class: center, middle, inverse, title-slide # Unions ## EC 350: Labor Economics ### <a href="https://kyleraze.com">Kyle Raze</a> ### Winter 2022 --- # Unions ### **What are they?** Labor unions are **institutions** that bargain with employers over wages and working conditions. - Instead of having individual workers bargain with the employer, unions bargain with the employer **collectively** on behalf of those workers. -- ### **Why do they matter?** 1. Unions pose important consequences for economic **inequality** and **efficiency**. 2. Unions [may](https://www.vox.com/recode/22213494/google-union-alphabet-workers-tech-organizing-activism-labor) or [may not](https://www.nytimes.com/2021/04/09/technology/amazon-defeats-union.html) be making a comeback in the United States. --- # Unions ### **What's in a contract?** The result of negotiations between a union and an employer? A legally binding contract, known as a **collective bargaining agreement**. -- Collective bargaining agreements cover a lot of ground! - **Wages** (*e.g.,* minimum salaries, overtime pay, bonuses, performance pay, *etc.*) - **Fringe benefits** (*e.g.,* health insurance, pensions, paid vacation, sick days, parking, *etc.*) - **Workload** (*e.g.,* minimum and maximum hours, holidays, scheduling, *etc.*) - **Working conditions** (*e.g.,* break schedules, health and safety regulations, grievance procedures, *etc.*) - **Training** (*e.g.,* in-service, mandatory workplace safety meetings, *etc.*) - **Discipline** (*e.g.,* grounds for dismissal, performance standards, *etc.*) --- class: clear-slide .center[**Solidarity *forever*?**<br>.slate[Union density in the United States, 1973–2020]] <img src="18-Unions_files/figure-html/unnamed-chunk-1-1.svg" style="display: block; margin: auto;" /> .footnote[*Source:* Barry T. Hirsch and David A. Macpherson (2003), [Union Membership and Coverage Database from the Current Population Survey: Note](https://journals.sagepub.com/doi/10.1177/001979390305600208), *Industrial and Labor Relations Review*, updated annually at [unionstats.com](http://www.unionstats.com/).] --- # Unions and inequality **Union density and income inequality are negatively correlated.** - The rise of union membership during the 1930s coincided with a significant decrease in income inequality. - Conversely, the decline in union membership since the 1970s coincided with a significant increase in income inequality. -- **Q:** Does this correlation reflect a causal relationship or something else? -- **A:** While part of the raw correlation can be explained by other factors, it appears that unions do have a negative causal effect on income inequality..super[.hi-pink[<span>†</span>]] - **How?** Unions increase compensation for lower-skill workers and compress wages within firms. .footnote[.super[.hi-pink[<span>†</span>]] *Source:* Farber et al. (2021), [Unions and Inequality Over the Twentieth Century: New Evidence from Survey Data](https://www.nber.org/papers/w24587), *NBER Working Paper 24587*.] --- # Monopoly unions **Unions bargain on the behalf of all workers** within a "bargaining unit," regardless of whether those workers are union members. - The GTFF bargains on behalf of all GEs at the University of Oregon, even those who choose not to pay union dues..super[.hi-pink[<span>†</span>]] .footnote[.super[.hi-pink[<span>†</span>]] [*Janus v. AFSCME*](https://en.wikipedia.org/wiki/Janus_v._AFSCME) eliminated the ability of public employee unions to collect "fair share" dues from non-members.] -- The **exclusive** right to bargain within a workplace gives unions **monopoly power** over wages. - With unionization, workers are no longer "wage takers"—they now have the ability to influence market wages. -- **The union's objective?** > More. <br> — [Samuel Gompers](https://en.wikipedia.org/wiki/Samuel_Gompers), founder of the American Federation of Labor --- # Monopoly unions .pull-left[ <img src="18-Unions_files/figure-html/unnamed-chunk-2-1.svg" style="display: block; margin: auto;" /> ] .pull-right[ ## **Competitive employers** A union can leverage its market power over employers by setting a binding minimum wage. * Wages increase, but employers respond by decreasing employment or cutting hours. * Creates deadweight loss .mono[-->] inefficient. ] --- # Monopoly unions .pull-left[ <img src="18-Unions_files/figure-html/unnamed-chunk-3-1.svg" style="display: block; margin: auto;" /> ] .pull-right[ ## **Monopsonist employer** The union can bargain for a binding minimum wage that increases both wages and employment. - Possibly less inefficient than the unregulated monopsony equilibrium. ] --- # Bargaining **Richer models** of bargaining **predict** that unions and competitive employers will reach **agreement off the demand curve**, increasing both wages and employment beyond the unregulated market equilibrium. - Efficient in the sense that negotiations exhaust mutual benefits between the union and the employer. - Inefficient in the sense that collective bargaining agreements can **misallocate** workers within and across firms. - Having excess workers forces the employer and union to negotiate **featherbedding** practices. --- # Bargaining The **consequences** of collective bargaining **extend beyond wages and employment**—there are also meaningful consequences for effort and productivity. ### **Examples** - Teacher unionization increases school funding, but worsens student performance..super[.hi-pink[<span>1</span>]] - Teacher unionization can decrease students' earnings in the long run..super[.hi-pink[<span>2</span>]] - Police unionization can increase the frequency of violent misconduct among officers..super[.hi-pink[<span>3</span>]] .footnote[ .super[.hi-pink[<span>1</span>]] Caroline M. Hoxby (1996), [How Teachers' Unions Affect Education Production](https://www.jstor.org/stable/2946669), *The Quarterly Journal of Economics*. <br> .super[.hi-pink[<span>2</span>]] Michael F. Lovenheim and Alexander WillĂ©n (2019), [The Long-Run Effects of Teacher Collective Bargaining](https://www.aeaweb.org/articles?id=10.1257/pol.20170570), *American Economic Journal: Economic Policy*. <br> .super[.hi-pink[<span>3</span>]] Dharmapala et al. (2020), [Collective Bargaining Rights and Police Misconduct: Evidence from Florida](https://academic.oup.com/jleo/advance-article/doi/10.1093/jleo/ewaa025/6054285), *The Journal of Law, Economics, and Organization*. ] -- In each example, the increase in job security comes with a **social cost!** - Unions can decrease income inequality, but they can also increase other forms of inequality! --- # Which side are you on? ## **Discussion** **Q:** Should we embrace unionization efforts? - What tradeoffs should we consider? -- **The takeaway?** Unions can pose an equity-efficiency tradeoff, but the nature/existance of this tradeoff depends on the local context! - Possible for unions to increase equity and efficiency! (*e.g.,* in monopsonistic markets) - Also possible for unions to decrease equity and efficiency! --- # Housekeeping **Problem Set 4** is due by **Friday, March 11th at 11:59pm**. **Final Exam** is scheduled for **Tuesday, March 15th at 2:45pm** in MCK 229. - In-person, closed-note, closed book - Cumulative, but with more weight on post-midterm material - Extra office hours: - Saturday from 12 to 2pm on Zoom - Monday from 11am to 1:30pm in PLC 522 - Study materials (all on Canvas) - **Problem Sets** (keys available) - **Midterm** (key available) - **Midterm Practice Problems** (key available) - **Final Exam Review Guide**