THE ECONOMICS OF UNIONS

A union is a type of cartel. Like any cartel, a union is a group of sellers acting together in the hope of exerting their joint market power. Most workers in the US. economy discuss their wages, benefits, and working conditions with their employers as individuals. By contrast, workers in a union do so as a group. The process by which unions and firms agree on the terms of employment is called collective bargaining. When a union bargains with a firm, it asks for higher wages, better benefits, and better working conditions than the firm would offer in the absence of a union. If the union and the firm do not reach agreement, the union can organize a Withdrawal of labor from the firm, called a strike. Because a strike reduces production, sales, and profit, a firm facing a strike threat is likely to agree to pay higher wages than it otherwise would. Economists who study the effects of unions typically and that union workers earn about 10 to 20 percent more than similar workers who do not belong to unions.

The role of unions in the economy depends in part on the laws that govern union organization and collective bargaining. Normally, explicit agreements .among.members of a cartel are illegal. If firms that sell a-common product were to agree to set a high price for that product, the agreement would be a “conspiracy in restraint of trade.” The government would prosecute these firms in civil and criminal court for violating the antitrust laws. By-contrast, unions are exempt from these laws. The policymakers who wrote the antitrust laws believed that workers needed greater market power as they bargained with employers. Indeed, various laws are designed to encourage the formation of unions. In particular, the Wagner Act of 1935 prevents employers from interfering when workers try to organize unions and requires employers to bargain with ‘unions in good faith. The National Labor Relations Board (NLRB) is the government agency that enforces workers’ right to unionize Legislation affecting the market power of unions. is a perennial topic of political debate. State lawmakers sometimes debate right-to-work Jaws, which give workers in a unionized firm the right to ct-loose whether to  join the union. In the absence of such laws, unions can insist during collective bargaining that firms make union membership a requirement for employment. Lawmakers in Washington have also at times debated a proposed law that would prevent firms from hiring permanent replacements for workers who are on strike. This law would make strikes more costly for firms and, thereby, would increase the market power of unions. These and similar policy decisions will help determine the future of the union movement. .