Unions may lower real wages in the nonunion sector because

Question

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When unions negotiate higher wages for their members, it makes the unionized sector more attractive to workers. As a result, some workers in the nonunion sector may be displaced or decide to switch over to unionized jobs, which increases the labor supply in the nonunion sector. This increase in labor supply puts downward pressure on wages in the nonunion sector, thereby reducing real wages. Option A is not correct because if nonunion firms have difficulty attracting skilled workers away from unions, it may lead to higher wages in the nonunion sector rather than lower wages. Option B is also not correct because if nonunion firms adjust wages to avoid the threat of unionization, it may lead to higher wages in the nonunion sector, rather than lower wages.

Unions May Lower Real Wages in the Nonunion Sector Because