<<

. 10
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that are almost the same. Firms in such
5 1300 ----- 0
a market try to make customers believe
4 1470 ----- “ 220
3 1650 1200 ----- that the similar products are actually
2 1840 1150 “ 690 different. Each producer uses advertis-
ing to persuade the customer that his
or her brand is superior. Firms that are
1. Some of the information is missing from the table. successful have a monopoly on their
Calculate the correct information. name and reputation more than on
their product. Customers are willing to
2. What is the equilibrium price? How can you tell?
pay more for the product because they
3. What price(s) will produce a surplus? associate its name with quality or value.
Many beauty products, soaps, house-
4. What price(s) will produce a shortage? hold cleaners, and over-the-counter
medicines fall into this group.
1. What is monopolistic competition?
Thinking Like an Economist 2. What main idea is expressed?
3. What details support the main idea?
Profit Maximization Economists like to analyze
decisions incrementally”taking small steps and Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.

CHAPTER 7: MARKET STRUCTURES 187
Issues in Free

Issues in Free
THE FUTURE OF SOCIAL SECURITY
The Social Security Act of 1935 and its later amendments created a social insurance system to
help America™s most needy: elderly, ill, and unemployed citizens. The core of the program was
retirement benefits, funded by taxes on workers and employers, that people could collect when
they stopped working at age 65. For decades the system, though criticized, was largely recog-
nized as fundamentally sound.
But in the 1980s the system faced a severe cash shortage: outgoing payments rose faster than
incoming taxes. The federal government responded with some changes (such as raising the
retirement age from 65 to 67 by the year 2027) that forestalled the problem. But as the baby
boomer generation ages, Social Security may be facing another crisis.
Many experts fear that the system will be drained of funds in the twenty-first century, leav-
ing whole generations bereft of benefits. The solution, they say, is the privatization of the sys-
tem. Others maintain that the problems facing Social Security are overstated and that, while
some fine-tuning may be necessary, a fundamental change like privatization is uncalled for, and
dangerous.

Who is right? As you read the selections, ask yourself: Is Social
Security working, or does the United States need a new system?



Social dependent”which means not just the elderly but
also those too young to work. Why is this impor-
P R O Security tant? Because it allows us to point out, reassuringly,
that in 1965, the last year of the Baby Boom, there
Is Secure were 95 dependents for every 100 workers, com-
pared to 71 today and 79 in 2030. If society could
During the 21st century, when all the handle the massive needs (education,
Boomers have put work behind them, health care, for example) of our
20 percent of all Americans will be generation in our pre-
elderly”a larger percentage than ever productive years, it can
before in our history. And these manage to see us through
retirees will get Social Security our post-productive years
benefits from taxes collected as well. . . .
from a much smaller pool of Social Security works
working people. . . . because it offers universal
While it™s true that in 2030 coverage. . . . Certainly
there will be fewer workers some people would rake
per retiree than there are in more money under
today, a more reliable mea- privatization than they
sure is to look at workers per would under the current




188 UNIT 2 MICROECONOMICS
Enterprise
system. But others would get less and some would
Enterprise
lose everything. . . . If that doesn™t make you
uneasy, try this: these privatization schemes would
increase taxes and add considerably to the adminis-
trative costs of Social Security (which today stand at
an almost unbelievable 1 percent compared to
12“14 percent for private sector insurance). Social
Security isn™t without problems. Quite simply, peo-
ple are living longer and so there will have to be
adjustments like a higher retirement and maybe
somewhat lower benefits phased in gradually over
decades so no one gets a surprise they can™t plan for.
But Social Security ain™t broke”in the fiscal or
structural sense. . . .
Moreover, those projections ignore one of the
”John Shure, Vice President of the Twentieth Century Fund most promising facts of our time: Not only does life
expectancy continue to grow; the rate of growth is
accelerating. From 1940 to 1965, life expectancy for
men over age 65 increased by one year; during the
A New next quarter century it grew by 2.1 years. . . .
C O N System Social Security needs fundamental reform if it
is to cope with our increasing longevity. . . . [A]ll
Is Needed workers should be given the option of redirecting
their payroll taxes to personal retirement accounts.
Those accounts, which will be invested in pro-
Back in 1940, when the Social Security program
ductive enterprises, will grow and all workers will
was just getting under way, average life expectancy
accrue a substantial asset of far greater value than the
was less than 64 years. The program™s designers
benefits promised”but not yet paid for”by the cur-
expected that many people would contribute to
rent Social Security system. . . . As the savings rate
the program most of their lives and die before col-
increases, young innovative companies . . . will have
lecting a dime in retirement benefits. . . . Today,
easier access to investment capital and will flourish.
average life expectancy in the United States is
more than 75 years. More important, the popula- ”Carrie Lips, Cato Institute™s Project on
tion that reaches age 65 is also living longer. An Social Security Privatization
average person that lives to 65 will live for approx-
imately another 17 years. . . .
As life expectancy has soared, birthrates have
Analyzing the Issue
declined, leaving fewer and fewer workers to sup-
port the ballooning number of retirees. In 1950, 1. How does Shure™s discussion of the “workers-
this pyramid scheme was solidly supported with per-dependent” ratio suggest that the Social
16 workers paying for each retiree; today, there are Security system is not in crisis? Why does he
just over three workers per beneficiary. The [Social oppose privatization of the system?
Security Administration™s] own estimates indicate 2. What evidence does Lips use to support her
that the ratio of workers to beneficiaries will con- argument that “Social Security needs funda-
tinue to decrease, reaching just two workers per mental reform”? Why does she support
beneficiary by 2030. privatization?
3. With which opinion do you agree? Explain
your reasoning.


UNIT 2 MICROECONOMICS 189
CHAPTER 8
Employment, Labor, and Wages
CHAPTER 9
Sources of Government Revenue
CHAPTER 10
Government Spending
CHAPTER 11
Money and Banking
CHAPTER 12
Financial Markets




As you read this unit, learn how the study of
economics helps answer the following questions:

Why are deductions taken out of your
paycheck?
How do taxes pay for your education?
Why does your savings account probably
earn less than other investments?

190 UNIT 3 MACROECONOMICS: INSTITUTIONS
Macroeconomics deals with the total
performance of the economy.




To learn more about macroeconomics through infor-
mation, activities, and links to other sites, visit the
Economics: Principles and Practices Web site at
epp.glencoe.com
What level of income
do you want to earn
after you graduate? Will your
current training and skills allow
you to reach your income goal?
In Chapter 8, you will learn
about the labor force and
employment issues. To learn
more about important labor
issues, view the Chapter 14
video lesson:
The American Labor Force




Chapter Overview Visit the Economics: Principles
and Practices Web site at epp.glencoe.com and
click on Chapter 8”Chapter Overviews to preview
chapter information.




Labor is human resources”people who
produce goods and services.
The Labor Movement
Main Idea lockout, company union, Great Depression, right-to-
Labor unions are organizations that attempt to work law, independent union
improve the working conditions of their members
Objectives
through joint action.
After studying this section, you will be able to:
Reading Strategy 1. Explain why unions are still important today.
Graphic Organizer As you read the section, compare 2. Discuss the development of the labor movement
how an industrial union differs from a trade union. from the late 1700s to the 1930s.
Complete a graphic organizer similar to the one 3. Relate labor™s successes during the Great
below by listing the differences. Depression.
4. Describe the major labor developments since
Industrial Union Trade Union
World War II.

Applying Economic Concepts
Key Terms Civilian Labor Force Do you have a part-time job? If
macroeconomics, civilian labor force, craft union, so, read to find out more about your role in the civil-
trade union, industrial union, strike, picket, boycott, ian labor force.




A
Cover Stor y s the cover story shows, people have pas-
sionate feelings about the labor movement.
After all, working for a living is one of the
The Right to Work single most important things we do. How well we
do, as measured by the satisfaction we get and the
The National Right
income we receive, affects virtually every other
to Work Committee is
aspect of our lives. Accordingly, any study of eco-
gearing up for an
nomics that ignores the way the “labor” factor of
expensive campaign to
production earns its income would be incomplete.
hurt Big Labor and
has enlisted a major- The study of labor is part of macroeconomics.
domo to lead the Macroeconomics is the branch of economics that
drive: Sen. Jesse “the Senator Jesse Helms deals with the economy as a whole, including
Jackhammer” Helms. employment, gross domestic product, inflation,
The North Carolina pass economic growth, and the distribution of income.
anti-unionists to help
publican is calling on
Re would For example, the population of the United States
ork Act, which he says
the National Right to W s to
r™s power to force worker in 1999 was approximately 274 million people.
“repeal forever Big Labo
Slightly more than half, or about 139 million,
r to work.”
pay union dues in orde will
stationery, he says ads belonged to the civilian labor force”men and
Writing on his Senate dio;
rs and on TV and ra women 16 years old and over who are either work-
be placed in newspape ort-
be used to mobilize supp
friendly columnists will ing or actively looking for a job. The civilian clas-
ll pay
makers who fight him wi
ers. . . . Helms says law sification excludes members of the armed forces,
s.”
of their political career
“the price with the end the prison population, and other institutionalized
port, May 31, 1999 persons.
”U.S. News & World Re


CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 193
As you examine Figure 8.1, note that nearly 85
percent of those employed had no connection Figure 8.1
with unions, 13.9 percent were members of
unions, and 1.5 percent were nonunion members
Employment and
being represented by unions. Although the per-
centage of union workers is small, unions are
Union Affiliation
important for two reasons. First, they played a
major role in promoting legislation that affects
Workers Unionized Nonunionized
pay levels and working conditions today. Second, Represented Workers Workers
unions are a force in the economy, with member- by Unions 13.9% 84.6%
1.5%
ship of nearly 16.2 million people.
Historically, unions tended to be concentrated in
heavy manufacturing industries. More recently,
unions have made inroads in the service sector, espe-
cially among government workers. As Figure 8.2
shows, 42.5 percent of all government workers in
1999 were either unionized or represented by a
Source: Bureau of Labor Statistics, 1999
union.
Using Graphs Most workers are not affiliated
with unions. What is is the ratio nonunion-
unions. What the ratio of of union
Early Union Development to nonunionized
workers?
The development of unions in the United
States started in the colonial period. From
there, unions waged a long uphill struggle that Visit epp.glencoe.com and click on
Textbook Updates”Chapter 8 for
peaked in the 1930s.
an update of the data.

Colonial Times to the Civil War
could better negotiate with their employers on a
In 1778, printers in New York City joined
one-to-one basis.
together to demand higher pay. This protest was
the first attempt to organize labor in America.
Before long, unions of shoemakers, carpenters,
Civil War to the 1930s
and tailors developed, each hoping to negotiate
During and after the Civil War, attitudes toward
agreements covering hours, pay, and working con-
unions began to change. The Civil War led to
ditions. While only a very small percentage of
higher prices, a greater demand for goods and serv-
workers belonged to unions, most unions were
ices, and a shortage of workers. Industry expanded,
comprised of skilled workers and possessed strong
and the farm population declined. Hourly workers
bargaining power.
in industrial jobs made up about one-fourth of the
Until about 1820, most of America™s workforce
country™s working population. Many of the cul-
was made up of farmers, small business owners, and
tural and linguistic differences between immi-
the self-employed. Shortly after, however, immi-
grants and American-born workers began to fade,
grants began to arrive in great numbers. Because they
and the labor force became more unified.
provided a supply of cheap, unskilled labor, they
posed a threat to existing wage and labor standards.
Even so, public opinion was against union activ-
Types of Unions
ity and some parts of the country even banned
labor unions. Labor organizers often were viewed By the end of the Civil War, two main types of
as troublemakers, and many workers believed they labor unions had come into existence. One was

194 UNIT 3 MACROECONOMICS: INSTITUTIONS
the craft union, or trade union, an association of Attitude of the Courts
skilled workers who perform the same kind of Historically, the courts had an unfavorable atti-
work. The Cigar Makers™ Union, begun by union tude toward unions. Under English common law,
leader Samuel Gompers, is an example of this type unions were considered to be conspiracies against
of union. Other, more recent examples are shown business and were prosecuted as such in the United
in Figure 8.3 on page 197. States. Even the Sherman Antitrust Act of 1890,
The second type of union was the industrial aimed mainly at curbing monopolies, was used to
union”an association of all workers in the same keep labor in line.
industry, regardless of the job each worker per-
forms. The development of basic mass-production
industries such as steel and textiles provided the
ECONOMICS
opportunity to organize this kind of union.
Figure 8.2
Because many of the workers in these industries AT A GLANCE
AT A GLANCE
were unskilled and could not join trade unions,
they organized as industrial unions instead.
Union Membership and
Representation by Industry
Union Activities
Unions tried to help workers by negotiating for Percent of Employed
higher pay, better hours and working conditions, Workers That Are:
and job security. If an agreement could not be Members of Represented
reached, workers could strike, or refuse to work Industry Unions by Unions
until certain demands were met. Unions also pres- 37.5 42.5
Government Workers
sured employers by having the striking workers Communications &
picket, or parade in front of the employer™s busi- 26.0 27.4
Public Utilities
ness carrying signs about the dispute. The signs
25.7 26.8
Transportation
might ask other workers not to seek jobs with the
17.8 18.4
Construction
company, or they might ask customers and suppli-
15.8 16.8
Manufacturing
ers to take their business elsewhere.
If striking and picketing did not settle the dis- 12.2 13.4
Mining
pute, a union could organize a boycott”a mass 5.9 6.2
Wholesale Trade
refusal to buy products from targeted employers or 5.6 6.6
Services (general)
companies. If a boycott was effective, it hurt the 5.2 5.6
Retail Trade
company™s business.
Agricultural Wage &
1.5 1.8
Salary Workers
Employer Resistance Source: Bureau of Labor Statistics, 1999
Employers fought unions in a number of ways.
Sometimes the owners called for a lockout, a Using Tables Labor unions are the most
Using Tables Labor unions are the most
refusal to let the employees work until manage- influential in the service industries, which
influential in the service industries, which
ment demands were met. Often violence erupted include government, communications, public
include government, communications, public
during lockouts, and troops were sometimes utilities, and trans-
brought in to keep peace. At other times, manage- portation. In
ment responded to a strike, or the threat of a strike, what industries
by hiring all new workers. Some owners even set up do unions have Visit epp.glencoe.com and click on
a company union”a union organized, supported, few members? Textbook Updates”Chapter 8 for
or run by employers”to head off efforts by others an update of the data.
to organize workers.

CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 195
In 1902, the United Hatters Union called a reached bottom in 1933, and did not recover to its
strike against a Danbury, Connecticut, hat manu- 1929 level until 1939.
facturer that had rejected a union demand. The
union applied pressure on stores to not stock hats
Unemployment and Wages
made by the Danbury firm. The hat manufacturer,
charging a conspiracy in restraint of trade under the During the depths of the Depression as many as
Sherman Act, filed a damage suit in the state court one in four workers were without a job. Many who
but lost. Later, the Supreme Court ruled that the kept their jobs had their pay cut. In 1929, the average
union had organized an illegal boycott that was in manufacturing wage was 55 cents per hour. By 1933,
restraint of trade. This ruling dealt a severe blow to however, wages had plummeted to 5 cents per hour.
organized labor. The Great Depression brought misery to mil-
The Danbury Hatters case and several subse- lions, but it also changed attitudes toward the labor
quent antiunion decisions pushed organized labor movement. Common problems united factory
to call for relief. The passage of the Clayton workers, and union promoters renewed their efforts
Antitrust Act (1914) helped to remedy the situa- to organize workers.
tion. The Clayton Act expressly exempts labor
unions from prosecution under the Sherman Act.
Pro-Union Legislation
New legislation aided labor. The Norris-
Labor During the Great Depression LaGuardia Act of 1932 prevented federal courts
from issuing rulings against unions engaged in
The Great Depression”the greatest period
peaceful strikes, picketing, or boycotts. This forced
of economic decline and stagnation in
companies to negotiate directly with their unions,
United States history”began with the collapse of
rather than take them to court.
the stock market in October 1929. The economy
The National Labor Relations Act (NLRA), or
Wagner Act, of 1935 established the right of unions
Labor Unions to collective bargaining. The act also created the
National Labor Relations Board (NLRB), giving it
the power to police unfair labor practices. The NLRB
also had the power to oversee and certify union elec-
tion results. If a fair election resulted in a union
becoming the employees™ bargaining agent, employ-
ers were required to recognize and negotiate with it.
The Fair Labor Standards Act (1938) applies to
businesses that engage in interstate commerce. The
act fixes a federal minimum wage for many workers
and establishes time-and-a-half pay for overtime,
which is defined as more than 40 hours per week.
It also prohibits oppressive child labor, which
includes any labor for a child under 16 and work
that is hazardous to the health of a child under 18.


Labor Since World War II
Union Activities Early American labor unions Many Americans viewed organized labor
had few rights to organize. What tactics did the favorably in the 1930s, but public opinion
early unions take to improve their working
shifted again by the end of World War II. Some
conditions?
people believed that Communists had secretly

196 UNIT 3 MACROECONOMICS: INSTITUTIONS
ECONOMICS
Figure 8.3
AT A GLANCE
AT A GLANCE

Trade (Craft) and Industrial Unions
Trade (Craft) Unions Industrial Unions




Printers™ Electricians™ Machinists™ Carpenters™ Plumbers™
Union Union Union Union Union


Using Charts Labor unions can be categorized as either trade or industrial unions. How do
Labor unions can be categorized as either trade or industrial unions. How do
trade unions differ from industrial unions?




entered the unions. Others were upset by the loss have to join the existing union as a condition for
of production resulting from strikes. In 1946 employment shortly after being hired.
alone, more than 116 million workdays were lost If a state has a right-to-work law, then new hires
due to work stoppages. People began to feel that have the option to join or not to join a union”
management, not labor, was the victim. even if the overwhelming majority of workers at
the company support the union. As you read ear-
lier, Senator Helms supports a national right-to-
work law, requiring all states to give workers this
Antiunion Legislation option, whether the states want to or not.
Growing antiunion feelings led to the Labor- In the mid-1900s, other legislation was passed to
Management Relations Act, or Taft-Hartley Act, of stop the criminal influences that had begun to
1947. The act puts limits on what unions can do in emerge in the labor movement. The Labor-
labor-management disputes. Among its provisions, Management Reporting and Disclosure Act, or
Taft-Hartley gives employers the right to sue Landrum-Griffin Act, of 1959 tried to protect indi-
unions for breaking contracts, and prohibits unions vidual union members from unfair actions of
from making union membership a condition for unions and union officials. The act requires unions
hiring. to file regular financial reports with the govern-
The Taft-Hartley Act had two other provisions ment, and it limits the amount of money officials
that worked against organized labor. The first was can borrow from the union.
an 80-day cooling-off period that federal courts
could use to delay a strike in the case of a national
emergency.
The AFL-CIO
The second (Section 14(b)) was a tough anti-
union provision, which allowed individual states to The American Federation of Labor (AFL) began
pass right-to-work laws. A right-to-work law is a in 1886 as an organization of craft unions. Later, it
state law making it illegal to force workers to join a added several industrial unions. The trade and
union as a condition of employment, even though industrial unions, however, did not always agree
a union may already exist at the company. If a state over the future of the union movement. As a result,
does not have a right-to-work law, new workers may eight of the AFL industrial unions formed the

CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 197
(CIO). The CIO quickly set up unions in industries
Labor Unions
that had not been unionized before, such as the
steel and automobile industries. By the 1940s, the
CIO had nearly 7 million members.
As the CIO grew stronger, it began to challenge
the dominance of the AFL. In 1955 the AFL and
the CIO joined to form the American Federation
of Labor and Congress of Industrial Organizations
(AFL-CIO).


Independent Unions
Although the AFL-CIO is a major force, other
unions are also important in the labor movement.
Many are independent unions”unions that do not
Legislation Three sisters lead the picket line in belong to the AFL-CIO, such as the Brotherhood
a demonstration calling for organization of a
of Locomotive Engineers.
union. What legislation gave unions the right
to engage in collective bargaining?



Committee for Industrial Organization in 1935.
Headed by John L. Lewis, president of the United
Mine Workers of America, its goal was to bring
about greater unionization in industry. Student Web Activity Visit the Economics: Principles
The AFL and Lewis, however, did not get along, and Practices Web site at epp.glencoe.com and click
so the AFL expelled the Committee for Industrial on Chapter 8”Student Web Activities for an activity
Organization unions in 1937. Those unions then on labor unions.
formed the Congress of Industrial Organizations




Checking for Understanding 6. Describe the major labor developments since
1. Main Idea Using your notes from the graphic World War II.
organizer activity on page 193, describe the
Applying Economic Concepts
purpose of labor unions.
7. Civilian Labor Force How would your partici-
2. Key Terms Define macroeconomics, civilian pation in the civilian labor force be affected
labor force, craft or trade union, industrial if you joined the armed services?
union, strike, picket, boycott, lockout, com-
pany union, Great Depression, right-to-work
law, independent union.
3. Explain why unions are important today.
8. Making Generalizations How did the major
4. Describe several reasons for the rise of unions legislative acts discussed in the section
prior to 1930. reflect the rise and decline of the labor
movement?
5. State why unions became successful during
the Great Depression. Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



198 UNIT 3 MACROECONOMICS: INSTITUTIONS
Evaluating Primary and Secondary Sources
Primary sources are original records of events made by people who witnessed
them. They include letters, journals, legal documents, drawings, photo-
graphs, and artifacts. Secondary sources are documents created after an event
occurred. They pull together information from many sources and provide an
overview of events.

actually deteriorate in
Learning the Skill
the years ahead despite
To interpret primary and secondary sources,
their adherence to the
follow these steps:
work ethic: low-skilled
• Identify the author of the document. immigrants.
Between 1980 and
• Identify when and where the document was
1994, notes Enchautegui,
written.
the number of working-
• Read the document for its content. age immigrants in the
• Identify the author™s opinions and biases. U.S. without a high
school degree jumped
• Determine what kind of information the docu- Bookstore for Russian
from 2.8 million to 5.1
ment provides and what is missing. immigrants
million”as the number
of U.S.-born high school dropouts fell sharply from
Practicing the Skill 20 million to 13 million. . . .
Read the excerpt below, then answer the . . . The problem is that their very numbers,
questions that follow. combined with declining demand for low-skilled
workers, are driving their wages down. . . .
For the past two decades, economists and
social observers have bemoaned the rapid growth ”Business Week, June 7, 1999
in income inequality in the U.S. Pointing to the
1. When was this document published?
widening gap between the wages of high school
graduates and those with college degrees, some 2. What was the general feeling of the person who wrote
critics have claimed that the nation is in danger this document?
of developing a rigid class system out of sync with
3. What economic trend is the writer describing? Is
traditional American democratic values.
information missing from this passage?
Lately, such concerns have abated. For one
thing, there has been a general upgrading of
the labor force as more and more Americans
have graduated from high school and gone on
to college. For another, low unemployment has
Look through the letters to the editor in your local
finally begun to lift the wages of those at the
newspaper. Prepare a short report analyzing one
bottom of the income ladder. Still, as a recent
of the letters. Summarize the context of the arti-
study by economist Maria E. Enchautegui of cle, the writer™s motivation, and any primary
the University of Puerto Rico suggests, there is sources the writer cites.
one group whose economic status may
Practice and assess key social studies skills with the
Glencoe Skillbuilder Interactive Workbook, Level 2.
CHAPTER X: CHAPTER TITLE 199
Resolving Union and
Management Differences
Main Idea Key Terms
Unions and management negotiate contracts closed shop, union shop, modified union shop, agency
through a process that is known as collective shop, grievance procedure, mediation, arbitration, fact-
bargaining. finding, injunction, seizure
Reading Strategy Objectives
Graphic Organizer As you read the section, complete After studying this section, you will be able to:
a graphic organizer similar to the one below that 1. Explain the differences among kinds of union
describes the different TO COME:
ART ways labor disputes are arrangements.
resolved. 2. Describe several ways to resolve labor and manage-
Art ID and description
ment differences when collective bargaining fails.

Applying Economic Concepts
Resolution Union Arrangements Does the company that you or
your parents work for have a union? Read to learn more
about the different kinds of unions that exist today.




O
ver the years, many disputes have occurred

Cover Stor y
between labor and management. Sometimes
employees take action against their
employer, as during the 1981 air traffic controllers™
NBA Ends Lockout strike. Sometimes the employer takes action against
and the players™ its employees, as in the case of the 1998“1999 NBA
YORK (AP)”The NBA
NEW
to end the 6-month- lockout. While the NBA was finally able to settle its
hed an agreement today oto ID an.d. .
union reac Ph e season.
difficulties, there are still other ways to resolve the
th
t and save what™s left ofdescription
old lockou
deadlock had they needed them.
n
The league and the unio
how
had been fighting over
bil-
to divide an estimated $2
Kinds of Union Arrangements
...
lion in annual revenue.
n.
“I don™t think anyone wo The labor movement has organized workers
diana
Both sides lost on it,” In in various ways to deal more effectively with
berg
Pacers guard Fred Hoi management. Four kinds of union arrangements are
some
said. “I think it will take discussed below.
NBA ends lockout
ck to
time to get the game ba
where it was. . . .
ly 1, caused the NBA Closed Shops
lockout, in effect since Ju
The
or dispute for the first
games because of a lab The most restrictive arrangement is the closed
to miss
e months of the season
its history. The first thre
time in shop, a situation in which the employer agrees to
ayers have lost about
been scrapped and pl
[have] hire only union members. In effect, this allows
$500 million in salaries. the union to determine who is hired by giving or
d, January 6, 1999
”CNN/Sports Illustrate
denying a person union membership.

200
ECONOMICS
Figure 8.4
AT A GLANCE
AT A GLANCE

Right-to-Work, State by State
WA
Alaska VT ME
MT ND
MN
OR
NH
ID NY
WI
SD MA
WY MI
PA RI
IA
NE
NV CT
OH
IN
IL
UT NJ
CO WV
VA
CA KS MO DE
KY
MD
NC
TN
OK
AZ NM AR SC
Hawaii
GA
AL
MS
LA
TX
FL
States with Right-to-Work Laws
States without Right-to-Work Laws

Source: National Right to Work Committee, 1999

Using Maps Today, 21 states have right-to-work laws that limit the power of unions. If a state
Maps
has such a law, unions cannot force workers to join the union as a condition of continued
employment. Which regions have few or no states that have enacted right-to-work laws?




Although this kind of union arrangement was Modified Union Shops
common in the 1930s and early 1940s, the Taft- The third kind of arrangement is a modified
Hartley Act of 1947 made the closed shop illegal union shop. Under this arrangement, workers do
for companies involved in interstate commerce. not have to belong to a union to be hired and can-
Because most firms in the United States today are not be made to join one to keep their jobs. If work-
directly or indirectly engaged in interstate com- ers voluntarily join the union, however, they must
merce, few, if any, closed shops exist. remain members for as long as they hold their jobs.

Union Shops
Agency Shops
The second arrangement is the union shop, an
Another arrangement is the agency shop”an
employment situation where workers do not have
agreement that does not require a worker to join a
to belong to the union to be hired, but must join
union as a condition to get or keep a job, but does
soon after and remain a member for as long as they
require the worker to pay union dues to help pay
keep their jobs. Today, the 21 states shown in
collective bargaining costs. Nonunion workers are
Figure 8.4 have taken advantage of Section 14(b) to
also subject to the contract negotiated by the
pass right-to-work laws that prohibit mandatory
union, whether or not they agree with it. Agency
union membership.

CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 201
shops are primarily responsible for the 1.5 percent Mediation
of employed wage and salary workers represented One way to resolve differences is through
by unions, as shown in Figure 8.1. mediation, the process of bringing in a neutral
third person or persons to help settle a dispute.
The mediator™s primary goal is to find a solution that
Collective Bargaining both parties will accept. A mediator must be unbi-
ased so that neither party benefits at the expense of
When labor and management take part in
the other. If the mediator has the confidence and
collective bargaining, representatives from
trust of both parties, he or she will be able to learn
both sides meet. A group of elected union officials
what concessions each side is willing to make.
represents workers, and company officials in charge
In the end, the mediator recommends a com-
of labor relations represent management. Collective
promise to both sides. Neither side has to accept a
bargaining requires compromise from both parties,
mediator™s decision, although it often helps break
and the discussions may go on for months.
the deadlock.
If the negotiations are successful, both parties
agree on basic issues such as pay, working condi-
tions, and benefits. Because it is difficult to antici-
Arbitration
pate future problems, a grievance procedure”a
Another way to resolve differences is through
provision for resolving issues that may come up
arbitration, a process in which both sides agree to
later”may also be included in the final contract.
place their differences before a third party whose
Normally, union and management are able to
decision will be accepted as final.
reach an agreement. If not, other methods are
Arbitration is finding its way into areas beyond
available to resolve the differences.
labor-management relations as well. American
Express revised the agreement it had with its credit
card holders and now requires disputes to be
solved by an arbitrator rather than in the courts.
This means that a credit card holder can no longer
sue American Express in the event of a dispute”the
matter goes to arbitration instead.
Labor Relations Specialist

Are you a people person? Are you
Fact-Finding
patient, fair-minded, and persua-
A third way to resolve a dispute is through
sive? Can you function under
fact-finding, an agreement between union and
pressure?
management to have a neutral third party collect
The Work
facts about a dispute and present nonbinding rec-
Labor relations specialists formu- ommendations. This process can be especially use-
late labor policy, oversee indus- ful in situations where each side has deliberately
trial labor relations, negotiate collective bargaining
distorted the issues to win public support, or when
agreements, and coordinate grievance procedures to
one side simply does not believe the claims made
handle complaints resulting from contract disputes.
by the other side. Neither labor nor management
Knowledge about wages and salaries, benefits, pensions,
has to accept the recommendations the fact-finding
and union and management practices is necessary.
committee makes.
Qualifications
Courses in labor law, collective bargaining, labor eco-
Injunction and Seizure
nomics, labor history, and industrial psychology are
A fourth way to settle labor-management dis-
essential. Most often, labor relations specialists hold a
putes is through injunction or seizure. During a
degree in labor relations.

202 UNIT 3 MACROECONOMICS: INSTITUTIONS
dispute, one of the parties may resort to an Labor and Management
injunction”a court order not to act. If issued
against a union, the injunction may direct the
union not to strike. If issued against a company, it
may direct the company not to lock out its work-
ers. In 1995, after professional baseball players
ended their strike and went back to work, the own-
ers promptly called a lockout. The players then got
an injunction against the owners, and the 1995
baseball season began”without a labor agreement.
Under extreme circumstances, the government
may resort to seizure”a temporary takeover of
operations”to allow the government to negotiate
Negotiating Washington, D.C., was the scene
with the union. This occurred in 1946 when the
of a major labor rally in the early 1990s. What is
government seized the bituminous coal industry.
the process through which unions and manage-
While operating the mines, government officials
ment negotiate contracts called?
worked out a settlement with the miners™ union.

who had gone on strike despite having taken an
Presidential Intervention oath not to do so.
The president also has emergency powers that
The president of the United States may enter a
can be used to end some strikes. When pilots from
labor-management dispute by publicly appealing
American Airlines went on strike in 1997 during a
to both parties to resolve their differences. This can
peak travel weekend, President Clinton used a 1926
be effective if the appeal has public support. The
federal law, the Railway Labor Relations Act, to
president also can fire federal workers. In 1981
order an end to the strike less than 30 minutes after
President Ronald Reagan fired striking air traffic
it began.
controllers because they were federal employees




Checking for Understanding workers in the company are required to join,
or if only some are. Based on your informa-
1. Main Idea Using your notes from the graphic
tion, determine if the union arrangement is a
organizer activity on page 200, explain the
closed shop, a union shop, a modified union
purpose of collective bargaining.
shop, or an agency shop.
2. Key Terms Define closed shop, union shop,
modified union shop, agency shop, grievance
procedure, mediation, arbitration, fact-
finding, injunction, seizure.
6. Sequencing Information If you represented
3. List four kinds of union arrangements.
a company during a collective bargaining
4. Explain six ways to resolve union and man- session, and if negotiations were dead-
agement differences when collective bargain- locked, what course of action would you
ing fails. recommend? Why?
7. Making Comparisons How does voluntary
Applying Economic Concepts
arbitration differ from mediation?
5. Union Arrangements Contact a firm in your
community that has a union. Ask if all Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 203
Labor Giant:
John L. Lewis
(1880“1969)

For more than four decades,
John L. Lewis stood as a giant in
the American labor movement.
As president of the United Mine
Workers of America (UMW), his
powerful leadership and dynamic
style made him an influential”and
Acts of Courage:
controversial”figure.
Lewis, the son of Welsh immi- In 1965, Chavez organized a
Cesar Chavez
grants, had little education. As a strike of migrant grape pickers in
young man, Lewis worked in mines, California. Later, Chavez called for
(1927“1993)
earning a living by his physical a nationwide boycott of California
strength and ingenuity. He later “The truest act of courage,” grapes. Under his slogan “Long
told a convention of miners, Cesar Chavez said, “is to sacrifice live the strike!” the union kept the
“I have always found that if I could ourselves for others in a totally non- pressure on until, in 1970, the
not make a living in one place, I violent struggle for justice.” Chavez grape growers agreed to recognize
could in another. . . .” lived by these words. He founded the union. The results? Better
As a leading figure in both the the nation™s first successful union working conditions and better pay,
UMW and CIO, Lewis was instru- for agricultural workers, the National and a long sought-after voice for
mental in using strikes and negoti- Farm Workers of America (NFWA), migrant workers.
ation to benefit union workers. in 1962. Its goal was justice for Today, Chavez is revered. His
He succeeded in raising wages and poor, migrant farm workers, largely life stands as a symbol for the bat-
improving working conditions. His Hispanic, who were among the most tle for economic justice.
concern for the safety and well- exploited workers in the country.
being of miners was a hallmark Chavez learned about the hard
of his leadership. life of the migrant worker from bit-
Examining the Profiles
Lewis was often criticized for ter, early experience. He first
1. Making Comparisons What similari-
ruling his union with an iron hand. worked in California™s farm fields
ties are there between Lewis and
Yet no one can deny his many con- when he was just ten years old.
Chavez?
tributions to poor workers”or the Like other migrant workers,
2. For Further Research Find out how
giant role he played in U.S. labor Chavez™s family had to move to
a clash between Lewis and President
history. where work could be found.
Harry Truman led to a government
seizure of mines in 1946. Write a
newspaper article about the event.

204 UNIT 3 MACROECONOMICS: INSTITUTIONS
Labor and Wages
Main Idea traditional theory of wage determination, equilibrium
Wages differ for a variety of reasons, including skills, wage rate, theory of negotiated wages, seniority, sig-
type of job, and location. naling theory, labor mobility

Reading Strategy
Objectives
Graphic Organizer As you read the section, complete
After studying this section, you will be able to:
a graphic organizer similar to the one below by listing
1. Identify four main categories of labor.
the reasons wages differ from one region to another.
2. Explain the importance of noncompeting labor
grades.
Wage
3. Describe three different approaches to wage
differences
determination.

Applying Economic Concepts
Key Terms Signaling Theory Believe it or not, diplomas have
unskilled labor, semiskilled labor, skilled labor, profes- something in common with prices. Read to find out
sional labor, noncompeting labor grades, wage rate, more about the signals they send.




T
he cover story stresses that investment in
Cover Stor y human capital is one of the more important
investments we can make. The extent to
portant
People Are What™s Most Im
which we invest in our own level of skills, experience,
and knowledge even affects the way we describe and
Rhetoric aside, to- classify labor.
day we live in a capi-
talist economy.
Now while the word
Categories of Labor
“capitalist” often con-
jures up images of The four major categories of labor are based
those icons to capital- on the general level of knowledge and skills
Computer education class
ism”large buildings needed to do a particular kind of job. These categories
or factories and other t econ- are unskilled, semiskilled, skilled, and professional.
said that today™s capitalis
symbols of worth”it is
omy is built on people. Gary Becker . . .
onomics prize winner Unskilled Labor
Nobel ec the
pital is the backbone of
asserted that human ca nited
he noted that in the U Those who work primarily with their hands
capitalist economy and of the GDP was
een 17 and 25 percent because they lack the training and skills required
States, betw reer
ld of education and ca for other tasks make up the category of unskilled
being spent on the fie
labor. These people work at jobs such as digging
training. . . . es
ound the world, advanc
He also observed that ar ditches, picking fruit, and mopping floors.
th a greater com-
gy now favored people wi
in technolo Unskilled workers are likely to have the least
skills. . . .
mand of knowledge and amount of human capital invested in them”and
27, 1999
uary
”The Bangkok Post, Jan
therefore they often earn the lowest wages.

CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 205
21.0
United States 10.9 New Zealand 15.7 Spain
27.0
United Kingdom 11.5 Italy 17.6 South Africa
33.2
Sweden 14.5 Germany 17.7 Mexico
Australia 14.6 Japan 17.8
France 15.2 Israel 21.0

Source: USDA, United Nations System of National Accounts

PERCENT OF INCOME Critical Thinking
SPENT ON FOOD 1. Making Comparisons How do the expendi-
tures in the United States compare with
How much does food cost you and your family?
those in France?
Depicted here is the percentage of income that
the average citizen of the country spends on 2. Making Generalizations Is the statement
food. “Most nations™ citizens spend about 20 per-
cent of their income on food” a valid state-
ment? Why or why not?


Semiskilled Labor executives. These people usually have invested the
most in their own human capital, and normally
A higher category is semiskilled labor”workers
earn some of the highest incomes.
with enough mechanical abilities and skills to oper-
ate machines that require a minimum amount of
Noncompeting Labor Grades
training. These workers may operate basic equip-
ment such as electric floor polishers, dishwashers,
Workers in one labor category generally do
lawnmowers, and other machines that call for a
not compete with those in another category.
minimal amount of training.
For example, unskilled workers do not compete
directly with semiskilled and skilled laborers.
Skilled Labor Because of this, it is useful to think of labor as being
grouped into noncompeting labor grades, broad
Skilled labor includes workers who are able to
categories of labor that do not directly compete
operate complex equipment and can perform their
with one another because of experience, training,
tasks with little supervision. These workers repre-
education, and other human capital investments.
sent a higher investment of human capital, espe-
This does not mean that some people in one cat-
cially in the areas of experience and training.
egory can never make it to a higher category”work-
Examples include carpenters, typists, tool and die
ers often do when they acquire additional skills and
makers, computer technicians, chefs, and computer
training. Others, however, often find it difficult to
programmers.
make the transition for reasons of cost, opportu-
nity, and initiative.
Professional Labor Cost is one of the more difficult barriers to
advancement. Some individuals have the ability and
The final category is professional labor, or those
initiative to obtain additional technical skills, but
individuals with the highest level of knowledge-
they may not have the money to pay for the training.
based education and managerial skills. Examples
Many students have the aptitude to become college
include doctors, scientists, lawyers, and corporate

206 UNIT 3 MACROECONOMICS: INSTITUTIONS
ECONOMICS
professors, but they lack the resources needed for up
Figure 8.5
AT A GLANCE
AT A GLANCE
to six years of post-college study.
A lack of opportunity poses another barrier. Some
people may live in areas where additional training
The Traditional
and education are not available. Others may have the
resources and grades to enter a specialized program
Theory of Wage
such as law or medical school, but still may not be
Determination
able to enter because schools have limited openings.
Although they know that more skills are needed
to get a better job, other individuals simply lack the A Ditch Diggers
initiative to get ahead. These people may never
acquire additional training or education because S
D
they are not willing to put forth the extra effort.




Annual Wages
Wage Determination Low demand,
high supply result
in low
Most occupations have a wage rate, a stan- annual wages.
dard amount of pay given for work per-
formed. Wage rates usually differ from one
occupation to the next, and wages are sometimes $18,000
different even within the same occupation.
S D
Differences in wage rates can be explained in
three ways. The first relies on the traditional tools Quantity
of supply and demand. The second recognizes the
influence of unions in the bargaining process. The
B Professional Athletes
third is known as “signaling theory.”
D S
High demand,
Traditional Theory of Wages low supply result
in high
Some of the highest paid people are the profes- annual wages.
$1,000,000
sional athletes, performers, and managers with
Annual Wages




skills so exceptional that they are above and
beyond the norm in their professions. Their pay
can be explained by the traditional theory of
wage determination. The theory states that the
supply and demand for a worker™s skills and serv-
ices determine the wage or salary.
Note that Panel A in Figure 8.5 shows what hap- S D
pens to wages when a relatively large supply of Quantity
ditch diggers is coupled with a relatively low level
of demand. Panel B shows what happens when a
relatively small supply of professional athletes is Using Graphs The market forces of supply
paired with a relatively high level of demand. The and demand explain the equilibrium wage
intersection of supply and demand determines the rate for the traditional theory of wage
equilibrium wage rate”the wage rate that leaves determination. How does this theory
neither a surplus nor a shortage in the labor market. differ from the theory of negotiated
In most cases, the higher the level of human cap- wages?
ital, the higher the skill of labor required, and the

CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 207
ECONOMICS based on their race or gender. In addition, workers
Figure 8.6
AT A GLANCE
AT A GLANCE and employers do not always know what the mar-
ket wage rate is or should be.
Median Weekly Earnings
Theory of Negotiated Wages
by Occupation and Sometimes other theories are useful when explain-
Union Affiliation ing wage differentials. The theory of negotiated
wages states that organized labor™s bargaining
strength is a factor that helps determines wages. A
Represented Nonunion
strong union, for example, may have the power to
Occupation by Unions Workers
force higher wages on some firms.
Managerial and Profes- $774 $756
Figure 8.6 helps validate the theory of negotiated
sional Specialty
wages. The table shows that when workers are either
Precision Production,
unionized or represented by unions, weekly salaries
Craft and Repair 747 514
are significantly higher than for nonunion workers.
Government Workers 688 558 This situation applies to all occupations except for
the “managerial and professional specialty” cate-
Technical, Sales, and
Administrative gory, whose members are seldom unionized.
Support 569 463
A final factor important to unions and collective
Operators, Fabricators, bargaining is seniority”the length of time a person
and Laborers 580 381
has been on the job. Because of their seniority,
Farming, Forestry, some workers receive higher wages than others who
and Fishing 462 299
perform similar tasks.
Source: Bureau of Labor Statistics, 1999

Signaling Theory
Using Tables Weekly earnings are signifi- The last explanation is known as signaling theory.
cantly higher for highly skilled occupations. This theory states that employers are willing to pay
Workers represented by unions also make more for people with certificates, diplomas,
substantially more than their nonunion degrees, and other indicators or “signals” of supe-
counterparts. What can you infer about
rior ability. For example, a sales firm might prefer
the theory of negotiated wages from
to hire”or be willing to pay more for”a college
Figure 8.6?
graduate with a major in modern dance and a
minor in theatre, than a high school graduate who
excelled in business courses.
While this may seem odd at first, some firms
higher the average wage rate. Semiskilled workers
view the college degree as a signal that the individ-
generally receive more than unskilled workers, and
ual possesses the intelligence, perseverance, and
skilled workers receive more than semiskilled or
maturity to succeed in his or her endeavors.
unskilled workers. Professional workers generally
You might hear from friends and acquaintances
earn more than any of the other grades. This rela-
that they did not need their high school or college
tionship is evident in Figure 8.6, which ranks occu-
degree to do the job they currently have”as if
pations in descending order according to the level
their education was unimportant. What these peo-
of skills and training required.
ple overlook is signaling theory”the theory that
At times, exceptions to the traditional theory
helps explain why they got the job in the first
may appear to exist. Some unproductive workers
place. The theory says nothing about what they
may receive high wages because of family ties or
needed to know to actually perform the job once
political influence. Other highly skilled workers
they got it.
may receive low wages because of discrimination

208 UNIT 3 MACROECONOMICS: INSTITUTIONS
Regional Wage Differences heated. Because the cost of living is higher in
Alaska than in southern states, employers tend to
Regardless of how wage rates are determined, offer higher wages in Alaska.
they can still be different for the same job Finally, location can also make a difference
from one part of the country to another. Labor because some places are thought to be so attractive
mobility, cost of living differences, and attractive- that lower wages can be offered there. A person
ness of location can all make a difference. who likes to hunt and fish may be willing to work
Skilled workers often are scarce in some parts of for less pay in Colorado or Montana than in New
the country and abundant in others, causing differ- York City. Others may want to flee the busy”and
ences in wage rates. These differences, however, can expensive”city life for life in the country.
be minimized by labor mobility”the ability and
willingness of workers to relocate in markets where
wages are higher.
Not all workers are equally mobile. Some are
INFOBYTE
reluctant to move away from relatives. Some may
want to move, but find that the cost is too high.
Others do not want the inconvenience of buying a
Personal Income Personal income is a measure
new house or renting a new apartment. As a result,
of income that is published by the Department of
the demand for certain skills remains high in some
Commerce. It represents the total income that
areas and low in others, and so wages tend to vary. consumers receive, including most of the national
Another factor that affects wages is the cost of income earned in the production of gross domes-
living. In many southern states, fresh fruits and tic product. It measures wages, salaries and other
vegetables are readily available. In addition, little income sources, including rental income, govern-
money is spent on heavy clothing or on heating a ment subsidy payments, interest income, and divi-
home. In Alaska, however, food must be shipped dend income.
in from thousands of miles away, people must have
warm clothing, and every home must be well




Checking for Understanding Applying Economic Concepts
1. Main Idea Using your notes from the graphic 6. Signaling Theory Look at some help-wanted
organizer activity on page 205, explain why ads in your local paper. What criteria do they
wage rates differ among regions. often specify, and how do these criteria relate
to signaling theory?
2. Key Terms Define unskilled labor, semiskilled
labor, skilled labor, professional labor, non-
competing labor grades, wage rate, traditional
theory of wage determination, equilibrium
7. Making Comparisons How does the cate-
wage rate, theory of negotiated wages, sen-
gory of semiskilled labor differ from
iority, signaling theory, labor mobility.
unskilled labor?
3. List the four categories of labor.
8. Making Generalizations If you were a semi-
4. Explain the importance of noncompeting skilled worker, what could you do to move
labor grades. into a higher category of noncompeting
labor?
5. Describe three different approaches to wage
determination. Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 209
APRIL 26, 1999
Newsclip
The passage of the Americans with act,” says Catherine A. Hanssens, director of the
Lambda Legal Defense & Education Fund. Taken
Disabilities Act in 1990 was the first national
to its extreme, the employers™ position would have
civil rights bill for people with disabilities.
the law cover only persons with disabilities so
The law requires all public places to be
severe they can barely work,
accessible. It also prohibits job discrimi- thereby rendering the law
nation against persons with physical or almost meaningless. . . .
By narrowly construing
mental disabilities. Disputes over the
the ADA, the courts are pre-
meaning of the act™s language have led
venting many able-bodied
to challenges in court.
people from pursuing produc-
tive careers. Consider the case
of Vaughn Murphy, who sued
The Disabled Atlanta-based United Parcel Service Inc. after the
company fired him as a truck mechanic in
and the 1994. . . . His job included road tests of the trucks
he fixed, and UPS said Murphy™s blood pressure

Marketplace exceeded federal standards for driving. Murphy
counters that the driving took up only 1% of his
time, so it would not have been expensive to hire
another driver.
[I]n recent years, many courts have refused to
“Truck work has been my life. When you™ve
assist people without serious disabilities. The rea-
dedicated 23 years, it™s hard to up and change your
son is the language of the ADA, which only cov-
occupation,” says Murphy, who eventually found
ers disabilities that “substantially limit”
another mechanic job. UPS attorney William
important activities such as work. Often, judges
Kilberg says that Murphy understates the amount
have interpreted it to exclude anybody whose
of driving that his old job required and that if the
impairments can be corrected.
Supreme Court rules against the company, it
That narrow legal reasoning has put many peo-
“would be a blow to a company™s ability to set
ple with treatable disabilities in a Catch-22. Just
quality standards.”
because someone can lead a relatively normal life
doesn™t mean they don™t face work- ”Reprinted from April 26, 1999 issue of Business Week, by special

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