300 words for each question, due Monday

Chapter 4 The Role of the Environment

The Labor Relations Environment

A. The wider environment shapes the success of labor and management in their interactions. This is true both at the level of the nation and for individual businesses/bargaining units.

B. This environment includes: 1. The economic context 2. The technological context 3. The locus of power in society (such as embodied in law & public policy) 4. The social context 5. The demographic context

C. Each of these contexts shape labor/management interaction 1. Some contexts have larger impacts than others, but the importance of these

change over time. 2. Some of these contexts change more rapidly than others.

The Environment (cont)

A. All of these contexts shape labor/management interaction 1. But some are more important (in a given time) than others.

a. For example, the economic context is typically more important than the demographic context

2. The relative importance of these context changes over time. a. For example, sometimes the demographic context rises in relative importance and at

other times it becomes less important. 3. All of these contexts change over time, but some change more regularly

than the others. a. For instance, the economic context regularly changes with, for instance, the business

cycle. But the demographic context might change only slowly over long periods of time.

Change in the environment

A. All the individual components (contexts) change due to forces outside the labor relations setting, and independent of what labor and management might want. 1. For instance, scientific advances play a part in what technological changes

occur. 2. And foreign political events can play a part in the domestic economic

environment (for instance, the OPEC oil embargo of the 1973-4).

Change in the environment (cont)

A. However, because of the importance of the environment to them, both labor and management try to shape this environment in ways that benefit them.

1. For instance, since the 1920s many US firms have moved to the US South to benefit from an environment that was more friendly to them.

2. US firms have shifted production to outside the US in order to, sometimes, gain power over their still US-located production facilities. This was a shift in the economic context intentionally created.

3. Firms, through their purchasing of technology, help to shape the direction of technology development.

4. Labor unions have supported initiatives (such as the “fight for $15”) in part to establish connections with progressive actors traditionally having little to do with labor unions in order to gain political allies that might increase union power in the political sphere.

5. Both management and labor do what they can to influence politicians so that the political environment (part of the locus of power in society) becomes more supportive of their agendas.

“Total Power” (aka, “economic rent”)

A. The text uses the term “total power” to refer to profits earned by the firm. This is, the text says, what is potentially “divided up” by labor and management.

B. I’m not pleased with the term “total power” nor with the way the text talks about profit. But, I’ll use this term (and definition) after some clarification I wished they had provided.

“Total Power” (aka, “economic rent”) (cont)

A. The text does use (elsewhere) the term “economic rent” when it discusses total power. “Economic rent” is the better term for what they are talking about: that is, what is potentially to be divided by labor and management.

B. Economic rents, loosely, refers to what profit would be IF workers & management earned the standard pay earned in firms in highly competitive industries.

C. So, economic rent = actual profits of firm + (actual labor costs – what labor costs would have been in highly competitive firms) + (actual management costs – what management costs would have been in highly competitive firms).

“Total Power” (aka, “economic rent”) (cont)

A. Example: If a. firm profits were $1 million b. workers were paid $3 million

i. But identical workers would have been paid $2.5 million in firms in highly competitive industries

c. Management was paid $0.5m i. But identical management would have been paid $0.25m in highly competitive industries

B. Then, economic profit would be a. $1m + ($3m - $2.5m) + ($0.5m - $0.25m) = $1 + $0.5m + $0.25m= $1.75m.

C. This $1.75m is what would be divided by management and labor. It includes more than just the profit of the firm.

“Total Power” (aka, “economic rent”) (cont)

A. Economic rent will typically be larger 1. The lower the level of competition a firm faces. 2. The better the economy is doing, which contributes to the prosperity of the

firm (and their ability to earn high profits and pay high pay)

B. Aside: the profit (after payments to workers and management) is what is available to be distributed by the board of directors of the firm (if the firm is a corporation). Or, it might go directly to the owners (if the firm is not a corporation).

The Environment and Total Power (profits)

A. Labor and management have an interest in expanding the economic rents potentially earned by the firm (including the profits it earns).

B. Unions and management have sometimes worked together to boost economic rents 1. This might come from agreeing to changes in the firm to enhance the

competitiveness of the firm or working together to get, say, government contracts for the firm.

2. Or, it might involve unions and management working together to change the external environment that might boost (or protect) firm profits/economic rents.

3. For instance, unions and firms might work together to shape national trade policy or anti-trust policies/decisions so that the firm benefits.

4. Unions and management have an interest in the government pursuing policies than might lead to economic growth.

Relative Bargaining Power

A. Is the relative strength of labor and management in their attempt to get more of the economic rent (aka, profit or total power). 1. This strength is relative. If both management and labor gain more power,

then the relatively power might remain unchanged.

B. If labor gains relative bargaining power, they might be able to grab a larger share of economic rent for themselves.

C. If management gains relative power, they might be able to shift more of the economic rent to the firm (in the form of profit and/or management pay).

Determinants of Relative Bargaining Power

A. The wider environment shapes the relative bargaining power of labor and management. That is, legal, societal, political, and economic factors jointly determine that the relative bargaining power of labor and management.

B. These factors have varied over time, and as a result the relative bargaining power of labor and management has likewise varied over time.

C. But what connects the above environmental factors to relative bargaining power is …

Strike Leverage

A. The relative bargaining power of labor and of management is heavily influenced by each of their “strike leverage.”

B. A union’s strike leverage is higher 1. The more a union and its workers are willing and able to sustain a strike

a. This is partly determined by the level of alternative income for workers when they are on strike

2. The higher the cost the strike imposes on the employer C. An employer’s strike leverage is higher

1. The most able an employer is to withstand a strike a. This is partly determined by the alternative the level of income available to the employer

when its workers are on strike. 2. The higher the cost the strike imposes on the union and its workers

Management’s Strike Leverage

A. The greater management’s strike leverage (holding the union’s strike leverage constant), the more likely the strike will be settled in a way management wants.

B. Determinants of management’s strike leverage include: 1. How the strike affects production

a. Determined by the essentiality of the striking workers & the availability of substitute workers

2. How the strike affects sales a. Determined by inventories & by access to alternative production sites

3. How the strike affects profit a. Whether competitors are also affected, whether competitors can expand production,

and whether the firm has significant fixed costs (including capital/interest expenses).

The Union’s Strike Leverage

A. The greater a union’s strike leverage (holding the employer’s strike leverage constant), the more likely the strike will be settled in a way the union and workers want.

B. The key determinants of union/workers’ strike leverage include the ability and willingness of the workforce to stay out on strike. This depends on 1. The availability of alternative sources of income for workers such as

temporary or part-time jobs 2. The level of savings and assets the workers have 3. Strike benefits paid by the union 4. The level of worker solidarity and anger against the employer

Factor potentially shaping union wage goals

A. The relative bargaining power of unions determines whether workers can gain higher wages.

B. But a union might not aim to get as high a wage as is possible. C. Why: if wages grow, union member employment might fall.

1. For instance, a union might be able to get a 10% increase in wages, but this might lead member employment to fall.

D. Therefore, unions sometimes consider the impact of higher wages (and better contracts) on future employment of members.

Wage-employment trade off

A. That is, higher wages and employment might face a “trade off” B. Demand curve for labor C. Elastic vs inelastic

1. The more elastic the demand curve  greater loss of jobs 2. The less elastic the demand curve  smaller loss of jobs

Wage-employment trade off (cont)

A. Four conditions contributing to inelastic demand for (union) labor: 1. When union members cannot be easily replaced in the production process

by other workers or machines. One reason: union members have unique skills.

2. When the demand for the final product is price inelastic. This would be: a. Higher wages boost production costs  higher product price b. But higher product price does not lead to much decline in sales (that is, the final

product is price inelastic). c. The fact that sales don’t fall (or fall much) means the firm still needs about the same

number of union workers as before. So, higher wages don’t lead to lower union employment.

Wage-employment trade off (cont)

3. When the supply of nonlabor factors of production is price inelastic a. Related to #1 above b. As union members become more expensive, a business might look to replace some of them

with machines. But if these machines have a supply curve that is price inelastic (aka, steep), as the firm buys more of these machines the price for them grows sharply. The firm, then, might decide to only buy a few (if any) of these increasingly expensive machines.

4. When the ratio of labor costs to total costs is small a. If 90% of the costs for a firm are labor costs, an increase in labor costs will have a big

impact on the cost to produce the good and might cause a noticeable increase in the price of the product sold by the firm. This would cause a decline in demand (for the good) and firm’s demand for labor will fall.

b. But if labor costs only make up 10% of the cost of the good, a rise in labor costs cause the cost of the product to grow by a small amount. A small increase in the product price might follow, and so the demand in sales might be small. This might have little or no impact on the demand for labor by the firm.

Macroeconomic Influences on Total and Relative Bargaining Power A. When the economy is strong,

1. a firm may earn higher profits, so there is more for firms and unions to fight over.

2. Jobs of all types are likely easier to find, workers might be more likely to support a strike, and this will boost union bargaining power.

B. When the economy is poor, 1. Economic rents are smaller, and so there is less to fight over 2. Workers are less likely to support a strike because alternative jobs

(temporary or not) are harder to find.

Law, Public Policy, and Political Power

A. Obviously, law and public policy influence the legal standing of unions, union’s bargaining power and employment conditions.

B. Public policy determines how easily unions may form and sustain themselves.

C. Example: the National Labor Relations Act

Law, Public Policy, and Political Power (cont)

A. Government also indirectly affects the relative strike leverage of labor and management. For instance, many government programs might provide help (or not) for striking workers: unemployment benefits and social welfare programs.

Demographic Context

A. The make up of the US labor force is always changing. 1. It was once largely male, but now women make up a large portion of the

labor force. 2. Increasingly, the US labor force is diverse across many dimensions: race,

ethnicity, religion, national background, LGBTQ.

B. It is socially contingent whether the differences among those in the labor force contributes to, or take away, from the ability of unions to be formed and their success in bargaining. Some believe that it is more difficult to organize workers who are different from each other, but I’m not sure if this is still the case or will be the case in the future.

The Social Context

A. Polls about unions reveal some fluctuations over time in the public’s image of them. But, for the most part, support for unions has remained fairly strong throughout the post-ww2 period.

B. One major change in the social context has been the public acceptance of what the legitimate role of business firms is 1. 1980s: manufactured belief that firms should only be concerned with profit and

with the interests of their shareholders. 2. 2000s and on: the cult of high technology, “cool products,” and heroic (?) creators

of big tech firms. C. But, more recently, growing awareness that

1. Narrow profit-seeking by businesses is responsible for things like climate change, poor working conditions, poor pay, and more.

2. Tech firms have aggressively transformed the world in ways that benefit them (at the expense of other things).

The Technological Context

A. Quick discussion of technology and technological change 1. False belief that technology develops independent of the economy, driven

only by autonomously developing science and engineering. a. This false belief leads to the idea that the technology we see is the only one that was

possible and, therefore, inevitable. 2. Alternative notion: “Capitalist technology”: technology that develops within

capitalism, driven by (a) what owners want for production and (b) what firms can get people to buy as independent consumers. a. Those who invent new technology know that they must come up with what business

owners want, as businesses buy the technology. b. Driven by profit motive and not “greater efficiency”: example of greater work effort

per hour.

The Technological Context (cont)

A. Question: do technological developments lead to more jobs or fewer jobs?

B. Question: does technology promote greater skills or lower skills? C. Question: does technology generate greater hierarchy or less

hierarchy in production?