Today in my ECONS101 class, I covered search models of the labour market. In these models, a matching between a worker and an employer creates a surplus, which is then shared between the worker and employer depending on their relative bargaining power. The greater the worker's relative bargaining power, the greater the share of the surplus the worker will claim, meaning that wages will be higher. The lesser the worker's relative bargaining power, the lesser the share of the surplus the worker will receive, meaning that wages will be lower.
Search models are not just useful for thinking about labour markets though. They can be used in any situation where two (or more) parties are matched together in a way that creates a surplus, which is then shared between them. A joint venture between firms is an example. So is a marriage. In both cases the parties match together, create a surplus, and then share that surplus based on their relative bargaining power. A further example exists in the market for rental housing. Landlords and tenants are matched together. That matching creates a surplus, which is shared between them. And relative bargaining power matters, as this Yahoo!News article from the end of last year (originally published in the Washington Post) demonstrates:
In the two years she has lived at Bowen Tower, Cynthia Barlow’s apartment has flooded, been plagued by mold and been infested with cockroaches. The building’s heat stopped working. When the elevators broke over the summer, emergency workers carried a sick neighbor down 10 flights of stairs.
Meanwhile, Barlow’s rent for the two-bedroom unit increased from $993 per month to $1,213.
Growing frustrated, she hung fliers in the elevators and hosted potlucks, persuading a majority of tenants in the 90-unit building to join the Bowen Tower Tenant Union and stop paying rent until conditions improved. So far, they’ve won a meeting with the landlord, and a judge has knocked thousands of dollars off the rent debt of one resident facing eviction.
“I got tired of being treated the way I was treated,” Barlow said.
The rent strike is part of a strategy that housing activists have started to replicate in midsize cities across the country.
When tenants organise themselves into a tenant union, then ceteris paribus (holding all else equal) that increases the tenants' relative bargaining power with the landlords. If the tenants were to all leave their apartments, then the landlord has to search for new tenants, which is costly. Now, an individual tenant could threaten to move out, but filling one apartment with a new tenant is relatively easy. When an entire block of tenants makes the same threat, the landlord is facing serious disruption. More importantly, a rent strike means that, instead of losing or negotiating with one tenant at a time, the landlord faces coordinated action including withholding rent, legal disputes, repair demands, and public pressure from many tenants at once.
The tenants' increased bargaining power (due to unionising) should result in lower rents and improved maintenance of the apartments. The way this worked in practice was that tenants, feeling more powerful with the backing of other tenants, stopped paying rent. However:
Barlow is scheduled for eviction court in January, and Bowen Tower management hasn’t renewed her lease.
There is only so far that tenants can push their greater relative bargaining power, particularly where alternative affordable housing is scarce and legal protections are weak. However, the Bowen Tower case also shows why collective action may matter. Ultimately, the tenants appear to have prevailed and won substantial concessions. This later article notes that the rent strike ended after four months, when the landlord promised repairs and lower rents, and after tenants had withheld nearly US$110,000 in rent.
Tenant unionisation does not guarantee success, and the risks to tenants can be substantial. But it does mean that tenant unions can shift the bargaining outcome, and the share of the surplus, especially when they are able to sustain coordination long enough to make the landlord’s alternative more costly than negotiation.
[HT: New Zealand Herald]
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