The four effects on wages for unionized and non-unionized workers in the same sector
Spillover Effects Threat Effects Wait Unemployment Shifts in Labour Demand
Spillover Effects
Spillover Effects
Union is successful in raising their members wages but as a result some jobs in the union sector were lost. The unemployed union workers must go over to the non-union sector find employment which causes the supply to increase and wages to decrease in the non-union sector. The relative wage advantage for union workers is: R1=(W1u-W1n)/W1n The absolute wage advantage for union workers is: A=( W1u-W0)/W0 The relative advantage will tend to be higher than the absolute advantage since W1n is greater than W0.
Threat Effects
Threat Effects
Non-union employers increase their wages because of the fear of loosing workers to the union sector. This increase is above the market clearing wage but below the union wage With the increased wage there is a high level of unemployment since the unemployed in this sector constitutes spillover workers from the union and workers that were initially in the non-union sector. The relative wage advantage is smaller than the absolute advantage since W*n is greater than W0. R2=( W1u- W*n)/ W*n
Wait Unemployment
Wait unemployment occurs when an unemployed worker refuses to accept a lower paying job in the non-union sector since he has the expectation of gain a job in the union sector since vacancies may come about due to retirements, deaths or voluntary turnover. Not everyone who loses a job in the union sector will spill over into the non-union sector, while sometimes non-union workers quit their jobs for a chance to gain employment in the higher paying union sector. The presence of wait unemployment in the union sector will reduce the spillover of workers to the nonunion sector, thus moderating downward pressure on nonunion wages. If enough nonunion workers decide to search for union jobs, the labor supply curve to the nonunion sector could even shift to the left. In this case, unionization in one sector could cause wages in the nonunion sector to rise, just as with the threat.
The private sector union wage advantage in the United States is larger than that in the public sector.
The union relative wage advantage in the United States is larger than it is in most other countries.
On the other hand in highly unionized industries non-union wages tend to be lower since the spillover effect will dominate.