Look at Figure. In the union sector, the union’s ability to raise wages from Wn to Wu decreases total employment from N1 to N2. Thus N1 − N2 workers are displaced from the union sector and will seek employment in the nonunion sector. But suppose that wages in the nonunion sector cannot fall (perhaps because of a minimum wage law). Suppose, more specifically, that they are fixed at Wn in the nonunion sector. If the union and nonunion sectors are the only two sectors in the economy, how many workers will become unemployed because of the union’s ability to raise wages in the union sector? (Hint: N1 − N2 in the union sector is the same number of workers as N3 − N1 in the nonunion sector.) a. N1 . b. N2 . c. N3 . d. N1 − N2 . e. N1 + N2 FIGURE 2 The effects of the union wage advantage on the allocation of labor. (a) The higher wage rate W, obtained by unions in the union sectordisplaces N, – N, workers and reduces output by area A + B+ C. (b) The displaced workers from the union sector are reemployed in the nonunionsector, where employment increases from N, to N, and the wage rate declines from W, to W. Output increases by area D+ Ein the nonunionsector, but that increase is less than the loss of output A+ B+ C in the union sector. The net loss of output, shown by area B in blue, means thatthe union wage advantage has caused a misallocation of resources and a decline in economic efficiency.W.W.W,W.EDy = MRPD, = MRPN2 N,N,N3EmploymentEmployment(a) Union sector(b) Nonunion sectorWage rateWage rate

Usually when labour Union forces higher wages it results in increased unemployment in the market.…

Answered: FIGURE 2 The effects of the union wage…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 15P

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Look at Figure. In the union sector, the union’s ability to raise wages from W_n to W_u decreases total employment from N₁ to N₂. Thus N₁ − N₂ workers are displaced from the union sector and will seek employment in the nonunion sector. But suppose that wages in the nonunion sector cannot fall (perhaps because of a minimum wage law). Suppose, more specifically, that they are fixed at Wn in the nonunion sector. If the union and nonunion sectors are the only two sectors in the economy, how many workers will become unemployed because of the union’s ability to raise wages in the union sector? (Hint: N₁ − N₂ in the union sector is the same number of workers as N₃ − N₁ in the nonunion sector.) a. N₁ . b. N₂ . c. N₃ . d. N₁ − N₂ . e. N₁ + N₂

FIGURE 2 The effects of the union wage advantage on the allocation of labor. (a) The higher wage rate W, obtained by unions in the union sector
displaces N, – N, workers and reduces output by area A + B+ C. (b) The displaced workers from the union sector are reemployed in the nonunion
sector, where employment increases from N, to N, and the wage rate declines from W, to W. Output increases by area D+ Ein the nonunion
sector, but that increase is less than the loss of output A+ B+ C in the union sector. The net loss of output, shown by area B in blue, means that
the union wage advantage has caused a misallocation of resources and a decline in economic efficiency.
W.
W.
W,
W.
E
Dy = MRP
D, = MRP
N2 N,
N,
N3
Employment
Employment
(a) Union sector
(b) Nonunion sector
Wage rate
Wage rate

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