Tuesday 721

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 9 The Real Economy in the Long Run
Chapter 28 of 36 Unemployment
Section 14 of 21
...
 
In this chapter we discuss four explanations for long-run unemployment
-1- frictional unemployment
-2- minimum wage laws
-3 - unions and collective bargaining
-4- efficiency wages
…
-3 - Unions and Collective Bargaining
A union is a workers association which as a group bargains with employers regarding wages, benefits, and working conditions.
Today, in 2007, only 12 percent of U.S. workers belong to unions.
(In 2025 it was 10 percent).
At the peak in the 1950s, about a third of the U.S. labor force was unionized.
...
In many European countries unions continue to play a larger role.
In Belgium, Norway, and Sweden more than half of workers belong to unions.
In France and Germany a majority of workers by law have wages set by collective bargaining effecting both union members and non-members.
...
For unionized workers wages are not determined by supply and demand equilibrium in competitive labor markets.
A union is a sort of cartel.
It is a group of sellers acting together with the goal of exerting their joint market power to increase price of labor.
...
Most workers in the U.S. economy are not union members and discuss their wages, benefits, and working conditions as individuals directly with their employers.
Collective bargaining is the process by which union members as a group and firms discuss and agree on employment terms.
When a union bargains with a firm it asks for higher wages, better benefits, and better working conditions than the firm would offer if there were no union.
...
If the union and the firm do not reach agreement the union can call a strike,
which is a cessation of work by union members.
Since a strike reduces or halts production a firm facing a strike threat is likely to agree to pay higher wages than it would in the absence of a union.
Economists who have studied the effects of unions find union workers typically earn 10 to 20 percent more than similar workers who are not unionized.
...
When a union raises the wage above the equilibrium level it increases the quantity of labor supplied and decreases the quantity of labor demanded.
This results in unemployment, the same effect of a minimum wage set above the equilibrium wage per Figure 4.
Workers who remain employed at the higher union wage are better off.
But those who were previously employed, now are unemployed, or are never employed are worse off .
...
Most economists believe the demand for labor is elastic, meaning the labor demand curve is somewhat horizontal.
This means the total union-set wages area A-B-Ld-0 is smaller than the total free market wages area We-E-Lg-0.
Also, higher union wages force product prices higher, with consumers paying for the over-equilibrium portions of union wages.
… …
labor union strike
rōdō kumiai no sutoraiki
労働組合のストライキ
… …
Considering Figure 4 - can it be logically argued an economy that did not have labor unions would have a larger and faster-growing GDP than an economy that did have labor unions? Why do companies mostly resist unions?
⦁ ChatGPT:
Yes, it can be argued an economy without unions might have higher employment, investment, output, and GDP growth if unions push wages above workers’ productivity, restrict hiring, resist new technology, or cause costly strikes. However, this is not certain, because unions can also raise productivity, reduce turnover, improve training and safety, and counter excessive employer power. The economic result therefore depends less on whether unions exist than on how they operate and whether their overall effects increase or reduce productivity.
Companies mostly resist unions because unions shift some control over wages, benefits, scheduling, discipline, layoffs, and workplace rules from management to collective bargaining. Employers often fear higher labor costs, less flexibility to reorganize work or dismiss employees, possible strikes, and the spread of unionization to other locations. Management may also prefer dealing with workers individually rather than negotiating with an organization that can challenge company decisions, although some firms develop cooperative relationships with unions.
⦁ Grok:
Yes, based on Figure 4 it can be logically argued an economy without labor unions would have larger and faster-growing GDP. This is because unions often push wages above the competitive equilibrium (like the minimum-wage line), reducing employment from LE  to LD, creating unemployment and a deadweight loss that lowers total output and resource efficiency relative to the free-market outcome at point E.
Companies mostly resist unions because unions raise labor costs through higher wages and benefits (as illustrated by the wage floor above equilibrium in Figure 4), restrict managerial flexibility with rigid work rules and seniority systems, increase the risk of strikes or slowdowns that disrupt operations, and reduce overall profitability and competitiveness by forcing the firm to employ fewer workers at a higher cost than the market-clearing level.