Asked by Christa Preville on Apr 24, 2024
Verified
Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power?
A) Both increase.
B) Employment increases and wage declines.
C) Wage increases and employment declines.
D) Both decline.
Perfectly Inelastic Supply
A market condition where the quantity supplied remains constant regardless of changes in price.
Bargaining Power
The relative capacity of parties in a negotiation to exert influence over each other, affecting the terms of the agreement.
Union Workers
Employees who are members of a labor union, which negotiates collective bargaining agreements on their behalf.
- Explain the role of unions in affecting wages and employment for union and non-union workers.
Verified Answer
ZK
Zybrea KnightMay 02, 2024
Final Answer :
C
Explanation :
When the union exercises its bargaining power, it negotiates a higher wage for its members. As a result, the wage for union workers increases, but employment declines because firms will hire fewer union workers at the higher wage. The non-union workers do not benefit from the higher wage, and their equilibrium wage and employment level stay the same. Therefore, the equilibrium employment level for union workers declines, while their wage increases.
Learning Objectives
- Explain the role of unions in affecting wages and employment for union and non-union workers.