Unit 5

Labor and Business Unit

I. Labor Market

A. Labor Force

1. Employed2. unemployed 3. not

a. young childrenb. adults over 65c. Militaryd. Prisonerse. other institutionalized persons.

B. Employed

1.Work at least one hour of pay within the past week

2.Worked 15 hours or more without pay in family business.

3.Held jobs but did not work due to illness, vacations, labor disputes, or bad weather.

C. Unemployed

1. Without work, but has searched for job over the last four weeks.

2.Waiting to be called back to work from a job they have been laid off from.

3.Waiting to start a new job in thirty days.

D. Supply and Demand

1.Labor Supply – Households provide labor supply

2.Labor Demand – Businesses and government provide labor demand.a.Productivity – value of output.b.Many workers are paid by

output, but this is hard to measure in some cases.

E. High Wages

Firms respond by replacing workers with…

1. Cheaper labor elsewhere.2. Machinery.3. Employees respond by…4. Looking elsewhere for a job in a

good economy.5. Forming a union.

F. Equilibrium Wage

F. Levels of Skill

1. unskilled -no specialized training, work mainly with their hands

2. semi-skilled -operate electric machinery that requires minimum training

3. skilled- trained to operate complex equipment and can work without direct supervision

4. professional -high level skills, usually resulting from extensive education

II. Unions

A. Why unions are important:

1. Responsible for safety and pay laws.2. Unions have presence in vital industries. 3. 1993, = 19 million workers. 4. Becoming more diverse in service industry.

B. Early Union Development

1. Immigrants and unskilled workers attempted unionization in mid-1800's.

2. Law and the public were against formation. 3. After Civil War, industry expanded4. Immigrants assimilated.5. Labor force became more unified.

6. Types of Unions

a. craft (trade) union - skilled workers who do same work (guilds)

b. industrial union -all workers in a given industry regardless

C. Union Activities

1. Negotiated for:a. higher payb. better working conditionsc. job security

2. strike -a refusal to work until demands are met3. picket -parade in front of business with signs4. boycott- refusal to buy products

D. Employer Resistance

1. lockout – don’t let employees in until work dispute is settled.

2. Scabs – Hired to replace those on strike

3. Company Unions –organized by employers

E. Attitude of the Law

1.Pre Great Depression – law is anti-union2.Common misery among workers united

them behind labor unions during Great Depression.

3.Pro-Union Legislation allowed peaceful strikes, pickets, and boycotts

4.Can bargain collectively

F. 1938- Fair Labor Standards Act

1. set minimum wage 2. set 40 hour work week3. time and a half for overtime

4. ended child labor

G. Post WWII

1. Grows unpopular, too many strikes.2. Taft-Hartley Act passed

a. Unions can’t donate to partiesb. Right to work – can’t be forced to join

unions.3. American Federation of Labor (trade)4. Congress of Industrial Organizations

(industrial)5. Merged AFL-CIO

III. Resolving Union and Management Differences

A. Kinds of Union Arrangements

1. Closed Shop - arrangement in which the employer agrees to hire only union members

2. Union shop –must join in 30 days3. Modified Union Shop

a. Cannot be forced to join union b. If the worker voluntarily joins, he must remain in the union

4. Agency Shop - Non-union members have to pay dues and are subject to the same contract

B. Collective Bargaining -a meeting between representatives from the union and management

1. Can be a long process 2. Requires compromise 3. Contract may include

a. wages b. benefits c. work conditions d. grievance

4. No Agreement:

a. Mediation - 3rd person offers compromise.

b. Arbitration -3rd party determines final decision.

c. Fact finding – 3rd party gathers info.

d. Government Involvement

1. injunction -a court order to stop2. seizure -when gov’t takes over and runs

the business 3. usually only happens in vital industries -

coal mines, police, etc.

C. Trends in Labor

1. Union Membership has declined to 12%2. Reasons for Decline: a. Women & teenagers less likely to join. b. New types of work -service industry and

technology replaces manufacturing

III. Business Organizations

A. Sole Proprietorship- Description

1. Form of business in which individual owns firm.

2. 75% of all firms.

3. Advantages

a. Easy to start.b. Little government involvement.c. All profit goes to owner.d. Complete control.e. Taxes are generally lower.

4. Disadvantages

a. Unlimited Liability – Responsible for all debts.

b. Difficult to raise capitalc. Limited Managerial experience is

necessary d. Difficulty in finding qualified employees

B. Partnerships - Description

1. A business jointly owned by two or more people.

2. Advantages

a. Simple to establish and manage b. No special taxes c. Easier to gain capital (bank loans)d. Slightly larger size allows for better

efficiency. e. Easier to attract top talent (law firms,

accounting firms).

3. Disadvantages

a. Liabilityi. General Partnership - Each partner is fully

responsible for the acts of other partners. ii. Limited Partnership - Investing partner loses

only the original investment if it fails, but cannot be involved indecisions

b. All partners share the profitsc. Limited Life -If a partner dies, business

ceases to exist.

C. Corporation

1. A business organization recognized by law as a separate legal entity.

2. It can buy and sell property, enter into contracts, sue, and be sued.

3. 20% of all businesses. 4. 90% of all products sold in USA.

5. Advantages

a. Ease in raising capital through sale of stock. b. Board of Directors (elected by stockholders)

can hire the best management available to run the company

c. Limited Liability --If corporation goes bankrupt. Owners lose original investment.

d. Unlimited Life --The business continues to exist even when ownership changes.

6. Disadvantagesa. Corporate charter may be difficult or expensive

to obtain.i. name of company ii. address purpose of the business

b. Investors (owners) have little say in how the business is run.

c. It must pay taxes since it is a separate legal entity.

d. Subject to more government regulation—Securities and Exchange Commission

7. Stocka. Preferred – No votes, but dividends (share of profits)

first.b. Common stock – with voting rights.c. Stock exchange – market to trade stock

i. NYSE – blue chips (stable companies)ii. National Association of Securities Dealers Automated

Quotations – new companies d. Stock Broker – trades stocke. Split Stock – price too high, price and stock is divided.

i. Ex – 25 shares at $100, now 50 shares at $50ii. Done to keep stock affordable

8. Criticismsa. Stockholders and management are separate, leaving

low motivation.b. Management incurs greed in positions, rewarded with

little understanding from stockholders.c. Easy for management to manipulate company reports,

stock value.d. Enron 2000=$90, 10/2001 = $15e. AIG = $400,000 spa/golf trip, $86,000 hunting tripf. NYSE CEO had received $140 million despite being

pushed out of the job. g. Adam Smith criticized joint-stock companies.

9. Franchisea. Entrepreneur purchases right to use brand name or trademark.b. Good

i. Receives name recognitionii. Employee trainingiii. Ease with startupiv. Range of products, ideasv. Advertisingvi. Broaden basevii. Less staff on the ground throughout the nation.viii. Distribute costs.

c. Badi. Stipulations from parent company.ii. Inventory purchases.iii. Little room for innovation.iv. Less control for parent.v. Few with capital to cover startup costs