MGT. M259C: Analysis of Labor Markets --PP CM230 Labor Markets and Public Policy Daniel J.B. Mitchell Ho-su Wu Professor Anderson School and School of Public Affairs
Reminder
Electronic and Paper Submission: Week 9
my.ucla.edu
Alternatives to Strikes
American Airlines pilots in Los Angeles criticized the airline's poor performance and customer service Tuesday, part of a nationwide protest as the pilots and management reported that early contract talks were already at a stalemate. The pilots agreed to wage concessions in 2003 but now want those cuts restored. San Francisco Chronicle 4/16/08
The Hicks Model Determining Strike Duration
Wage positions
WU
WM
But why is there a strike if the parties can foresee these consequences?
t*
Time
Random mistakes Asymmetrical information Dynamic longterm relationship: Minimizing strike costs in long run rather than short. Role of mediator Arbitration as alternative to strikes
Why are settlements often reached at the deadline? Perverse result? Or incentive? Parties can set deadlines – Contract expiration – Date announced for strike or lockout
Deadlines give mediators leverage
Interest Arbitration Split-the-difference
model “Chilling” effect Final offer vs. conventional arbitration Arbitrator preference model
Research on Union Pay Effects
Problems in interpreting crude pay differentials Need for controls (occupation, individual characteristics, industry) Union pay can affect nonunion Threat effect Displacement effect
Wages vs. benefits Wage imitation
Modeling Union Costs
wage
Classical Efficiency Analysis of Displacement Effect (with fixed total labor supply) Union sector to be
Nonunion sector to be
W* DN
DU
0
U*
0
N*
labor
Union boosts wage in union sector...
wage
displacing workers to nonunion sector (UU* = N*N) and lowering wages there. Union sector
Nonunion sector
WU W* WN DU
0
U U*
0
DN
N* N
labor
Back of the Envelope Calculation for Classical Analysis of Union Effect
Net cost has to be small because union sector is now small.
Before: Producers got a+b+c+f and workers got d+e+g+j.
wage
After: Producers get a+f+g+h and workers get b+d+j+k. So union producers lose c which is gained by no one and displaced workers lose i which is gained by no one. Union sector
Nonunion sector
WU a W*
b d
0
c e
U U*
f
WN DU
g
h
j
k
0 Note: e = i+h+k.
i
N* N
DN
labor
Modeling Union Costs Classical Efficiency Analysis of (Total) Threat Effect Before wage
W*
0
L*
labor
Modeling Union Costs Classical Efficiency Analysis of (Total) Threat Effect After wage Loss to producers not gained by workers
WU W*
0 Transfer from firms to workers
LU
L*
labor Loss to displaced workers
Unions and Costs: alternative analysis
OR
Exit vs. voice Seniority and the median voter model
Richard Freeman
James Medoff
Layoff systems Benefit plans
Productivity Wage effect Workrules vs. voice Company unions Nonunion employee representation systems
Wage Imitation Wage Imitation Wage Imitation ď Ž Interfirm
Pattern Bargaining Economic Interpretation Political Interpretation
ď Ž Intrafirm
Wage Differentials
$$$
Intra-organizational bargaining
MGT. M259C: Analysis of Labor Markets --PP CM230 Labor Markets and Public Policy Daniel J.B. Mitchell Ho-su Wu Professor Anderson School and School of Public Affairs
What is this woman’s occupation?
Salvadorian guerilla repacks her bag in preparation for new fighting. LA Times, 12/10/89
LA Times: April 30, 1938
Freedmen in Richmond, VA, 1865
Railroad Destruction During War
Segregation