Neoclassic Theory Of Wage Maximization

Most people in modern civilization live on day to day pay cheque. This makes their life unstable and hard as no one knows the future. If one supporting member of the family gets sick and misses work, they are unsure of how to pay their mortgage or put food on the table. This is why we have labor union. Labor union around for ages and have fought for the rights on the employees. Even though it early 1900 labor union was not really effective, it is one of the strongest assets of the labors. They work as a middle man between the company and the labors and fight for the rights of both the employees and employer’s.
One of the main focus of labor union is wage maximization. Wage maximization is a neoclassic theory that wages are paid at a level equal to the marginal revenue product of labor. Labor union fight to get the employees the wage they deserve. Everyone wants saving in life, even the employers. That means pay or offer benefits as little as possible. Employees want as much from a company as possible. This is where labor union comes …show more content…
In 2007 Ford motors executive chairman Bill Ford said the union president Ron Gettelfinger helped saved the company from going bankrupt. The union leader worked with both the company leaders and the employees when the company was under its “darkest time.” Steps that were taken by the union to protect the company are called rent maximization. When a company is not making enough profit, it has to let to some of its labor to cut down on the labor cost to keep the company going. A union’s job is to protect the employees from getting wrong fully fired. However if the company doesn’t exist, there won’t be any job. Union worked the employees and looked at the bigger picture of protecting the company first. This allowed the company to get where it is now and build more plants and hire lots more