Labor Unions and Collective Bargaining: Study with Video Lessons, Practice Problems & Examples

Labor unions are formed when workers organize to negotiate for higher wages and better working conditions through collective bargaining. This process allows workers to leverage their collective power, often resulting in a higher equilibrium wage but potentially fewer jobs. Unions influence labor supply by requiring higher skill levels and can increase demand for labor due to improved productivity. While union membership has declined in the U.S., it remains significant in other countries, highlighting the ongoing importance of unions in advocating for workers' rights and economic stability.

Labor Unions and Collective Bargaining

So now let's discuss what happens when workers form a union. A labor union, well, the whole point of a labor union is that the workers are joining together. They're organizing to try and get higher wages and better working conditions for the members of the union. Okay. So what they use is the tool of collective bargaining. Instead of each worker working by themselves to try and get a higher wage, what they do is they form a group and say, hey. We're not going to work unless you give us better conditions or higher wages. Right? Something like that. So they're going to negotiate together. They're going to get this leverage by negotiating as an entire group of workers rather than individual workers. That's collective bargaining. They're collectively bargaining for they're negotiating together, right? They're bargaining together. So the need for labor unions spawned. The reason there were labor unions in the first place was because there were abuses during the industrial revolution. There were generally abuses of the laborers. There were very long hours, low pay, bad conditions, right? You hear all these stories of, you know, children working in the mines, things like that. This led to special labor laws and the formation of labor unions to get better conditions for the workers. Okay. So let's see how a labor union affects labor equilibrium. So what we have here is the supply of labor, we'll have supply 1 and demand for labor here. So remember, it's the firms that are demanding labor and the laborers, the workers that are supplying the labor. Okay? So we have this equilibrium here and maybe this was a really low wage. Maybe let's say this wage was just like $1 an hour, right? And they're just not making enough money to live, so the labor union, the labor the labor is unionized to try and fight for higher wages. So what does the labor union do? They're going to influence the labor supply. So they're going to restrict the labor supply. They're going to decrease the labor supply because you have to hire these union and they're going to these unionized workers are and they're going to these unionized workers are only going to work for the higher wages, the better conditions, right? But what are they going to do? They're by restricting the supply, they're going to have to let's say we restrict the supply like this. So it's decreasing the supply. Right? The supply is moving to the left. Well, how are they going to do that? First, to join the union, what they're going to have is like apprenticeship programs, right? If you want to join the auto workers union, you would have to go through the technical school to be certified as an auto worker or something like that. Right? And they're going to influence the job qualification standards. They're going to tell the they're going to have the employers have higher standards to employ people. So if you didn't go through these technical schools, you wouldn't get the job, right? So they have more of a reason to hire the unionized workers. So by decreasing this labor supply, what they're really doing is making it so the labor supply is these higher skilled workers and that's going to influence the demand as well. So we're kind of having a two sided effect here. The union is going to decrease the supply because now you have to hire the unionized labor and they're going to gonna have an influence on demand as well. They're going to have an increase on demand and that's because the unionized workers are generally going to be higher skilled workers. What are they going to do? They're going to improve, the marginal production of labor. So remember when we talked about marginal production of labor? That means that these workers are smarter. Right? They've gone through educational programs, technical schools to be more productive. So since they're more productive, well, they're going to be able to produce more per dollar that they're paid in wages, right? With these training certification programs that they go through, and they're going to influence the labor demand. The union influences the demand by purchasing these unionized labor instead of anyone else and lastly, they're going to support minimum wage laws. So this one's actually pretty interesting because if there's a minimum wage that needs to be paid, well, if this is causing the firms to have to pay a higher wage, well, they're going to want to have to pay that higher wage for skilled labor, right? If they're going to have to pay more money anyways, they'd rather hire a skilled worker. So that's going to increase the demand for labor, for for yeah. The demand for labor here. So what's that going to do to the graph? We're also going to have an increase in demand and I'm going to draw this one a little bit this smaller than the increase in supply because generally, or excuse me, the decrease in supply because generally, the union is going to have a bigger effect on the supply than on the demand side. That's generally how it happens. So what what we're going to see in most cases with, labor unions is that we're going to have this effect where they're going to decrease the supply and increase the demand, and that's going to effectively give us a new equilibrium where our new equilibrium is up here. Right? Let's say they've increased the wage to $5 an hour, but notice the equilibrium quantity has decreased here. So they've they've essentially lost some of the jobs. So this was the original equilibrium, and this is the new equilibrium with the labor union. I'll put q with a u for the union. Okay. So there's a smaller quantity, but everyone's being paid more and they're highly more highly skilled workers. So what what's the conclusions we draw here? Is that in general, these labor unions lead to a higher equilibrium wage just like we discussed. They're fighting for higher wages. So if they're not doing that, then why have the union? Right? They want to get higher wages and generally a lower equilibrium quantity. Okay? So less jobs but with more money, for the unionized workers. So union membership, it used to be a bigger deal than it is now actually. So union membership in the United States in the United States has been on a general decline. So since the Industrial Revolution and since the beginning of labor unions, it's actually been on a decline where if we look today, there's actually only about 10% of workers in the United States that are still in unions. But look in other countries, unions are still a big deal. Even in Sweden, up to 70% of workers are still in labor unions there. Unions there. Cool? So that's the big discussion on labor unions and it's kind of intuitive, right? When you think about a labor union, what do they fight for? Higher wages, right? So that's the big take away here. Labor unions, they generally increase wages through the reasons that we saw above when we were going through the graph. Cool? Alright. Let's go ahead and move on to the next topic.

Here’s what students ask on this topic:

What is the role of collective bargaining in labor unions?

Collective bargaining is a key tool used by labor unions to negotiate for higher wages and better working conditions. Instead of individual workers negotiating separately, they join together to form a union, which gives them greater leverage. By negotiating as a group, they can exert more pressure on employers to meet their demands. This process often results in higher equilibrium wages for union members, although it may also lead to a reduction in the number of jobs available. Collective bargaining helps balance the power dynamics between workers and employers, ensuring fairer treatment and compensation for the workforce.

How do labor unions affect labor supply and demand?

Labor unions influence both the supply and demand for labor. They restrict labor supply by requiring higher skill levels and certifications, which means only qualified, unionized workers are available for certain jobs. This restriction often leads to a decrease in the overall labor supply. On the demand side, unions can increase demand for labor by improving worker productivity through training and certification programs. Additionally, unions support minimum wage laws, which can make employers prefer hiring skilled, unionized workers if they have to pay higher wages anyway. The net effect is usually a higher equilibrium wage but a lower equilibrium quantity of jobs.

Why has union membership declined in the United States?

Union membership in the United States has declined due to several factors. The shift from manufacturing to service-based industries, where unions are less prevalent, has played a significant role. Additionally, globalization and outsourcing have reduced the number of unionized jobs. Changes in labor laws and increased employer resistance to unions have also contributed to the decline. Despite this, unions remain important in advocating for workers' rights and economic stability, especially in other countries where union membership is still high.

What are the benefits and drawbacks of labor unions?

Labor unions offer several benefits, including higher wages, better working conditions, and increased job security for their members. They also provide a collective voice for workers, helping to balance power dynamics with employers. However, there are drawbacks as well. Unions can lead to higher labor costs for employers, which may result in fewer jobs or increased prices for consumers. Additionally, the restrictive practices of unions, such as requiring specific certifications, can limit the labor supply and reduce employment opportunities for non-union workers.

How do labor unions impact wage equilibrium?

Labor unions impact wage equilibrium by negotiating for higher wages and better working conditions. This collective bargaining process often results in a higher equilibrium wage for unionized workers. However, it can also lead to a decrease in the equilibrium quantity of jobs, as employers may hire fewer workers due to the increased labor costs. The overall effect is a new equilibrium where wages are higher, but the number of available jobs is lower. This dynamic highlights the trade-off between higher wages and employment levels in unionized labor markets.