Labor Markets and Labor Unions

1
Labor Markets and Labor Unions
2
Labor Definitions

• Three Types of Time
• Market Work- time sold as labor in return for a
  money wage
• Non-market Work- time spent producing goods and
  services in the home or in acquiring education
• Leisure- Time spent on non-work activities
• People act to maximize their utility

3
Implications

• Higher your market wage, higher opportunity cost
  of leisure and non market work
• Individuals will spend time in non-market work if
  they can produce goods cheaper than the market
  can
• Higher expected earnings out of high school, the
  higher the opportunity cost of college

4
Wage Effects

• When the wage increases, workers substitute
  market work for other activities (substitution
  effects)
• Income effects higher wage rate increases
  workers real income, increasing demand for normal
  goods, including leisure, resulting in a decrease
  in quantity of labor supplied

5
Exhibit 1 Individual Labor Supply Curve for
Market Work
6
Non-Wage Determinants of Labor Supply

• Other sources of income affect need for
  additional earnings
• Non-monetary factors- degree of difficulty in
  getting a job, working conditions, etc.
• Value of Job Experience
• Differing Tastes for Work

7
Exhibit 3 Average Annual Earnings of Americans
Based on Age and Highest Degree Earned
Source U.S. Bureau of the Census, Statistical
Abstracts of the United States 1997 (117th
edition), Washington, D.C., Table 246. Earnings
are for 1996.
8
Why wages differ?

• Differences in Training, Education, Age and
  Experience
• Differences in ability
• Differences in productivity

9
Effects of Unions on Labor

• Two Union Strategies
• Reduce Labor S

10
Exhibit 4a Effect of a Unions Wage Floor
(Industry)
11
Exhibit 5a Effect of Reducing Supply or
Increasing Labor Demand (Reducing Labor Supply)
12
Exhibit 5b Effect of Reducing Supply or
Increasing Labor Demand (Increasing Labor Demand)
13
Exhibit 6 Union Membership as Percent of Wage
and Salary Workers by Age and Gender for 1997
Source Based on data from U.S. Dept. of Labor,
Employment and Earnings, (January 1998), Table 40.