Principles of economics openstax chapter14 labor unions

LABOR MARKETS: UNIONS, DISCRIMINATION, AND IMMIGRATION DR RICHARD GEARHART ENTERPRISE COLLEGE 6/16/2016 LABOR SUPPLY AND DEMAND EQUILIBRIUM UNIONS  Unions are a collection of workers that negotiate wages, fringe benefits (health insurance, pension, …), and working conditions provided to them by the employee  This process is known as collective bargaining  The theory is that a group of workers has more power than each worker, individually, negotiating  Before unionization, workers have no bargaining power  They are such a small part of the market, they can only receive w* This is a perfectly competitive labor market  Assumes that each worker is replaceable by other workers (i.e., this is a job that doesn’t require significant education or skills)  With a union, the labor supply (LS) curve is upward sloping  Or, the more workers there are in the union, the more power they have, and the higher the wage that they can earn  There are two types of discrimination  Statistical discrimination: when you discriminate based on the population average  Before you hire a worker, you not know how productive they will be, or how good of a worker  You therefore base your expectations on observable features of that worker  While bad (this tends to prevent upward mobility by the “discriminated” groups), it is based on objective facts  How can I get an education, and raise the population average, if I cannot get the jobs that will pay for the college education?  Example 1: why are women paid less than men?  The probability of a male getting pregnant is strictly  The probability of a female getting pregnant may be 0, but could be positive  At older ages, women are more likely to be in ill health than males (more hospitalizations, more sick leaves, etc.)  Statistical discrimination would therefore say that, each year, the probability of a female missing work is higher than the probability of a male missing work Pay them less  Example 2: in terms of a college education, non-Hispanic whites are more likely to have a college education (29%) compared to both Hispanics (14%) and Blacks (17%)  Suppose that you hire a worker at age 18, and your benefits include a paid college education You would like this worker to achieve the college education by age 30  Based on statistical discrimination, you would be less likely to hire the Hispanic or Black individual, as they are less likely (ON AVERAGE) to achieve a college degree  Biased Discrimination: discrimination that occurs because a particular individual does not like some non-choice attribute of a worker  I will not hire a female because I not like women in the workforce  I will not hire a Methodist because those religious beliefs are antithetical to mine  THIS is the bad discrimination This is not based on any belief OTHER than dislike/hatred  Statistical discrimination is, at the very least, based on a set of objective facts  With both types of discrimination, workers in the disadvantaged group will be hired ONLY if they agree to be paid less  Does discrimination pay in a competitive labor market  Based on a seminal article by Gary Becker  The only way that a discriminatory firm will hire workers they discriminate against is if they pay the workers less  HOWEVER, it is unlikely that all firms discriminate against these workers They will therefore earn higher wages elsewhere, and will leave  Discriminatory firms therefore lose high productivity “minority” workers  BUT, they lose more than this “Minority” shoppers will not want to shop at this firm, so they also lose business revenues  A study of female lawyers found that 55% of the wage difference (between them and male lawyers) was due to the fact that women had worked less (childbirth, childcare, …)  Childless women earn no more than women with children  Thus, other 45% is largely biased discrimination  “Are Emily and Brendan More Employable Than Lakisha and Jamal? …”  Sent out IDENTICAL resumes to firms Only difference was the name  White-sounding names received call for every 10 resumes sent out Black-sounding names received call for every 15 resumes  White-sounding, high quality resumes, got more callbacks than white-sounding, low quality resumes  Black-sounding, high quality resumes got no more callbacks than black-sounding, low quality resumes  Found in EVERY industry (even for federal contractors and large employers)  We have both statistical discrimination and biased discrimination ECONOMIC IMPACTS OF IMMIGRATION  Immigration is the movement of peoples between countries (and where these peoples are not natives, nor they possess citizenship)  What are the economic impacts of immigration?  Immigrants tend to lead to lower wages for natives that they compete, in the labor market, against  Immigrants tend to lead to lower product prices for ALL natives  Suppose that low skilled immigration happens (i.e., immigrants not have a college education) They likely compete directly against low skill natives (natives without a college education) • The presence of immigration leads to more workers competing for jobs • • This lowers the wages paid to workers This COULD lead to lower wages for other native workers whose jobs are not being “replaced” by immigrants • Unlikely that this effect is large Can lower wage, low skill (no college education) workers replace high skill (college education) workers?  Suppose that these low skill workers (both natives and immigrants) produce clothes  Because of immigration, the cost of producing a piece of clothing falls as the wage falls What happens?  Immigrants are either high skilled or low skilled  Reduces the prices of low-skill products (agriculture, maid and janitorial services, telecommunications support, landscaping, …)  Relieves pressures on not enough high skill workers  Healthcare professionals (doctors, nurses)  STEM researchers  Information Technology (IT)  What does the evidence suggest?  Immigrants add (after taking into account native job losses, loss in tax revenue, increases in welfare payments) $7 Billion to $25 Billion in GDP per year  These benefits would increase by attracting more high skill immigrants (nearly $55 Billion)  Wage impacts of immigration on natives is small  Natives move to other cities  Immigrants tend to “cluster” in immigrant enclaves (large groupings of similar immigrant groups)  10% increase in # of immigrants leads to wages to fall by 3-4% 140,000 more immigrants each year would lower average incomes from $35,000 per year to $34,000 per year  Most of the impacts of lower wages from immigration are new immigrants replacing older (existing in the country) immigrants  Most of the native immigrant impact (i.e., lower wages) is felt by natives who have less than a high school diploma  High school educated, college educated, and more than college educated natives have a minimal impact of immigration  10% more immigrants in an area lead to prices of low-skill services (maids, nannies, landscapers, farmworkers) to decrease by 2%  2,000 more immigrant workers in Bakersfield would lead to a $20/year decrease in the price of landscaping services .. .LABOR SUPPLY AND DEMAND EQUILIBRIUM UNIONS  Unions are a collection of workers that negotiate wages, fringe benefits (health insurance,...  Because of immigration, the cost of producing a piece of clothing falls as the wage falls What happens?  Immigrants are either high skilled or low skilled  Reduces the prices of low-skill... say that, each year, the probability of a female missing work is higher than the probability of a male missing work Pay them less  Example 2: in terms of a college education, non-Hispanic whites