Scenario: Truck drivers across the country are on strike in an effort to negotiate higher wages. Currently the labor market in this industry clears at WM and QM, as shown in the figure below.

-Refer to the scenario above.Why is unemployment likely to increase if the negotiations are successful?

Question

Scenario: Truck drivers across the country are on strike in an effort to negotiate higher wages. Currently the labor market in this industry clears at WM and QM, as shown in the figure below.
 
-Refer to the scenario above.Why is unemployment likely to increase if the negotiations are successful?

Quizplus · Accepted Answer

If the negotiations are successful and the wage rate increases, some workers who were previously willing to work at a lower wage may no longer be able to find employment, resulting in an increase in unemployment. This is because the new wage rate will cause a shift from QM to QS (less labor demanded and more labor supplied) leading to a surplus of labor, which is referred to as unemployment. Therefore, option B is the correct answer. The other options are not relevant to the scenario, as they do not explain why unemployment is likely to increase if negotiations are successful.

Scenario: Truck Drivers Across the Country Are on Strike in an Effort