how does availability of substitute factors affect unions
two general substitutes for union labour:
i. nonunion labour
ii. certain types of machines
unions attempt to reduce the amount of nonunion labour and nonhuman workers by opposing relation of immigration laws, supporting a high minimum wage and opposing automation as substitute for labour
strikes are not Pareto optimal - post strike settlements after not being able to reach a suitable negotiation lands below the budget constrain between the unions and firms rents
unions will moderate their wage demands the longer the strike lasts, generating a downward sloping union resistance curve
the employer chooses the point on the union resistance curve that puts them on the lowest isoprofit curve and thus maximises profits
this occurs when the isoprofit and union resistance curve are tangent - the strike lasts until this time, t, and the post settlement wage is at this point too
so equilibrium of strike length is when the union resistance curve and the isoprofit curve are tangential
what is the estimation method used to estimate the effects of unions
i. use data on workers in union and nonunion plants to estimate a profit model of union participation - use the results to compute the inverse Mills ration
ii. plug the inverse Mills ration in each equation and estimate by OLS