Labor Economics 5th Edition by George Borjas

Exercise 16

Suppose the economy consists of a union and a non-union sector. The labor demand curve in each sector is given by L = 1,000,000 - 20 w. The total (economy-wide) supply of labor is 1,000,000, and it does not depend upon the wage. All workers are equally skilled and equally suited for work in either sector. A monopoly union sets the wage at $30,000 in the union sector. What is the union wage gap What is the effect of the union on the wage in the non-union sector