members than doprivate-sector firms’ revenues, which vary with changingmarket conditions.

For Critical Analysis1. Why do you think that jurisdictional disputes tend to be more

common among unions representing government employeesthan among unions representing workers at private firms?


2. Who do you suppose represents the interests of taxpayersduring collective bargaining with unions that represent public-sector employees?

Web Resources1. To find out more about unionization rates in both the private

and the public sectors, go to www.econtoday.com/ch29.

2. To compare average earnings of union workers by occupa-tion, go to www.econtoday.com/ch29.

Research ProjectEvaluate why a union that wishes both to maximize its members’incomes and to keep their incomes as stable as possible mightdesire to bring in members who are employed by local, state,and federal governments. Why are public-sector union members’incomes still subject to some variability?

For more questions on this chapter’s Issues & Applications, go to MyEconLab.

In the Study Plan for this chapter, select Section N: News.

Here is what you should know after reading this chapter. MyEconLab will help you identify what you know,

and where to go when you need to practice.

WHAT YOU SHOULD KNOW WHERE TO GO TO PRACTICE

Labor Unions The first labor unions were craftunions, representing workers in specific trades. Inthe United States, the American Federation of Labor(AFL) emerged in the late nineteenth century. In1935, the National Labor Relations Act (or WagnerAct) granted workers the right to form unions andbargain collectively. Industrial unions, which repre-sent workers of specific industries, formed theCongress of Industrial Organizations (CIO) in 1938,and in 1955 a merger formed the AFL-CIO. TheTaft-Hartley Act of 1947 placed limitations onunions’ rights to organize, strike, and boycott.

• MyEconLab Study Plan 29.1• Audio introduction to

Chapter 29

labor unions, 643craft unions, 643collective bargaining, 643industrial unions, 643right-to-work laws, 644closed shop, 644union shop, 644jurisdictional dispute, 644sympathy strike, 644secondary boycott, 644




Basic Goals and Strategies of Labor UnionsA key goal of most unions is to achieve higherwages. Often this entails bargaining for wagesabove competitive levels, which produces surpluslabor. Thus, a major task of many unions is toration available jobs among the excess number ofindividuals who desire to work at the wages estab-lished by collective bargaining agreements.Unions often address this trade-off betweenwages and the number of jobs by maximizing thetotal income of members. Strategies to raisewages indirectly include placing limits on theentry of new workers, increasing worker produc-tivity, and lobbying consumers to increase theirdemands for union-produced goods.

MyEconLab continued


• MyEconLab Study Plan 29.2• Video: Union Goals• Animated Figures 29-2,

29-3, 29-4

strikebreakers, 647

KEY FIGURESFigure 29-2, 647Figure 29-3, 648Figure 29-4, 649

monopsonist, 651monopsonistic

exploitation, 654bilateral monopoly, 655

KEY FIGURESFigure 29-5, 653Figure 29-6, 654Figure 29-7, 655

How a Monopsonist Determines How MuchLabor to Employ and What Wage Rate toPay For a monopsonist, which is the only buyer ofan input such as labor, paying a higher wage toattract an additional unit of labor increases totalfactor costs for all other labor employed. The labormarket monopsonist employs labor to the point atwhich the marginal factor cost of labor equals themarginal revenue product of labor. It then paysworkers the wage at which they are willing to work,as determined by the labor supply curve, which liesbelow the marginal factor cost curve. As a result,the monopsonist pays workers a wage that is lessthan their marginal revenue product.

• MyEconLab Study Plan 29.4• Video: The Buyer’s

Monopoly—Monopsony• Animated Figures 29-5,

29-6, 29-7

featherbedding, 651Effects of Labor Unions on Wages andProductivity On average, union hourly wagesare higher than wages of nonunionized workers.Unionized employees typically work fewer hoursper year, however, so their average annual earningsare lower than those of nonunionized employees.Some collective bargaining rules specifying howjobs are performed appear to reduce productivity,but unionization promotes generally better workenvironments, which may enhance productivity.

• MyEconLab Study Plan 29.3• Video: The Benefits of

Labor Unions

The Current Status of Labor Unions A keyreason for an ongoing decline in U.S. unionmembership rates is the relative decline in manu-facturing jobs as a share of total employment. Inaddition, many workers are undocumented andforeign-born (i.e., illegal immigrants). Greaterdomestic and global competition has also had apart in bringing about a decline in unions.

• MyEconLab Study Plan 29.1

(continued )


PROBLEMSAll problems are assignable in . Answers tothe odd-numbered problems appear at the back of the book.

29-1. Discuss three aspects of collective bargaining thatsociety might deem desirable.

29-2. Give three reasons why a government might seekto limit the power of a union.

29-3. Recently, the Writers Guild of America (WGA),which represents TV and film screenwriters, calledfor a strike, and most screenwriters stopped working.Nevertheless, writers for certain TV soap operas,such as The Young and Restless—which have hadshrinking audiences for years, draw small numbers ofviewers for repeat shows, and rarely sell on Blu-raydiscs—opted to drop their WGA memberships andtried to continue working during the strike. Why doyou suppose that the WGA posted on its Web site aphone number for union members to report “strike-breaking activities and ‘scab writing’” to the union’s12-person Strike Rules Compliance Committee?What effect do strikebreakers have on the collectivebargaining power of a union?

29-4. Suppose that the objective of a union is to maximizethe total dues paid to the union by its membership.Explain the union’s strategy, in terms of the wagelevel and employment level, under the followingtwo scenarios.

a. Union dues are a percentage of total earnings ofthe union membership.

b. Union dues are paid as a flat amount per unionmember employed.

29-5. Explain why, in economic terms, the total income of union membership is maximized when mar-ginal revenue is zero. (Hint: How much morerevenue is forthcoming when marginal revenue isequal to zero?)

29-6. Explain the impact of each of the following eventson the market for union labor.a. Union-produced TV and radio commercials

convince consumers to buy domestically manu-factured clothing instead of imported clothing.

b. The union sponsors periodic training programsthat instruct union laborers about the most effi-cient use of machinery and tools.

29-7. Why are unions in industries in which inputs suchas machines are poor substitutes for labor morelikely to be able to bargain for wages higher thanmarket levels?

29-8. How is it possible for the average annual earningsof nonunionized workers to exceed those of union-ized workers even though unionized workers’hourly wages are more than $2 higher?

Comparing a Monopsonist’s Wage andEmployment Decisions with Choices by Firmsin Industries with Other Market StructuresFirms that hire workers in perfectly competitive labormarkets take the wage rate as market determined. Aproduct market monopolist tends to employ fewerworkers than would be employed if the monopolist’sindustry were perfectly competitive, but the productmarket monopolist nonetheless cannot affect themarket wage rate. In contrast, a monopsonist is theonly employer of labor, so it searches for the wage ratethat maximizes its profit. This wage rate is less thanthe marginal revenue product of labor. If a firm isboth a product market monopolist and a labor marketmonopsonist, its demand for labor is also lower thanit would be if the firm’s product market were compet-itive, so the firm hires fewer workers as well.

MyEconLab continued


• MyEconLab Study Plan 29.4• Animated Figure 29-8

KEY FIGUREFigure 29-8, 656

Log in to MyEconLab, take a chapter test, and get a personalized Study Plan that tells you which concepts you understand and which ones youneed to review. From there, MyEconLab will give you further practice, tutorials, animations, videos, and guided solutions.

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Labor Total Physical Hourly WageSupplied Product Rate ($)

10 100 511 109 612 116 713 121 814 124 915 125 10

The firm finds that the price of its productchanges with the rate of output. In addition, thewage it pays its workers varies with the amount oflabor it employs. This firm maximizes profits.How many units of labor will it hire? What wagewill it pay?

Labor Total Physical Hourly Wage Product Supplied Product Rate ($) Price ($)

10 100 5 3.1111 109 6 3.0012 116 7 2.9513 121 8 2.9214 124 9 2.9015 125 10 2.89

29-9. In the short run, a tool manufacturer has a fixedamount of capital. Labor is a variable input. Thecost and output structure that the firm faces isdepicted in the following table:

Derive the firm’s total wage costs and marginalfactor cost at each level of labor supplied.

29-10. Suppose that for the firm in Problem 29-9, thegoods market is perfectly competitive. The marketprice of the product the firm produces is $4 at eachquantity supplied by the firm. What is the amountof labor that this profit-maximizing firm will hire,and what wage rate will it pay?

29-11. The price and wage structure that a firm faces isdepicted in the following table.

Wag

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1,000 1,600

MFC

MRP

S

10

0

13

20

28

29-12. What is the amount of monopsonistic exploitationthat takes place at the firm examined in Problem29-11?

29-13. A profit-maximizing clothing producer in aremote area is the only employer of people inthat area. It sells its clothing in a perfectly com-petitive market. The firm pays each worker thesame weekly wage rate. The last worker hiredraised the firm’s total weekly wage expenses from$105,600 to $106,480. What is the marginal rev-enue product of the last worker hired by this firmif it is maximizing profits?

29-14. A single firm is the only employer in a labor mar-ket. The marginal revenue product, labor supply,and marginal factor cost curves that it faces aredisplayed in the diagram below. Use this informa-tion to answer the following questions.a. How many units of labor will this firm employ

in order to maximize its economic profits?b. What hourly wage rate will this firm pay its

workers?c. What is the total amount of wage payments that

this firm will make to its workers each hour?

Evaluating Union Goals As discussed in this chapter,unions can pursue any of a number of goals. The AFL-CIO’s home page provides links to the Web sites of severalunions, and reviewing these sites can help you determinethe objectives these unions have selected.

Title: American Federation of Labor–Congress ofIndustrial Organizations

Navigation: Go to www.econtoday.com/ch29 to visitthe AFL-CIO’s home page.

Application Perform the indicated operations, andanswer the following questions.1. Click on About Us, then click on Mission Statement.

Does the AFL-CIO claim to represent the interestsof all workers or just workers in specific firms

ECONOMICS ON THE NET


Unions and Labor Market Monopoly Power - TaiLieu.VN

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