Figure 14.4
-Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers,and the union shifts its policy from maximizing total economic rents to maximizing total wages earned by members.What happens to the equilibrium employment level and wage for non-union workers?

Question

Quizplus · Accepted Answer

When the union shifts its policy to maximizing total wages earned by members, they will demand higher wages, causing the wage rate to increase. This also means that employers will reduce their demand for union workers, as their higher wages make them more expensive to hire. As a result, the demand for non-union workers increases and their wage rate also increases. However, since the supply of labor is perfectly inelastic, the increase in the wage rate for non-union workers will not increase the amount of employment, causing employment levels to decline. Therefore, the equilibrium employment level declines, while the wage rate for non-union workers increases.

Figure 14.4 -Suppose a Labor Market Has Perfectly Inelastic Supply That Is