There are three firms in an industry, all of which hire comparably skilled workers.One firm is unionized and pays its 80 workers $11 per hour.Of the two non-union firms, one pays its 40 workers $12 per hour while the other pays its 160 workers $9.50 per hour.What is the union wage gap?
A)-8 percent
B)0 percent
C)10 percent
D)12.5 percent
E)27 percent

Question

Quizplus · Accepted Answer

To calculate the union wage gap, we need to compare the union wage rate with the average wage rate of non-union firms. The average non-union wage rate is the weighted average of the two non-union firms based on the number of workers they hire.

- Union firm: 80 workers x $11 per hour = $880 total hourly wage
- Non-union firm 1: 40 workers x $12 per hour = $480 total hourly wage
- Non-union firm 2: 160 workers x $9.50 per hour = $1520 total hourly wage

Total workers = 80+40+160 = 280

Average hourly wage rate of non-union firms:
($480 + $1520) ÷ 280 = $10.14

The union wage gap can be found by comparing the union wage rate with the average non-union wage rate:

($11 - $10.14) ÷ $10.14 x 100 = 8.5%

Therefore, the closest answer choice is C) 10 percent.

There Are Three Firms in an Industry, All of Which