Economics 27 Professor Patricia M. Anderson
Practice Problem Set 6
Unions and Arbitration
Multiple Choice Questions
1. Currently, the percentage of workers in the United States who are union members is:
a) about 44%
b) about 34%
c) about 24%
d) about 14%
2. A union’s bargaining power will most likely increase if:
a) its strike fund has just been enriched.
b) its strike fund has just been depleted.
c) management has just purchased strike insurance.
d) management threatens a lockout.
3. Suppose the union wage rate rises. The “spillover effect” suggests that the nonunion wage rate should ______; the “threat effect” suggests that the nonunion wage rates should ______.
a) fall, fall
b) rise, rise
c) fall, rise
d) rise, fall
4. The decline in unionization in the United States can likely be attributed to:
a) the migration of firms toward the South and West.
b) an increase in the female participation rate.
c) an increase in anti-union tactics by management as a result of foreign competition.
d) all of the above.
5. Assume that parties A and B are negotiating over how to split a fixed amount of money. If there is no agreement, the parties will go to binding arbitration to determine each party’s share. The contract zone consists of those shares that:
a) both parties find preferable to going to arbitration.
b) yield equal utility for both parties.
c) are in between the minimum and maximum shares expected under arbitration.
d) yield utility levels higher than the average utility from arbitration.
Short Answer Questions
General Electric (GE) once followed a style of collective bargaining in which the company made one offer at the start of bargaining, informed the union that GE had done considerable research, including communication with the employees, and had thus determined that this was a fair and equitable settlement that could not be improved upon, so this would be the company's only offer.
1. Based on a model of bargaining power, explain why such a "first and only" offer might be accepted and in fact be the most efficient way to achieve an inevitable outcome. Use an appropriate diagram to clarify your exposition.
2. The use of replacement of strikers is banned in Ontario, but even permanent replacement is allowed in the US. Assuming all else equal, how would the differing laws affect the bargaining power of US union members versus those in Ontario? Briefly explain your answer.
3. Suppose the union members in both the US and in Ontario had very high levels of firm-specific human capital. Would this fact affect your answer from 2? Briefly explain your answer.
4. Suppose that GE also operated in Ontario and practiced "Boulwarism" (as the practice described above was known - after the company VP who developed it) in union negotiations there. How might GE's "first and only" offer have differed across the US and Ontario? You may assume that these are low-skilled workers and that everything but the labor law is identical for GE in the US and Ontario. Clearly explain your reasoning. Note that reference to your diagram from 1 may be helpful in your explanation.
5. In 1969, there was a 122-day strike against GE, after which Boulwarism was more or less abandoned. Fully and clearly describe a model of strike activity in which we might expect this strike to occur, even if GE's offer was indeed a fair and equitable settlement that could not be improved upon.
6. What unfair labor practice might (and in fact did) the NLRB charge GE with while the company was practicing Boulwarism?