INTRODUCTION: WHAT IS THE PROBLEM? Unions always arouse controversy. Critics point to union bargaining power, restrictive labour practices, overmanning, closed shops, strikes and picketing. Supporters stress their contribution to mitigating some of the less desirable aspects of free markets, such as monopsony, long hours of work, and dangerous working conditions (that is countervailing power). Marxists view wage levels as the outcome of a constant struggle between workers and capitalists (who are these groups?), with workers aiming to raise wages above the subsistence level and reduce the ‘surplus value’ accruing to capitalists. In fact, unions raise a set of microeconomic and public policy issues embracing eﬃciency in resource allocation and income distribution. Examples are: 1. The eﬀects of unions on economic and technical eﬃciency. The popular belief is that unions adversely aﬀect productivity and eﬃciency through restrictive practices, featherbedding, ‘make-work’, and barriers to labour mobility. Otherwise, if unions favourably aﬀected productivity, there would be more instances of ﬁrms supporting the unionization of their workers. Unions viewed as monopolists, with monopoly power enabling them to set wages above the competitive level. The hypothesis is that unions inﬂuence relative wages in favour of their members. This raises the empirical question of the magnitude of any wage diﬀerential compared with similar non-union labour. The sources of a union’s monopoly power. Unions adopt various methods to control the supply of labour. These include: (a) Entry restrictions in the form of lengthy apprenticeships, licences and professional qualiﬁcations...
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