Look back at Figure 2. In the union sector, the union’s ability to raise wages from Wn to
Look back at Figure 2. In the union sector, the union’s ability to raise wages from Wn to Wu
decreases total employment from N1 to N2. Thus N1 – N2 workers are displaced from the union sector and will seek employment in the nonunion sector. But suppose that wages in the nonunion sector cannot fall (perhaps because of a minimum wage law). Suppose, more specifically, that they are fixed at Wn in the nonunion sector. If union and the nonunion sectors are the only two sectors in the economy, how many workers will become unemployed because of the union’s ability to raise wages in the union sector?
(Hint: N1 – N2 in the union sector is the same number of workers as N3 – N1 in the nonunion sector.)
d. N1 – N2.
e. N1 + N2.
4. True or false. “To the extent that they succeed in their goals, unions only ever reduce productivity and efficiency.”