Suppose that a car factory initially hires 1500 workers at $30 per hour and that each worker works 40 hours per week. Then the factory unionizes, and the new union demands that wages be raised by 10 percent. The firm accedes to that request in collective bargaining negotiations but then decides to cut the factory’s labor force by 20 percent due to the higher labor costs.
a. What is the new union wage? How many workers does the factory employ after the agreement goes into effect?
b. How much in total did the factory’s workers receive in wage payments each week before the agreement? How much do the factory’s remaining workers receive in wage payments each week after the agreement?
c. Suppose that the workers who lose their jobs as a result of the agreement end up unemployed. By how much do the total wages received each week by the initial 1500 workers (both those who continue to be employed at the factory and those who lose their jobs) change from before the agreement to after the agreement?
d. If the workers who lose their jobs as a result of the agreement end up making $15 per hour at jobs where they work 40 hours per week, by how much do the total wages received each week by the initial 1500 workers change from before the agreement to after the agreement?
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