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Markets for the Factors of Production



Labor Unions

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So now let's discuss what happens when workers form a union. So labor union, well, the whole point of a labor union is that the workers are joining together, they're organizing to try and get higher wages and better working conditions for the members of the union. Okay, So what they use is the tool of collective bargaining instead of each worker working by themselves to try and get a higher wage. What they do is they form a group and say, hey, we're not going to work unless you give us better conditions or higher wages, right? Something like that. So they're gonna negotiate together, they're gonna get this leverage by negotiating as an entire group of workers rather than individual workers. That's collective bargaining there, collectively bargaining for their, their negotiating together right there bargaining together. So the need for labor unions spawned, The reason there were labor unions in the first place was because there were abuses during the industrial revolution. There was generally abuses of the, of the laborers. There was very long hours, low pay, bad conditions, right? You hear all these stories of, you know, Children working in the mines, things like that. Uh, this led to special labor laws and the formation of labor unions to get better conditions for the workers. Okay, so let's see how a labor union affects labor equilibrium. So what we have here is the supply of labor will have supply one and demand for labor here. So remember it's the firms that are demanding labor and the laborers, the workers that are supplying the labor. Okay, so we have this equilibrium here, Maybe this was a really low wage, maybe, let's say this wage was just like $1 an hour, right? And they're just not making enough money to live. So the labor union, the labor the labor is unionized to try and fight for higher wages. So what does the labor union do? They're going to influence the labor supply, So they're gonna restrict the labor supply, they're gonna decrease the labor supply because you have to hire these unionized workers, or else you're gonna not have any workers at all if everyone joins the union, well, you have to hire the unionized workers, and they're gonna these unionized workers are only gonna work for the higher wages, the better conditions, right? But what are they gonna do there? By restricting the supply? They're gonna have to, let's say we restrict the supply like this. Um So it's decreasing the supply, right? The supply is moving to the left. Well, how are they going to do that first to join the union? What they're gonna have is like apprenticeship programs, right? If you want to join the auto workers union, you would have to go through the technical school to be certified as an auto worker or something like that, right? And they're going to influence the job qualification standards, they're gonna tell the they're gonna have the employers have higher standards to employ people. So if you didn't go through these technical schools, you wouldn't get the job, right? So they have more of a a reason to hire the unionized workers. So by decreasing this labor supply, what they're really doing is uh making it so the labor supply is these higher skilled workers, and that's going to influence the demand as well. So we're kind of having a two sided effect here. The union is going to decrease the supply, because now you have to hire the unionized labor and they're gonna gonna have an influence on demand as well. They're gonna have an increase on demand. And that's because the unionized workers are generally gonna be higher skilled workers. So what are they gonna do? They're gonna improve um the marginal production of labor. So, remember when we talked about marginal production of labor, that means that these workers are smarter, right? They've gone through educational programs, technical schools to be more productive. So since they're more productive, well, they're going to be able to produce more per dollar that they're paid in wages, right? With these training certification programs that they go through, um and they're going to influence the labor demand. The union influences the demand by purchasing these unionized labor instead of anyone else. And lastly, they're gonna support minimum wage laws. So this one's actually pretty interesting because if there's a minimum wage that needs to be paid well, um if this is causing the firms to have to pay a higher wage, well, they're gonna want to have to pay that higher wage for skilled labor, right? If they're gonna have to pay more money anyways, they'd rather hire a skilled worker. So that's going to increase the demand for labor uh for for yeah, the demand for labor here. So what's that gonna do to the graph? We're also gonna have an increase in demand and I'm gonna draw this one a little bit this smaller than the increase in supply, because generally, excuse me, the decrease in supply, because generally the union is gonna have a bigger effect on the supply than on the demand side. That's generally how it happens. So what what we're gonna see in most cases with with labor unions Is that we're gonna have this effect where they're gonna decrease the supply and increase the demand. And that's gonna effectively give us a new equilibrium where our new equilibrium is up here, right, let's say they've increased the wage to $5 an hour, but notice that equilibrium quantity has decreased here, so they've they've essentially lost some of the jobs. So this was the original equilibrium and this is the new equilibrium with the labor union, I'll put Q. With a. U. For the union. Okay, So there's a smaller quantity, but everyone's being paid more and they're highly more highly skilled workers. So what what's the conclusions we draw here is that in general these labor unions lead to a higher equilibrium wage, just like we discussed there fighting for higher wages. So if they're not doing that, then why have the union, right? They want to get higher wages and generally a lower equilibrium quantity. Okay, so less jobs, but with more money for the unionized workers. So, union membership, it used to be a bigger deal than it is now, actually. So, union membership in the United States in the United States has been on a general decline. So since the Industrial Revolution, and since the beginning of labor unions, it's actually been on the decline. Where if we look today, there's actually only about 10% of workers in the United States that are still in unions. But look in other countries, unions are still a big deal, even in Sweden, up to 70% of workers are still in labor unions. They're cool. So that's the big discussion on labor unions and it's kind of intuitive, right? When you think about a labor union, what do they fight for higher wages? Right. So that's the big takeaway here, Labor unions there, they generally increase wages through the reasons that we saw above. When we're going through the graph. Cool, Alright, let's go ahead and move on to the next topic.