Question

37. How do unions affect the elasticity of demand for labor?

Answer 1

If the demand for the good produced by union labour is inelastic, if the union pushes up wages (and costs) the output produced by unionized enterprise will not fall much. And if a union has a major effect on wages, its members must manufacture a good for which demand (such as bread) is inelastic.

If the unionized labor's wage bill is a very small proportion of overall cost of output, demand for reduced labor would continue to be fairly inelastic.

For example, since the wages of carpenters and airline pilots are a very small proportion of the total cost of manufacturing in the housing and air travel industries, respectively, a doubling or even tripling of the wages of carpenters or airline pilots would result in the cost of housing or air travel being increased by only 1% or 2%.

Economists also compare the experiences of elevator operators and airline pilots while emphasizing the importance of substitute inputs. It is normally observed that their gains are short-lived when elevator operators of many multi-storeyed buildings form unions and negotiate substantial increases in the wages.