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From the firm’s point of view, the key question is whether the higher wage of union workers is matched by higher productivity. If so, then the firm can afford to pay the higher union wages and, indeed, the demand curve for “unionized” labor could actually shift to the right. This could reduce the job losses as the equilibrium employment level shifts to the right and the difference between the equilibrium and the union wages will have been reduced. If worker unionization does not increase productivity, then the higher union wage will cause lower profits or losses for the firm.

Union workers might have higher productivity than nonunion workers for a number of reasons. First, higher wages may elicit higher productivity. Second, union workers tend to stay longer at a given job, a trend that reduces the employer’s costs for training and hiring and results in workers with more years of experience. Many unions also offer job training and apprenticeship programs.

In addition, firms that are confronted with union demands for higher wages may choose production methods that involve more physical capital and less labor, resulting in increased labor productivity. [link] provides an example. Assume that a firm can produce a home exercise cycle with three different combinations of labor and manufacturing equipment. Say that labor is paid $16 an hour (including benefits) and the machines for manufacturing cost $200 each. Under these circumstances, the total cost of producing a home exercise cycle will be lowest if the firm adopts the plan of 50 hours of labor and one machine, as the table shows. Now, suppose that a union negotiates a wage of $20 an hour including benefits. In this case, it makes no difference to the firm whether it uses more hours of labor and fewer machines or less labor and more machines, though it might prefer to use more machines and to hire fewer union workers. (After all, machines never threaten to strike—but they do not buy the final product or service either.) In the final column of the table, the wage has risen to $24 an hour. In this case, the firm clearly has an incentive for using the plan that involves paying for fewer hours of labor and using three machines. If management responds to union demands for higher wages by investing more in machinery, then union workers can be more productive because they are working with more or better physical capital equipment than the typical nonunion worker. However, the firm will need to hire fewer workers.

Three production choices to manufacture a home exercise cycle
Hours of Labor Number of Machines Cost of Labor + Cost of Machine $16/hour Cost of Labor + Cost of Machine $20/hour Cost of Labor + Cost of Machine $24/hr
30 3 $480 + $600 = $1,080 $600 + $600 = $1,200 $720 + $600 = $1,320
40 2 $640 + $400 = $1,040 $800 + $400 = $1,200 $960 + $400 = $1,360
50 1 $800 + $200 = $1,000 $1,000 + $200 = $1,200 $1,200 + $200 = $1,400

In some cases, unions have discouraged the use of labor-saving physical capital equipment—out of the reasonable fear that new machinery will reduce the number of union jobs. For example, in 2002, the union representing longshoremen who unload ships and the firms that operate shipping companies and port facilities staged a work stoppage that shut down the ports on the western coast of the United States. Two key issues in the dispute were the desire of the shipping companies and port operators to use handheld scanners for record-keeping and computer-operated cabs for loading and unloading ships—changes which the union opposed, along with overtime pay. President Obama threatened to use the Labor Management Relations Act of 1947—commonly known as the Taft-Hartley Act —where a court can impose an 80-day “cooling-off period” in order to allow time for negotiations to proceed without the threat of a work stoppage. Federal mediators were called in, and the two sides agreed to a deal in February 2015. The ultimate agreement allowed the new technologies, but also kept wages, health, and pension benefits high for workers. In the past, presidential use of the Taft-Hartley Act sometimes has made labor negotiations more bitter and argumentative but, in this case, it seems to have smoothed the road to an agreement.

Questions & Answers

what is macro economics
In the short-run, the monopoly makes?
Felix Reply
A demand which gives rise to the reverse of the law of demand is?
Price  (₦)Quantity Demanded 8  610  12 If we move from 8 to 6, the elasticity of demand is
does inventories accumulation included in GDP?
kelly Reply
Selling goods and services below or above the equilibrium price.
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I will be there at the same time .....
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David Reply
the law of demand to price of goods if price is $13 and quantity $60, price $20 and y variable how calculate
Jackie Reply
what is diminishing marginal utility
Harish Reply
what is indifference curve
when the rate of utility goes on diminishing with every success ful unit is know as diminishing marginal utlity
what's economic growth
Rukundo Reply
what is economic growth
what is growth
growth is a sort form of development growth means development of only one specil part
one special part
what is wants
Daudu Reply
want is a specil desire whereas have you available resources for satisfying desire of products
what is scarcity
Syanda Reply
scarcity means wants
scarcity is the situation whereby there are limited means in a world of unlimited ends.
what is end?
what is microeconomics
Isaac Reply
it study of only individual units like-a consumer,a firm,an industry and income of an individual.......
what is Economics Bacis
it saves time : division of labor saves time Because when two or more people forcus on a particular operation it will be quick and easy
Helen Reply
what is the function of principal
Aminu Reply
Opportunity cost is simply a forgone alternative. In other words, what deliberately or unintentionally ignored in other to concentrate on some thing else which cloud be a close alternative.
lawal Reply
What is the opportunity cost of producing 1:1301 television sets 2:100 television sets 3:300 radio tape 4:550 radio tape 5: Draw the production possibility cure.
Aslam Reply
opportunity cost simply mean a forgone alternative
opportunity cost is simply the sacrifice made for the next most desired alternative
opportunity cost is sacrifice made at expense of another want

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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