A union is formed to restrict labour supply in a previously perfectly competitive labour market. If the union succeeds in raising the wage, everything else remaining the same,

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The union's success in raising the wage will result in an increase in the cost of labour for firms. Since the market was previously perfectly competitive, firms cannot pass on the increased cost to consumers by raising prices. Consequently, firms will reduce their demand for labour to restore their original profit margins, leading to a fall in employment. This will negatively impact workers who are not in the union, as they will have less job opportunities available to them. Finally, the total wage bill will fall as the reduction in employment outweighs the increase in the wage rate for those who are employed.

A Union Is Formed to Restrict Labour Supply in a Previously