MIC ECON Lec 14 – Labor Economics



LEARNING OBJECTIVE The goal of this topic is to review the history of the labor union movement in the United States, showing that it went through three phases: repression, encouragement and supervision. The economic effect of unions is then analyzed.

AMERICAN UNIONISM American unionism is characterized by three different periods: a repression era in the earlier part of this century, a pro-union legislation period in the 1930’s, and a period of control and intervention since World War II.

Organizations of several professions date back to the Middle Ages in Europe. The labor movement in the United States was initially inspired by these organizations. But it has now a character of its own.

UNION REPRESSION Prior to 1930, unions were opposed by courts and successful firm tactics. The courts used the criminal conspiracy doctrine and restraint of trade arguments to issue injunctions preventing union actions. Firms used lockouts, discharged union employees, required new employees to sign yellow-dog contracts promising not to join a union, and offered paternalistic company unions.

Prior to 1932, an employer could ask a employee to sign a contract promising not to join a union. This is called a yellow-dog contract. If the employee later did join a union,the employer had the right to dismiss him/her.

AMERICAN FEDERATION OF LABOR The American Federation of Labor was created in 1886, under the leadership of Samuel Gompers, in spite of the era of repression of unions. The AFL was successful because it was guided by three ideas – a practical approach of business unionism, – neutrality in politics, – trade autonomy: it was made of trade (or craft) unions.

Some of the labor movement leaders were inspired by radical ideas and used confrontation and violence. By contrast, Samuel Gompers did not have a confrontational position and was able to show that his American Federation of Labor was beneficial to American business.

UNION LEGISLATION The major union legislation includes – Norris-LaGuardia Act 1932 (prevented yellow-dog contracts and injunctions), and – Wagner Act 1935 (created the NLRB and prohibited company anti-union discrimination).

The great depression of the 1930’s put many people out of work and created much hardship for the American workers. But it also showed to legislators in Washington that more protection was needed. Most of the pro union legislation was enacted at that time.

NATIONAL LABOR RELATIONS BOARD The National Labor Relations Board (NLRB) was created in 1935 by the Wagner Act. Its purpose is to facilitate the formation of unions. It also has the responsibility to enforce the provisions of the Act and redress any violations by employers.

When the employees of a firm want to form or join a union, they call on the National Labor Relations Board. The National Labor Relations Board is there to assure that the employee elections are not falsified in any way and that the employees are not subjected to undue pressure to join or not.

CONGRESS OF INDUSTRIAL ORGANIZATIONS The Congress of Industrial Organizations was formed in 1936 under the leadership of John L. Lewis. The purpose of the CIO was to unionize the low skilled employees (instead of the highly skilled crafts of the AFL) and to present a united front to the employers in collective bargaining procedures. The CIO rejoined the AFL in 1955.

The American Federation of Labor was created for primarily the skilled workers. It did little for the large number of unskilled and semiskilled workers working on the growing number of assembly lines. The interests of these unskilled and semiskilled workers conflicted with those of the skilled workers, and were subsequently met by the formation of Congress of Industrial Unions.

UNION SUPERVISION After World War II, legislation was passed to increase control and supervision over the activities of unions: – Taft-Hartley Act of 1947: specifies unfair labor practices (such as featherbedding, sympathy or jurisdictional strikes) and union administration requirements, and provides for a cooling-off period, – Landrun-Griffing Act of 1959: provides for election and accounting procedures.

Because unions have control over large sums of money from union member dues, some unions

–     most notably the teamsters union

–         have been infiltrated by undesirable individuals and even organized crime. Some of the legislation passed since 1947 was intended to remedy this and protect the interests of the members.

UNION DECLINE Since the 1950’s, the union membership has declined from 25% to 15% of the labor force. Some of the possible reasons are

– shift of the economy toward service industries where union membership is difficult to maintain, – increased security from other sources (e.g. social security),

– change in managerial attitudes.

Small retail stores and small businesses in the service sector (e.g. medical, dental, etc.) have employees who are geographically dispersed and very difficult to unionize. As the American economy is increasing these service sectors at the expense of traditionally manufacturing, unionizing workers becomes more difficult.

UNION ECONOMIC EFFECT Union employees do earn about 10 to 15% higher wages. However, it is argued that the professions easier to unionize are higher paying and the higher wages would have existed anyway. Some restrictive union strategies are viewed as reducing employment. However, unions’ impact can also be argued as beneficial for firms since it requires them to be more efficient in using their resources.

A notable decrease in union prestige and beneficial effect of unions has come about as a result of the union contract give back. This took place because of the recession of 1981-82, the difficulties of some American companies and the deregulation of some industries (for instance, the airlines). Some of the give backs were forced out of unions with the help of bankruptcy laws, as for instance in the case of Eastern Airline.



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