00:01
So here we're talking about the pluses and minuses of worker unions, right? and which of these can have unintended consequences? the first one is absolutely true, right? that firms will hire less.
00:11
Remember that an optimizing firm sets the marginal product of labor equal to the wage.
00:17
As the union manages to increase the wage by, you know, exerting its muscles at the bargaining table, the marginal product of labor has to rise as well.
00:26
The only way the marginal product of labor rises is to do.
00:30
Decrease hiring, right? if the union succeeds in raising wages, it is almost guaranteed that the firms will hire less in response because, you know, some of the marginal jobs that were maybe worth hiring someone to do are just not worth hiring someone to do anymore.
00:43
So yes, absolutely.
00:45
If you increase the wage, firms will want to buy less labor at the higher wage.
00:49
B, firms could respond to union demands by higher wages by substituting capital for labor.
00:53
Yes, and again, this probably will happen, right? when firms choose how much capital and labor to employ, they look at the prices of these things, right? capital and labor are what we call substitutes.
01:09
They're not perfect substitutes, but you can use machines and capital in different ways in different proportions to assemble the same job.
01:18
If the price of capital is unchanged and the price of labor is going up, yeah, the firm will absolutely try to replace some relatively expensive labor with now relatively cheap capital...