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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 economics
reekado Reply
what is the meaning of term depreciation
Niyogushimwa
I don't know tell me pls
Manuel
decrease in the valaue of currency is called depreciation.
Asit
managing the scarce resources is called economics 😉
Asit
definition of economics according to different scholars
Onesmo Reply
Economics is a science that studies human behavior as a relationship between end and scarce means which have alternative uses:by Davern spot
Dora
am I correct?
Dora
Yeah you tried
Donkiss
reason why we study economics
Moruf Reply
what is economics
Tutu Reply
economics is defined as the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.
Semiat
what is a gross domestic product
Amogelang Reply
Explain what is a production possibility curve
Sharon Reply
A curve that indicates the various production possibilities of two commodities when resources are fixed...
Geoffrey
what is market?
Jasmin Reply
ware the Byers and seller's that please is called market
suresh
a place where buyers and sellers meet
Tariro
I don't like this market definition.
Jasmin
market is any arrangement whereby buyers and sellers are brought together for the purpose of transacting business. It could be a geographical location or any other means such as internet, mobile phone etc. as long as buyers and sellers are brought together for the purpose of exchange.
Agusimba
A market is a place where buyers and sellers buy and sell goods through bargaining.
Jasmin
yes ,you are correct Agusimba sir.
Jasmin
exception of the low of demond
Rohit Reply
short run AC curves?
Jasmin Reply
you mean shirt run cost curves?
REBECCA
A short-run cost curve shows the minimum cost impact of output changes for a specific plant size and in a given operating environment. Such curves reflect the optimal or least-cost input combination for producing output under fixed circumstances.
REBECCA
nooo am not from India why!?
Godwin Reply
Godwin which level of education are you please
Millionaires
millionaires am in SHS 2
Godwin
who was the father of economic ?why?
Mahesh Reply
Rationing and hoarding
Semiat Reply
how do the size of a country's population affect labour force
Evans Reply
a mixed economic system
Ngong Reply
What are the types of price elasticity of demand
Juliana Reply
what are massures to promote geographical mobility of labor?
Ngong
Is to make sure that a labourer to know more about his salary to earn before going to the direction
shehu
types of Price elasticity of demand are fairly elastic demand, fairly inelastic demand, unity demand, perfectly elastic demand and perfectly inelastic demand.
Semiat

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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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