Assume That a Labour Strike Ends and That the Labour

Essay

Assume that a labour strike ends and that the labour union is successful in negotiating a substantial raise in pay for its workers. Concerns are raised about the motivation of the union and the negative employment consequences of the expensive labour contract.
• Discuss the various possible objectives for the union. There are a number of alternative hypotheses concerning the variable that the union seeks to maximize.
• It is time for you to put on your anti-union hat. The opponents of labour unions typically cite the labour demand curve model to support their claim that the union is destroying jobs. You should present a graph.
• Now it is time for you to put on your pro-union hat. Supporters of unions cite the efficient contract model to support the proposition that unions do not destroy jobs when they bargain for higher wages. If anything, they create jobs. Your analysis should include a graph, and you should clearly distinguish the implications that flow from this model from those that flow from the preceding one (the labour demand curve model). If the wage increase does not arise at the expense of employment, then what variable does the wage increase impinge on?
• As is often the case in this textbook, we are confronted with a series of models which give conflicting predictions. We have to appeal to empirical research in order to answer the question of whether unions bargain solely for higher wages, solely for higher employment levels, or perhaps for some other objective. What does the limited empirical evidence obtained thus far indicate? There is
no need to go into the technical details.
• Assume that the labour demand model does apply after all, which places a constraint on the union's bargaining power. Does the union have any other course of action which could mitigate the disemployment effects associated with a negotiated wage increase? If so, explain.