Question 1

"Both the elasticity and the position of the labor demand curve are fundamental constraints on a union's ability to accomplish its objectives." Explain why and illustrate your answer graphically.

Accepted Answer

The answer of "Both the elasticity and the position of...

Question 2

Many unions have favored import quotas and tariffs because

Accepted Answer

Unions advocate for import quotas and tariffs to shift demand towards the goods they produce, in order to promote the interests of their members and employers. This protectionist policy allows domestic manufacturers to charge higher prices for their products, which potentially leads to higher wages and improved working conditions for union members. However, import restrictions can also increase prices for consumers and reduce overall economic welfare.

Question 3

A vertical contract curve implies that

Accepted Answer

A vertical contract curve implies that both the firm and workers are receiving economic rents, meaning they are benefiting from the contracting relationship. This occurs when the wage rate is above the competitive market equilibrium wage and productivity is above the level required for the firm to break even. Therefore, both parties are better off than they would be in a perfectly competitive market.

Question 4

Suppose a study found that union wages were 10% higher than nonunion wages.Unions will have actually raised wages by more than 10% when

Accepted Answer

Nonunion employers often raise wages in response to the threat of being unionized in order to avoid unionization. This means that unionization has indirectly raised wages in the nonunion sector as well. Therefore, the actual increase in wages due to unionization can be greater than the 10% difference found in the study.

Question 5

Which of the following statements is generally true about unions?

Accepted Answer

Unions typically reduce the dispersion of earnings among workers, meaning that they decrease the gap between high-paid and low-paid workers within the same company or industry. Option A is not necessarily true for all unions and industries, as the wage increase can vary widely. Option B is not universally true, as some private sector unions may negotiate higher wages than public sector unions. Option C is not always true, as the union wage advantage can vary by country and industry.

Question 6

Suppose the firm's demand for labor is L^D= 100 - W.The supply of labor is perfectly elastic at a wage of $20.If a monopoly union's goal is to maximize total rents (= [W_U - $20] × L),what wage will it seek?

Accepted Answer

The union will set the wage where the marginal rent from an additional worker is zero. The demand for labor is L = 100 - W. Setting W = 60, L = 40, and the rent is (60 - 20) × 40 = 1600, which is maximized.

Question 7

Any point on the contract curve will

Accepted Answer

The contract curve represents the set of efficient outcomes that both the union and the firm could agree upon. Any point on the contract curve ensures that both the union and the firm are at least as well off as they would be in monopoly union negotiations, without making either party worse off. Therefore, choice C is the best answer.

Question 8

Suppose all textile workers in the United States formed a union.Which of the following will make it more likely the union will ask for a larger wage increase (assuming the union cares about both higher wages and retaining jobs)?

Accepted Answer

If textile firms will not invest in capital substituting for labor, the union may feel more secure in asking for a larger wage increase without fearing significant job losses due to automation or capital investment.

Question 9

Suppose that a union increases wages by 10% but that the impact of this is exactly offset by the union also increasing labor productivity by 10%.Which of the following will occur if the firm can freely set employment levels?

Accepted Answer

The union wage increase is offset by the productivity increase, so the cost of production remains the same. However, the firm can now produce more output with the same number of workers, so it will reduce employment.

Question 10

If both parties are risk neutral,then

Accepted Answer

When both parties are risk neutral, they are indifferent between certain outcomes and uncertain ones with the same expected value, leading to a larger number of potential agreements they might find acceptable, as their decision-making is based solely on expected outcomes rather than risk aversion or seeking.

Question 11

What is a right-to-work law?

Accepted Answer

The answer of What is a right-to-work law?...

Question 12

What has happened to the percentage of union membership in the private sector since the 1970s? What are the demand-side factors that would account for the trend you identified? What are the supply-side factors accounting for the trend you identified?

Accepted Answer

The answer of What has happened to the percentage of...

Question 13

Which of the following best describes the economic nature of a union?

Accepted Answer

The answer of Which of the following best describes the...

Question 14

If both parties become more risk averse,then the contract zone will

Accepted Answer

The answer of If both parties become more risk averse,then...

Question 15

What are the two types of unions operating in the United States? What do unions do?

Accepted Answer

The answer of What are the two types of unions...

Question 16

Suppose a study finds that union wages are 10% higher than nonunion wages.This will likely overstate the true advantage of working in the union job when

Accepted Answer

The study finding that union wages are 10% higher than nonunion wages may be affected by selection bias, as workers who are less productive or skilled may be less likely to be hired by unionized employers. Therefore, non-union jobs may have a higher proportion of skilled workers, which would mean that the actual advantage of working in a union job may be lower than 10%. Additionally, the poor working conditions in the union job may also reduce the attractiveness of the higher wage, which could further reduce the advantage of working in the union job. However, the fact that workers who lose union jobs may seek out non-union jobs (choice C) could bias the comparison in favor of the union jobs, as these workers may have lower bargaining power and accept lower wages than they would if they had not been displaced. Therefore, the actual advantage of working in a union job may be lower than 10% if the study does not account for this selection bias.

Question 17

Unions usually have which of the following effects?

Accepted Answer

Unions typically negotiate for better employee benefits, such as healthcare and retirement plans, which can increase the fraction of total compensation paid in the form of employee benefits. Choices A and B are incorrect as there is no evidence that unions increase profits or growth rate of employment. Choice D is also incorrect as unions aim to increase wages and compensation for their members.

Question 18

A union cares both about what its members are paid and the number of jobs held by its members.Suppose that the union sets a wage level that maximizes its utility level subject to the constraint that the resulting wage/employment combination must lie on the labor demand curve (call this the monopoly union outcome).Is the monopoly union outcome efficient? Why or why not? Illustrate your answer graphically.

Accepted Answer

The answer of A union cares both about what its...

Question 19

The efficient contract model implies that

Accepted Answer

The efficient contract model implies that both the union and the employer are better off than they would be in a monopoly union model, as they are able to reach a mutually beneficial agreement on wages and employment levels. This results in a more efficient allocation of resources and greater overall welfare.

Question 20

A union raises the wage of firm X from $10 to $15 an hour.In which of these cases is there a direct reduction in the social welfare?

Accepted Answer

The answer of A union raises the wage of firm...

Quiz 13: Unions and the Labor Market

"Both the elasticity and the position of the labor demand curve are fundamental constraints on a union's ability to accomplish its objectives." Explain why and illustrate your answer graphically.

Many unions have favored import quotas and tariffs because

A vertical contract curve implies that

Suppose a study found that union wages were 10% higher than nonunion wages.Unions will have actually raised wages by more than 10% when

Which of the following statements is generally true about unions?

Suppose the firm's demand for labor is L^D= 100 - W.The supply of labor is perfectly elastic at a wage of $20.If a monopoly union's goal is to maximize total rents (= [W_U - $20] × L) ,what wage will it seek?

Any point on the contract curve will

Suppose all textile workers in the United States formed a union.Which of the following will make it more likely the union will ask for a larger wage increase (assuming the union cares about both higher wages and retaining jobs) ?

Suppose that a union increases wages by 10% but that the impact of this is exactly offset by the union also increasing labor productivity by 10%.Which of the following will occur if the firm can freely set employment levels?

If both parties are risk neutral,then

What is a right-to-work law?

What has happened to the percentage of union membership in the private sector since the 1970s? What are the demand-side factors that would account for the trend you identified? What are the supply-side factors accounting for the trend you identified?

Which of the following best describes the economic nature of a union?

If both parties become more risk averse,then the contract zone will

What are the two types of unions operating in the United States? What do unions do?

Suppose a study finds that union wages are 10% higher than nonunion wages.This will likely overstate the true advantage of working in the union job when

Unions usually have which of the following effects?

The efficient contract model implies that

A union raises the wage of firm X from $10 to $15 an hour.In which of these cases is there a direct reduction in the social welfare?

Quiz 13: Unions and the Labor Market

"Both the elasticity and the position of the labor demand curve are fundamental constraints on a union's ability to accomplish its objectives." Explain why and illustrate your answer graphically.

Many unions have favored import quotas and tariffs because

A vertical contract curve implies that

Suppose a study found that union wages were 10% higher than nonunion wages.Unions will have actually raised wages by more than 10% when

Which of the following statements is generally true about unions?

Suppose the firm's demand for labor is LD= 100 - W.The supply of labor is perfectly elastic at a wage of $20.If a monopoly union's goal is to maximize total rents (= [WU - $20] × L) ,what wage will it seek?

Any point on the contract curve will

Suppose all textile workers in the United States formed a union.Which of the following will make it more likely the union will ask for a larger wage increase (assuming the union cares about both higher wages and retaining jobs) ?

Suppose that a union increases wages by 10% but that the impact of this is exactly offset by the union also increasing labor productivity by 10%.Which of the following will occur if the firm can freely set employment levels?

If both parties are risk neutral,then

What is a right-to-work law?

What has happened to the percentage of union membership in the private sector since the 1970s? What are the demand-side factors that would account for the trend you identified? What are the supply-side factors accounting for the trend you identified?

Which of the following best describes the economic nature of a union?

If both parties become more risk averse,then the contract zone will

What are the two types of unions operating in the United States? What do unions do?

Suppose a study finds that union wages are 10% higher than nonunion wages.This will likely overstate the true advantage of working in the union job when

Unions usually have which of the following effects?

The efficient contract model implies that

A union raises the wage of firm X from $10 to $15 an hour.In which of these cases is there a direct reduction in the social welfare?

Suppose the firm's demand for labor is L^D= 100 - W.The supply of labor is perfectly elastic at a wage of $20.If a monopoly union's goal is to maximize total rents (= [W_U - $20] × L) ,what wage will it seek?