Craft Unions
Craft Unions - Workers who share a common skill.
The American Federation of Labor (AFL) is a collection of craft
unions. Craft unions were locally rooted, concerned mainly with
the improvement of union members position, even if this meant
that workers outside the union did not benefit.
Craft unions increase wages by limiting access to the unions and
to the required skills.
The result is a fixed supply of labor, which increases wages and
creates a deadweight loss.
Industrial Unions
Industrial Unions - Workers employed in a common industry
The Council of Industrial Organization (CIO) is a collection of
industrial unions. Industrial unions tend to be organized over a
wide geographic area. Furthermore, success is only achieved if
the union is inclusive. All workers must participate in the union
for the union to bargain successfully.
Industrial unions, via strikes, negotiate for higher wages. The
higher wages result in a reduction in labor employed and a
deadweight loss.
Sport Unions
Sports unions are organized by workers engaged in a
common craft.
Sport unions also bargain with specific industries, like
industrial unions.
Sport unions, though, do not bargain for specific wages.
Rather, sport unions focus on the general climate under
which individuals bargain for specific wages.
Sports unions also tend to advocate free labor markets.
Owners of sports franchises, who generally are people
who advocate free markets, advocate salary scales.
Economic Impact of Unions
Negative Impact of Unions
– Unions create inefficiency (i.e. deadweight loss)
– Unions also limit employment and thus output.
– Unions push wages above free-market levels and contribute
to inflation and reduce the competitiveness of American
industry.
Positive Impact of Unions
– Studies fail to show a link between unions and productivity
levels or productivity growth.
– Unions serve as a countervailing force to the monopsony
power of employers.
The Threat Point
The work of John Nash
Consider bargaining between a monopoly union and a
monopsonistic employer.
Wages will be determined via the bargaining process.
Bargaining power is directly related to its ability to walk away
from the table. The value of opportunities that each side has
outside the current contractual agreement as the bargainer’s
threat point. The higher the threat point for either side, the
greater its bargaining power, the more favorable a solution the
side can achieve.
Employer’s Threat Point rises the more readily it can access an
alternative source of labor.
The Union’s Threat Point rises when it is able to find other jobs
elsewhere or it has sufficient financial resources.
The Contract Zone
The Contract Zone: The range of
salaries that are acceptable to both sides.
If the union is relatively powerful,
contract zone is located towards the
union position.
The opposite is true if the employer is
relatively more powerful.
Strike Costs
According to The Wages of Wins, unions in
professional sports were 25 times more likely to
experience a work stoppage from 1981 to 2004 as
other unions.
Costs of a Strike
– Employers: Lose sales and revenue
– Workers: Lose wages and benefits
Are there long-term costs associated with strikes?
Schmidt, Martin B. and David J. Berri. 2004. “The
Impact of Labor Strikes on Consumer Demand: An
Application to Professional Sports.” American
Economic Review, forthcoming in March.
Strikes vs. Lockouts
Lock-out: Management refusing to allow
workers to work.
In sports, strikes will occur towards the
end of a season. Players have earned
most of their salaries while teams have
yet to earn most of their revenues.
Lockouts will occur towards the
beginning of the season.
Baseball’s Anti-Trust Immunity
The Federal League was a rival league that sued major league
baseball on anti-trust grounds in 1915. The case was settled out
of court, with one exception.
Baltimore won its case in court, but the decision was over turned
in appeals on the grounds that Major League Baseball was not
interstate commerce. The Supreme Court agreed with this
position.
Although the court later recanted, the anti-trust immunity
remained in force until this July 30, 1999, where it was revoked
for labor relations.
Why did the courts not reverse their earlier decision? In essence
the court argued that this was a matter for Congress to
determine, not the courts.