Assume the union contract wage exceeds the market-clearing wage.If there is an increase in the labor supply, then the number of unemployed workers will ______ and the number of employed workers will _______.
A)increase; increase
B)increase; decrease
C)increase; not change
D)decrease; increase

Question

Quizplus · Accepted Answer

When the union contract wage is above the market-clearing wage, it creates a surplus of labor, or unemployment. An increase in labor supply will increase the number of unemployed workers because more workers are willing to work at the union wage, but the number of employed workers will not change as the wage rate remains above the market-clearing level.

Assume the Union Contract Wage Exceeds the Market-Clearing Wage