If a union is successful in negotiating a wage rate which is above the market clearing wage, then which of the following would not occur?
A) The higher wages attract more workers leading to a shortage of jobs.
B) Management may replace part of the workforce with machinery.
C) To handle the surplus of labor the union will form a closed shop.
D) The union may shift the supply of labor curve by developing methods to ration jobs.

Question

Quizplus · Accepted Answer

A closed shop is a workplace in which only union members can be hired. It is not related to handling a surplus of labor caused by a wage rate above the market clearing wage. Instead, it is a way for the union to limit competition from non-union workers and increase their bargaining power with management. Options A, B, and D are likely outcomes of negotiating a wage rate above the market clearing wage, as they all involve adjustments to the labor market in response to the higher wages.

If a Union Is Successful in Negotiating a Wage Rate