Figure 14-4 A Monopoly Union in a Labour Market
As the single seller of labour services to many firms, the union is a
monopolist, and it can establish a wage below which no one will work,
thus changing the supply curve of labour. Firms can hire as many units of
labour as are prepared to work at the union wage but no one at a lower
wage. Thus, all firms in the industry face a supply curve that is horizontal
at the level of the union wage up to the maximum quantity of (union)
labour that is willing to work at that wage.
If the union uses its monopoly power, it will negotiate a wage above the
competitive level. This situation is shown in Figure 14-4 , in which the
intersection of this horizontal supply curve and the demand curve
establishes a higher wage rate and a lower level of employment than the
competitive equilibrium. In this case, there will be some workers who
would like to work in the unionized industry or occupation but cannot. A
conflict of interest has been created between serving the interests of the
union’s employed members and members who are unemployed or who
must seek employment in other industries at a lower wage.