Labor Economics the Economic Impact of Unions Research Paper

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Labor Economics

The Economic Impact of Unions

The Union Wage Advantage

Since union workers have the capability to generate strikes, they have the ability to incur additional costs and financial losses to the employer. Therefore, in his desire to avoid such a situation, the employer will be more willing to negotiate higher salaries with union members. Empirical studies reveal a current 17% advantage of union workers - it is following a descendent trend since 1995 and registering an average value of 21% throughout 1983-2006. The advantage includes not only the wages, but also the fringe benefits, which are more numerous and diverse for union workers.

However a first look, the situation of unions may present itself in such a simplistic formulation, a closer analysis will reveal complications posed by the imperfect character of the labor market or the competition in the industry. These may result in effects such as spillover, threat, wait unemployment, product market or superior worker.

Efficiency and Productivity

In terms of economic efficiency, unions may pose negative impacts through three courses of actions: they may impose restrictive regulations which limit the amount of work and employee efforts; they can slow down production through strikes and through the demand of increased wages, they may generate an inefficient allocation of the organization's financial resources. A wage advantage of 15% would be expected to generate a productivity loss of 0.14%.

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The model used to explain the three forces has been a rather simplistic one, but there are also other features which could determine the impact unions have on corporate efficiency. They could refer to unemployment rates, the costs of replacing the human resource, a bilateral monopoly on the part of employer and union, or the investment behavior and the growth in productivity.

Despite the evidence of negative impacts, other economists emphasize on the positive effects unions have upon productivity and efficiency. They base their statements on the support received from technological innovations, the collective voice of the workers, training or increase in managerial performance.

Research Paper on Labor Economics the Economic Impact of Unions Assignment

Firm Profitability

This subchapter tries to answer the impending question on whether unions increase or decrease corporate profitability. The empirical studies seem to agree that unions reduce organizational profits. The extent of the phenomenon varies based on company features, but the trend is similar in all economic entities. One study conducted on 139 units indicated that the existence of unions reduced profits by 20, up to 23%.

Otherwise put, the existence of unions ensures a redistribution of finances from profits to employees' wages. This could materialize in no actual effects, or in reduced economic growth of the respective organization.

Distribution of Earnings

The opinions in the matter on unions and wage inequality vary significantly. A first relevant standpoint is that, through the spillover effect, unions increase the wages of the unionized employees, while decreasing the salaries of the employees outside the union. Then, they increase the salaries of skilled blue-collar positions relative to unskilled blue-collar positions. Finally, unions generate an increased demand for skilled workers within unionized organizations.

Another standpoint sees that unions strive to achieve equality in wage distribution across industries and organizations. Within firms, they stimulate employers to offer similar salaries, differentiated only by real criteria. Then, they stimulate firm managers to offer similar wages across organizations and finally, they attempt to reduce the differential between white-collar and blue-collar workers.

Chapter 12: Government and the Labor Market: Employment, Expenditures and Taxation

Public Sector Employment and Wages

The federal institution is the sole organization hiring workers in all fields, from military to day care attendants. The employment of such individuals satisfies the needs of the population, but implies economic costs that must be absorbed. Throughout the past recent decades, the numbers of individuals working for the governments has increased, also due to the overall economic development. It can also be observed that the number of federal employees has increased at a lower rate than the number of state and local employees. The growth registered in the public sector has been achieved with more equilibrium than that in the private sector.

Throughout 1950-2006, the wages of the workers in the federal, state and local institutions has increased alongside with the wage of the private employees. Employees in the public sector used to benefit from a considerable benefit relative to the workers in the private sector, but this has been significantly reduced throughout the past recent decades.

The Military Sector: The Draft vs. The Voluntary Army

Prior to 1973, the U.S. military was formed from draftees, or people recruited to join the army. Their salaries were lower than they could make if they worked as civilians in an organization. After 1973, the military men began to be recruited based on employment offers, benefits and competitive wages. Salaries in the military vary, but their increased values can be explained through the additional risks and unpleasant features of the job.

Relative to the volunteers to the army, the opinions differ and a relevant one is that according to which these individuals come from poor neighborhoods and are simply attracted by the wage. This means that their motivation is wrong, their commitment and patriotism are reduced and the costs they generate are high. A conflicting opinion states that these individuals are motivated by personal goals, and since the military has the ability to satisfy these goals, they will work harder to gain a respectable status.

Nonpayroll Spending by Government: Impact on Labor

The government plays a major role within the labor market and this role is given by the large numbers of individuals it employs, but also by its non-payroll spending. These non-payroll spending can be organized into two categories: purchases of products and services manufactured and/or delivered by the private sector, and secondly, the transfer of payments and subsidies. Each action plays a different role and generates different effects upon employment levels and wage rates across labor market.

Labor Market Effects of Publicly Provided Goods and Services

The question addressed by this subchapter refers to the potential effect that publicly provided goods and services may generate upon the demand and supply of labor, independently of the employment estimated to providing these goods and services.

In terms of demand for labor, it can be said that the potential effects and multiple and given by the complexity of the product or service to be offered. To better understand, say the government is building a dam on a river. They will generate demand for workers in construction, architecture, electricity, flood control or irrigation.

In terms of supply, the creation of a facility which offers additional leisure opportunities may easily result in a reduced labor supply. This can be explained through the income-leisure model, which states that while an individual has more utility from leisure, he will tend to prefer these activities in detriment of those which generate income.

Income Taxation and the Labor Market

Aside from hiring individuals to work in the public sector and budgeting spending for the private sector, federal institutions also impact the labor market by the taxation policies they implement. The most relevant example in this sense is the income tax. The impact this tax generates upon the labor market depends directly on the elasticity of the labor supply. This basically materializes in that an inelastic supply will mean that workers do not change their working patterns and behavior when a change occurs in taxation. On the other hand, in the case of an elastic supply, workers will modify their working times indirectly with the taxation. Otherwise put, if the taxation increases and the wage decreases, employees will tend to work less. Vice versa, if the tax decreases and the income increases, the employees will tend to work more.

Chapter 13: Government and the Labor Market: Legislation and Regulation

Labor Law

Aside from the already presented ways in which the government can impact the labor market, there is also the mentioning of laws - the governmental regulations which regulate the time of work, the conditions, the health and safety measures to be taken, the equal treatment and opportunities of all staff members and so on. There are four primary laws which regulate the labor market. They are as follows:

The Norris-LaGuardia Act of 1932

The Wagner Act of 1935 (National Labor Relations Act - NLRA)

The Taft-Hartley Act of 1947 (Amendment to the NLRA of 1935), and the Landrum-Griffin Act of 1959 (Amendment to the NLRA of 1935)

It has historically been observed that modification in the labor legislation has led to changes in workers' joining unions. Laws also have the ability to influence the bargaining power of union leaders, allowing them to ask to better working conditions or higher wages. There are also those situations in which laws reduce the bargaining power of unions and strengthen that of organizational leaders.

Minimum Wage Law

The establishment of a minimum wage is yet another means by which the governmental institutions can impact the labor force market. This is generally achieved through modification brought to the Fair Labor Standards Act.… [END OF PREVIEW] . . . READ MORE

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