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Labor Economics Terms and Theories

With the rise and fall of some major corporations (think GM and Chrysler for one), it bears to know some terms in the economics of labour. Here are some for your reading pleasure.

Marginalist Controversy: Criticism of neoclassical labour theorist citing model inaccuracies. Various variables such as measure fundamental measurements such as MC, MR, elasticity of demand were not quantifiable by managers and owners. Also suggest small competitive firms would have the incentive and abilities to restrict interests in favour of profit maximizing initiatives. Sometime owners wished to max profits yet difficult to induce managers to follow suit. Other reasons such as desire to limit profits in favour of aggressive expansion within a particular industry or focus to ward off competition are other examples of firms unable or unwilling to focus on maximising profits.

Internal labour market: Understanding that not all available jobs are filled from the competitive market but rather from within a particular firm. Employees enter firm in entry posts and are promoted from within filling job vacancies as they become available.

Satisficing: Notion that management are presented sales or profit targets rather than the maximizing levels. Provides leeway for managers to make own decision regarding wages and labour, etc. that will fulfill manager’s strategy to meet targets—are not constrained. Employees feel less pressured because of manager’s notion to ‘satisfy’ profit or sales targets.

Incentives to induce manager to profit maximize, reducing average costs of production until it equates to the marginal revenue value.

a) Greater difficulty for many shareholders to dictate influence decision makers. Difficult to form cohesive unit, rather managers tend to possess greater leeway to pursue personal objectives. Only general targets are thought to be understood as overall strategy that all shareholders agree upon, such as not falling into bankruptcy and turning small profits.

Segmented labour market:

Friendly Societies: Voluntary association of workers with similar attributes designed initially as social support for workers. Later attempts were made to collectively control labour supply and announce wages for their skills. Did not succeed due to voluntary aspects and the incentives for individuals to undercut the society or ‘cartel’.

Industrial Unions: Unions not comprised solely of workers sharing the same skill set yet those who represent members of a particular industry. Generally were initially created to form a cohesive bargaining unit that represented unskilled labourers or those who were not classified under the craft union.

Dual Unions: Two different bargaining units compete against one another for the workers of the same occupation. Typically this process is undesirable to an established bargaining unit looking to monopolize the occupation. Many items that legitimize unions involves maintaining large membership to support such notions as strike funds and maintaining single political focus. May arise when industrial union wishes to unionize industry that is comprised of individuals already party of a craft union.

General Strike: Workers as a class withholding their labour services, attributed with syndicalism and alternative to violence. Generally searching for higher wages. Requires strike fund to increasing bargaining power.

Union Shop: Stipulation that potential employees for particular field must join union upon hire.

Essential Services: Early 1900’s when arbitration was gaining acceptance as a means to reach a collective agreement, some jurisdictions stipulated that only essential services were required to use the arbitration route. Includes such organizations as police and fire.

Grievance arbitration: Process by which disputes over interpretation of provisions in an existing collective agreement are presented, disputed, and rectified. Interest disputes are in regards to creating a new collective agreement. Focus on the implicit aspects of agreement.

Hiring Hall: Bargaining unit or union workers are part of will share unemployment with all others associated. When job is complete, worker returns to ‘hiring hall’ and places name into employment queue for next available job. Construction firm example.

Wage-Maximization Model:
Decision by union to pursue the highest wage per worker employed given the firms isoprofit curve. Layoffs in this model occur in reverse senority, this impacts where the median voter will lie. Unions goal is to get highest wage but constrained by firms zero profit curve.

Rent-Maximization model: When union is a rent maximizer the process of lay offs occurs randomly, thus preferences change. Expected wage function includes wages earned when not employed by union. Thus W-Wm is the excess of union earnings over minimum earnings, hence economic rent. Higher indifference curves, that are not horizontal but asymptotic to horizontal wage, suggests higher values of expected wage. Unions goal to get highest away from origin. Constrained by zero profits of firm.

Featherbedding: Goal of unions regardless of maximization model is to raise the wage above the level necessary to attract sufficient workers into the market. It is expected there will be a surplus of applicants for union jobs as a result. Thus the union must develop methods of allocating jobs, the method they choose is called featherbedding. Minorities, skilled workers, family members, etc.

Median-Voter Model:
Simple model of voter behaviour possible in a union. Assumes only two competing view points and the competition within the union between these views to garner support in order to decide which position to take during collective bargaining.

Bargaining lens: Area to the right of the demand curve in rent maximization that depicts area above isoprofit curve yet below utility curve of union. Economist suggest pareto superior moves are possible within the bargaining lens until both reach the contract curve

Queuing Unemployment: Process by which union workers rather than re-enter the workforce with non-union firms, will proceed to hiring hall and place name in hiring queue, awaiting next available job for their occupation.

Spillover Effect:
Does a spillover effect occur when unionize employees are laid off? Will they spill over into the non-unionized sector and drive down wages, or will they remain unemployed and keep wages the same.

Threat Effect: In order to discourage workers from becoming unionized, managers or owners will in fact meet and/or beat any wage increases by competing unions in the same industry or organization. Thus difference between union and non-union is removed.

Exit-Voice Model: Another method for workers to voice their displeasure through the union. Rather than protesting poor working conditions or unfavourable wages individual to the worker’s employer, they will instead approach the union to announce requests on their behalf, and hopefully on behalf of many others. This in turn may provide the function of the union with the responsibility of increasing productivity by collectively voicing opinions of conditions to employer.

[tags]Marginalist Controversy, Internal labour market, satisficing, Segmented labour market, Friendly Societies, dual unions, industrial unions, union shop, general strike, essential services, hiring hall, grievance arbitration, wage-maximization model, rent-maximization model, Featherbedding, Median-Voter Model, Bargaining lens, Queuing Unemployment, spill over effect, threat effect, Exit-Voice Model[/tags]

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