Suppose the union wage rate rises.The "spillover effect" suggests that the nonunion wage rate should _____; the "threat effect" suggests that the nonunion wage rate should _____.

Question

Quizplus · Accepted Answer

The spillover effect occurs when a higher wage rate in the union sector leads to an increase in the wages of the nonunion sector. This happens because employers in the nonunion sector need to offer higher wages to compete with the union sector for workers. Therefore, the nonunion wage rate should rise.
On the other hand, the threat effect occurs when the threat of unionization prompts nonunion employers to increase wages to discourage unionization attempts. Therefore, the nonunion wage rate should also rise. So, the correct answer is C: the nonunion wage rate should fall with the spillover effect, but rise with the threat effect.

Suppose the Union Wage Rate Rises