Principles of economics openstax chapter15

LABOR MARKETS: UNIONS, DISCRIMINATION, AND IMMIGRATION DR RICHARD GEARHART ENTERPRISE COLLEGE 6/16/2016 LABOR SUPPLY AND DEMAND EQUILIBRIUM MINIMUM WAGE MINIMUM WAGE  The neoclassical minimum wage leads to a SURPLUS of workers who want to work at the new, higher, wage This leads to MORE unemployment  Some individuals “get off of the couch” now that the wage is higher  Some individuals leave their jobs to acquire this new, higher paid, job  The shortage is shown by the difference between qD and qS  However, most estimates have found that the minimum wage does little to reduce employment (or increase unemployment)  Most of the increase in unemployment is found in teen workers (those who typically work only part time and will leave at the end of a given time frame, i.e., summer)  However, these have typically been for smaller increases in the minimum wage than the new increases found in California  Efficiency wages; firms may not reduce employment from the minimum wage because workers may actually increase effort from working (fear of losing job and higher pay, less shirking, …)  How, then, does the minimum wage affect the economy?  Firms pass the cost increase on to the consumer in the form of higher prices  Firms eat the cost increases and see reduced prices  Firms don’t reduce employment, but change the composition of employment (more older workers, fewer “transitory” workers, such as high schoolers or college-aged individuals)  Firms reduce non-wage benefits (health insurance, retirement, reduced price meals, gym memberships, etc.)  Firms start investing more in technological innovation that will lead to long-term unemployment (where it will be hard to see the link between the minimum wage and employment numbers) LABOR MARKET DISCRIMINATION  Labor market discrimination is when different workers are paid differently, but not based on education, skills, training, or length of experience on the job  In other words, discrimination occurs when people are NOT paid based on workrelated factors  Discrimination occurs when some trait, that is largely not a choice by the individual, leads to lower pay (gender, race, sexual orientation, religion, …)  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 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  For unions, higher wages lead to higher productivity (more produced by each worker)?  There are some reasons why this may be the case:  Workers shirk less with higher wages (less time spent on FaceBook, on Reddit, …) For fear of losing this job and going to a lower paying job  Less employee turnover (fewer workers leave the job for other jobs) Reduces training costs (how to use the computer system, …) for the employer More experience at the job typically leads to higher productivity  With fewer employees, firms higher more capital (machines and technology) to pair with the workers Capital is highly productive, which makes the workers paired with the capital highly productive  Why has union membership, in the United States, declined over time?  Increase in information Because of salary websites like Glassdoor.com, perhaps individual employees are better able to negotiate what they think a fair wage is  Move away from manufacturing towards service Manufacturing and resource extraction are dangerous, time consuming, unhealthy jobs Service sector jobs (fast food, retail) are not, so the need for employee protection is less  Politicians enacting laws (minimum wage laws, OSHA laws, overtime laws) have decreased the need for these protections  So, why is there such a large difference in union density between the U.S and Europe?  How unions are formed  In many other European countries, if workers want to unionize, they simply need to reach a threshold to unionize (i.e., they need 60% of workers to agree to be unionized, and they will have formed a union)  In the United States, if workers want to form a union, there is an election Workers lobby to vote “yes” for the union, while the firm lobbies to vote “no” This may exert pressure  How effective are modern day unions?  The union wage premium (how much more you earn because you join a union) is 5-8%  Go from earning $100 a week to $108 a week  Unions compress the earnings distribution  Less wage differences between different workers (i.e., the wage difference between a CEO and a fry cook)  Newer unions in the US have had no impact on employment, output, worker productivity, or wages  Much of the union wage premium is from unionized public sector workers ...  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... 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?