Question

Electricians work in many different occupations, a small percentage of which are in construction. All the construction companies operating in the greater Pittsburgh, Pennsylvania, region have signed an agreement with each other that they will form a single entity to hire all electricians on each of their construction jobs. Assume this agreement is not illegal under the antitrust laws.  There is only one union of electricians in this geographic area, the International Brotherhood of Electrical Workers (“IBEW”), but some electricians do not belong to the union.  Electricians who work on construction and are members of the union have specific skills learned in training schools operated by the union and available only to union members.  Those electricians carry a certification of quality that helps some construction companies obtain lower insurance rates on their operations. Non-union electricians cannot obtain such certifications.

At any given time, there are always IBEW electricians looking for work in construction in Pittsburgh. By contrast, the non-union electricians are fully employed, all year long, whether in construction or other occupations.

a) Provide an explanation for why the construction companies would agree to hire electricians according to a common plan.

b) The construction companies pay a higher wage for union electricians than for non-union electricians. Provide at least one explanation for why this might be so. (Extra credit for more than one explanation.)

c) Provide an explanation for why some IBEW construction-electricians are not employed at any given time even though they would be willing to work for the union wage, while all the non-union electricians (who work in construction but in many other settings as well, e.g., repair, maintenance, odd-jobs) who want to work are employed all year long. (Do not base your answer on some conjecture about overall economic conditions in Pittsburgh.)

Answer 1

a) The construction companies would agree to hire electricians according to a common plan because this decreases the chance of wage competition among the construction companies and it also gives them a higher negotiation power for wages with the electricians. If all the companies hire separately one may pay higher wages to electricians than the other and hence others have to increase their wages too, there is also greater chance of wage negotiation for electricians because if they get less wage in one company they can move to other.

b) The construction companies pay a higher wage for union electricians than for non-union electricians because they comes with the certificate and the use of certified electricians brings down the rate of insurgences premiums for the companies and hence it increases their profit. The other reason may be with the unions they can get any number of electricians whenever they want but the availability of individual electricians can't be ensured.

c) some IBEW construction-electricians are not employed at any given time even though they would be willing to work for the union wage, while all the non-union electricians (who work in construction but in many other settings as well, e.g., repair, maintenance, odd-jobs) who want to work are employed all year long. There are two reasons for it.

• Firstly the IBEW electricians have less opportunity because they only work in construction sector but other individual electricians do many other types of works, so jobs available for the individual electricians are more than the IBEW electricians.
• Secondly since the wages for the IBEW electricians are higher than the individual electricians and hence we know lower price leads to higher demand.