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Lecture Labour market economics: Chapter 16 - Dwayne Benjamin, Morley Gunderson, Craig Riddell

Chapter 16 - Union impact on wage and nonwage outcomes. This chapter includes contents: Impact unions have on wages, effect on nonunion wages, increase or decrease level of income inequality, economic inefficiency, effects on labour productivity, effect on profits of firm. | Chapter Sixteen Union Impact on Wage and Nonwage Outcomes Created by: Erica Morrill, M.Ed Fanshawe College Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Impact unions have on wages Effect on nonunion wages Increase or decrease level of income inequality Economic inefficiency Effects on labour productivity Effect on profits of firm Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Union Wage Impact Two sector model higher wages associated with unionization workers move to the unorganized sector depressing wages the magnitude of the union-nonunion wage differential depends on: elasticity of labour demand in each sector the ability of union to raise wages the elasticity of labour supply Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Figure 16.1 a Two-Sector Model of General Equilibrium W E W E Sector A Sector B DA DB SA SB W0 EA1 Wu EA0 a b EB0 S’B WN EB1 a W0 Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Figure 16.1 b Union Wage Impact with a Threat Effect W E Sector B | Chapter Sixteen Union Impact on Wage and Nonwage Outcomes Created by: Erica Morrill, M.Ed Fanshawe College Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Impact unions have on wages Effect on nonunion wages Increase or decrease level of income inequality Economic inefficiency Effects on labour productivity Effect on profits of firm Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Union Wage Impact Two sector model higher wages associated with unionization workers move to the unorganized sector depressing wages the magnitude of the union-nonunion wage differential depends on: elasticity of labour demand in each sector the ability of union to raise wages the elasticity of labour supply Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Figure 16.1 a Two-Sector Model of General Equilibrium W E W E Sector A Sector B DA DB SA SB W0 EA1 Wu EA0 a b EB0 S’B WN EB1 a W0 Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Figure 16.1 b Union Wage Impact with a Threat Effect W E Sector B (Threatened nonunion) SB EB0 S’B a W0 DB W E Sector C (Unthreatened nonunion) SC EC0 S’C a W0 DB b WCN EC1 S’’C b WBN EB1 Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Figure 16.1 c Union Wage Impact With a Vertical Contract Curve W E W E Sector A (Union) Sector B (Nonunion) DA DB SA SB W0 Wu EA0 EB1 WN=W0 C d Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Figure 16.1 d Union Wage Impact with a Wait Unemployment W E Sector A (Union) S’A EA0 SA c W0 DB W E Sector B(Nonunion) SB EB0 S’’B b W0 DB c WN EB1 S’B Wu EA1 Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Contrary Perspective Nonunion firms raise wages to compete with the unionized firms Employers raise wages to reduce the threat of union Ignores the supply influx of workers who cannot get jobs in unionized sector enables employers to offer lower wages reduces the necessity to compete for labour Chapter 16- © 2002 McGraw-Hill Ryerson Ltd. Problems in Measuring the Union Wage Impact Control for skill differences labour .