Question

1. Will labor unions represent an imperfect competition in hiring from the standpoint of producers or workers? Who has power in that situation?

Answer 1

The economists often called labor market as the term which is used to describe all the different markets for labor. Like all other types of markets, labor markets also have demand and supply. The demand for labor depends on the skill set and the experience held by the labor. The firms shall be willingly come forward to pay a huge amount towards the labor in order to meet the goal of the firms.The payoffs to labor shall also depends on the skill and experience brought to the firm.

In a quarter of century ago, many economists viewed that the labor markets are intrinsically perfectly competitive. But at that time also, there are certain exceptions to this perfect competitive approach.

In labor market, there are two sources of imperfect competition. They are :

• Demand side sources which means that labor market power by Employers
• Supply side sources which means that labor market power by Employees

Let us understand with the help of an example:

A competitive labor market is something what we called a scenario where there are number of employers who are looking for a particular type of labor for a particular job. On the other hand assume that there is only one employer and as the employer has no direct competition in hiring labors, then the employer shall offer only a lower wage to the labor as the employer knows that there is no other option for the labor as there is only one employer at all. If the labor wants a job, then he/she has to accept the offer at low rate. Hence the employer has the power to control the market, we call the firm as Monopsony.

When a particular person (labor) wants a position in job, then the applicant is often at a disadvantage that the applicant is awaiting for the job position, than the employer needs that particular applicant for that particular job. To give more stringent powers to the workers (labors) US Government after years and years of protest by the workers, has passed certain number of laws which provide equal powers between employers and workers. Some of them are as follows.

• Minimum Wages per hour can be set.
• Child labor is prohibited.
• Setting up of maximum hours labors shall be worked.
• Health and Safety measures to be maintained at the workplace.
• Prevention of discriminating people on the basis of age, ethnicity, gender etc.
• Granting family leave to employees.
• Unemployment insurance coverage.
• Employers are required to provide notice regarding layoffs in advance.