Unions and firms paying wages above equilibrium create structural unemployment because they result in wages being set above the market-clearing level, leading to a surplus of labor (unemployment) that is not due to the time it takes to find a job (frictional unemployment).

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Unions

Question 327

Multiple Choice

Unions

A) and firms paying wages above equilibrium to improve worker effort both create frictional unemployment.
B) create frictional unemployment, while firms paying wages above equilibrium to improve worker effort create structural unemployment.
C) create structural unemployment, while firms paying wages above equilibrium to improve worker effort create frictional unemployment.
D) and firms paying wages above equilibrium to improve worker effort both create structural unemployment.

Correct Answer: