Question

Today, Wal-Mart employs more people- 1.7 million than any other private employer in the world. With size comes power: Wal-Mart's prices are lower and United Food and Commercial Workers International Union argues that Wal-Mart's wages are also lower than its competitors. Last year, the workers at a Canadian outlet joined the union and Wal-Mart immediately closed the outlet. But does Wal-Mart behave any worse than its competitors? When it comes to payroll, Wal-Mart's median hourly wage tracks the national median wage for general retail jobs. a. Explain how a union of Wal-Mart's employees would attempt to counteract Wal-Mart's wage offers (a bilateral monopoly). b. Explain the response by the Canadian WalMart to the unionization of employees.

Short answer

Unions counteract Wal-Mart's wage offers by collectively bargaining for better pay. Wal-Mart's response to unionization was closing the outlet to avoid negotiations.

Step-by-step solution

Understanding Bilateral Monopoly

In a bilateral monopoly, a market consists of a single buyer (monopsony) and a single seller (monopoly). In this context, Wal-Mart represents the monopsony (single buyer of labor), and the union represents the monopoly (single seller of labor).

Union's Counteraction to Wage Offers

A union of Wal-Mart’s employees would attempt to counteract Wal-Mart's wage offers by collectively bargaining for higher wages and better working conditions. By consolidating the employees' negotiating power, the union can resist low wage offers and push for compensation closer to or above the national median wage for general retail jobs.

Analyzing Wal-Mart's Response

When the employees at a Canadian Wal-Mart outlet joined the union, Wal-Mart's response was to close the outlet. This response suggests that Wal-Mart might prefer closing a store rather than negotiating higher wages or better working conditions dictated by a union, possibly to discourage unionization at other outlets.

Drawing Conclusions

The actions taken by Wal-Mart following unionization of the Canadian outlet indicate an unwillingness to deal with union-led wage negotiations. This behavior could deter further union efforts and help maintain lower wage offers compared to what a union might secure through collective bargaining.

Key concepts

bilateral monopoly

A bilateral monopoly occurs when there is only one buyer and one seller in a market. In the case of Walmart, it acts as a monopsony (single buyer of labor) while the union of Walmart employees acts as a monopoly (single seller of labor). This unique market structure leads to a direct confrontation in negotiations. Walmart wants to keep wages low to maintain its low pricing strategy, while the union aims to secure higher wages and better working conditions for its members. The negotiation between the two thus becomes a tug-of-war over wages and conditions.

collective bargaining

Collective bargaining is a process where workers, through their union, negotiate with their employer to establish the terms of employment. For Walmart employees, joining a union means they can negotiate as a single entity for better wages and working conditions rather than as individuals. This unified front strengthens the employees' bargaining power, making it harder for Walmart to dictate unfavorable terms. By achieving collective bargaining, employees can work towards securing benefits that align better with their needs and expectations.

monopsony

In a monopsony, a single buyer significantly influences a market. Walmart, as the largest private employer, exercises monopsony power by controlling the demand for low-wage retail labor. This influence allows Walmart to set wages at lower rates since their employment opportunities outnumber those of smaller competitors. However, this system can result in suppressed wages and minimal job security for employees. In response, unions emerge to balance this power, striving to elevate wages and improve working conditions through collective negotiation.

labor unions

Labor unions are organizations formed to protect and advance the rights of workers. They play a crucial role in industries like retail, where companies might otherwise exploit their labor force. When Walmart employees unionize, they aim to counteract Walmart’s control over wages and working conditions. Labor unions represent the collective interests of workers, seeking to ensure fair wages, adequate benefits, and safe working environments. The case of the Canadian Walmart outlet highlights the tension between unionized labor forces and corporate entities that resist union influence.

wage negotiation

Wage negotiation involves discussions aimed at setting the terms of pay for workers. For Walmart employees who join a union, wage negotiation is a critical tool to improve their earnings and job conditions. By negotiating collectively, employees leverage their collective bargaining power to push for fair compensation. Companies like Walmart, which dominate the market, might resist these negotiations to keep operating costs low. The closure of a unionized Canadian Walmart outlet illustrates how such negotiations can lead to confrontational outcomes, underscoring the ongoing struggle for fair wage agreements.