Suppose a powerful labor union negotiates a wage for its members above the equilibrium wage rate in a previously nonunionized market.A likely result of this is that:
A) the union will have difficulty recruiting new members.
B) union members will be able to work more overtime than before.
C) this firm will make up for the higher wage rate by expanding output.
D) not everyone who wants to work at the new wage will be able to find jobs.

Question

Quizplus · Accepted Answer

When a labor union negotiates a wage above the equilibrium wage rate, it creates a surplus of labor where the quantity of labor supplied exceeds the quantity demanded. As a result, the firm will not be able to hire everyone who wants to work at the new wage rate, leading to unemployment. This is also known as the union wage premium. Option A is incorrect because the higher wage rate may actually make the union more attractive to potential members. Option B is unlikely as it depends on the capacity of the firm to offer overtime work. Option C is also unlikely as it may not be feasible for the firm to expand its output to compensate for the higher wage rate.

Suppose a Powerful Labor Union Negotiates a Wage for Its