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Chapter 14: Problem 5

Suppose there are two groups of workers, unionized and nonunionized. Congress passes a law that requires all workers to join the union. What do you expect to happen to the wage rates of formerly nonunionized workers? Of those workers who were originally unionized? What have you assumed about the union's behavior?

Short Answer

Expert verified
The wage rates of formerly nonunionized workers are likely to increase due to the union's collective bargaining power. However, the wage rates of workers who were originally unionized may remain the same or possibly decrease due to a potential dilution of resources. This analysis assumes the union possesses the power to influence wages and operates in the best interest of all its members.

Step by step solution

01

Understand Labor Unions Impact on Wages

Labor unions often aim to improve their members' wages and working conditions. Therefore, formerly nonunionized workers may see a potential wage increase after joining the union. This is because the collective bargaining power of the union can lead to better compensation.
02

Predict Outcomes for Originally Unionized Workers

For workers who were originally unionized, their wage rates may remain the same or possibly decrease. This is because, with the admission of new members into the union, resources and benefits may need to be distributed over a larger number of people.
03

Assumptions Regarding Union's Behavior

The analysis assumes that the union has the power to affect wages, and it operates in the best interest of all members. Also, it's assumed that all workers, whether formerly unionized or nonunionized, face the same working conditions and that any discrepancy in wages before would be corrected after the workers join the union. However, the actual outcomes will depend on many factors such as the union's approach to negotiating wages, the distribution of resources, sectoral specifics, political environment and many more.

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Most popular questions from this chapter

A firm uses a single input, labor, to produce output \(q\) according to the production function \(q=8 \sqrt{L}\). The commodity sells for \(\$ 150\) per unit and the wage rate is \(\$ 75\) per hour. a. Find the profit-maximizing quantity of \(L\) b. Find the profit-maximizing quantity of \(q\) c. What is the maximum profit? d. Suppose now that the firm is taxed \(\$ 30\) per unit of output and that the wage rate is subsidized at a rate of \(\$ 15\) per hour. Assume that the firm is a price taker, so the price of the product remains at \(\$ 150\) Find the new profit-maximizing levels of \(L, q,\) and profit. e. Now suppose that the firm is required to pay a 20-percent tax on its profits. Find the new profitmaximizing levels of \(L, q,\) and profit.

Suppose that the wage rate is \(\$ 16\) per hour and the price of the product is \(\$ 2 .\) Values for output and labor are in units per hour. $$\begin{array}{cc}9 & 1 \\\\\hline 0 & 0 \\\20 & 1 \\ 35 & 2 \\\47 & 3 \\\57 & 4 \\\65 & 5 \\\70 & 6\end{array}$$ a. Find the profit-maximizing quantity of labor. b. Suppose that the price of the product remains at \(\$ 2\) but that the wage rate increases to \(\$ 21 .\) Find the new profit-maximizing level of \(L\) c. Suppose that the price of the product increases to \(\$ 3\) and the wage remains at \(\$ 16\) per hour. Find the new profit-maximizing \(L\) d. Suppose that the price of the product remains at \(\$ 2\) and the wage at \(\$ 16,\) but that there is a technological breakthrough that increases output by 25 percent for any given level of labor. Find the new profit-maximizing L.

Suppose that a firm's production function is given by \(Q=12 L-L^{2},\) for \(L=0\) to \(6,\) where \(L\) is labor input per day and \(Q\) is output per day. Derive and draw the firm's demand for labor curve if the firm's output sells for \(\$ 10\) in a competitive market. How many workers will the firm hire when the wage rate is \(\$ 30\) per day? \(\$ 60\) per day? (Hint: The marginal product of labor is \(12-2 L\).)

The demand for labor by an industry is given by the curve \(L=1200-10 w,\) where \(L\) is the labor demanded per day and \(w\) is the wage rate. The supply curve is given by \(L=20\) w. What is the equilibrium wage rate and quantity of labor hired? What is the economic rent earned by workers?

Assume that workers whose incomes are less than \(\$ 10,000\) currently pay no federal income taxes. Suppose a new government program guarantees each worker \(\$ 5000,\) whether or not he or she earns any in come. For all earned income up to \(\$ 10,000\), the worker must pay a 50 -percent tax. Draw the budget line facing the worker under this new program. How is the program likely to affect the labor supply curve of workers?
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