Consider the two-sector model of general equilibrium. In the case of Pareto-efficient bargaining between the firm and the union, which means that the wage-employment outcome lies to the right of the labour demand curve, the effect of the union on employment levels is:

Question

Quizplus · Accepted Answer

In a Pareto-efficient bargaining scenario between a firm and a union, the wage-employment outcome that lies to the right of the labour demand curve indicates that the union has managed to negotiate higher wages for its members. However, higher wages can lead to lower employment levels than would otherwise be the case without such bargaining, as firms may reduce the number of employees they can afford to hire at these higher wage rates. This makes option C correct, as the effect of the union on employment levels is less than what would otherwise be the case without union intervention.

Consider the Two-Sector Model of General Equilibrium