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QUESTION:
Consider two hypothetical states that operate under different laws governing labor unions.
The following graph shows the labor market in a state in the West. Initially, the market-clearing wage in this state is $10.00 per hour.
Now, suppose that the General Assembly in this western state passes a law that makes it easier for workers to join a union. Through collective bargaining, the union negotiates an hourly wage of $12.50.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Graph Input Tool
Market for Labor
Wage
(Dollars per hour)
Labor Demanded
(Thousands of workers)
Labor Supplied
(Thousands of workers)
Enter $12.50 into the box labeled Wage on the previous graph.
Hint: Be sure to pay attention to the units used on the graph.
At the union wage,union workers will be employed.
The following graph shows the labor market in a state in the East. Suppose the legislature in this state passes strong "right-to-work" laws that make it very difficult for unions to organize workers, so the wage is always equal to the market-clearing value. Assume that with the exception of this difference in legislation, the western and eastern states are extremely similar.
The initial position of the graph corresponds to the initial labor market condition in the eastern state before the labor union negotiated the new, higher wage for workers in the western state.
Suppose that after the wage goes up in the western state, some workers in the western state lose their jobs and decide to move to the eastern state.
Adjust the graph to show what happens to employment and wages in the eastern state.
Which of the following groups are worse off as a result of the union action in the western state? Check all that apply.
ANSWER:
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Graph Input Tool
Market for Labor
Wage
(Dollars per hour)
Labor Demanded
(Thousands of workers)
Labor Supplied
(Thousands of workers)
Enter $12.50 into the box labeled Wage on the previous graph.
Hint: Be sure to pay attention to the units used on the graph.
At the union wage,
375,000
union workers will be employed.
Points:
0 / 1
Close Explanation
Explanation:
You can read from the labor demand curve that, at a wage of $12.50, firms demand 375,000 workers, despite the fact that 625,000 workers are willing to supply labor. Thus, 375,000 workers find employment at this wage rate.
The following graph shows the labor market in a state in the East. Suppose the legislature in this state passes strong "right-to-work" laws that make it very difficult for unions to organize workers, so the wage is always equal to the market-clearing value. Assume that with the exception of this difference in legislation, the western and eastern states are extremely similar.
The initial position of the graph corresponds to the initial labor market condition in the eastern state before the labor union negotiated the new, higher wage for workers in the western state.
Suppose that after the wage goes up in the western state, some workers in the western state lose their jobs and decide to move to the eastern state.
Adjust the graph to show what happens to employment and wages in the eastern state.
Points:
0.5 / 1
Close Explanation
Explanation:
The shortage of jobs in the western state causes the population in the eastern state to increase as people move there in search of jobs. An increase in population in the eastern state shifts the supply curve to the right. This leads to an increase in the quantity of labor there and a decrease in the equilibrium wage.
Which of the following groups are worse off as a result of the union action in the western state? Check all that apply.
Points:
0.75 / 1
Close Explanation
Explanation:
The only group that benefits from the union-negotiated wage of $12.50 is the union workers in the western state who retain their jobs after the wage increase. Because the quantity of workers willing to supply labor is greater than the quantity of labor firms are willing to hire at the union wage, some workers in the western state will lose their jobs. As some of these workers move to the eastern state to find jobs, this puts downward pressure on eastern wages, making both the original eastern workers and the workers who came from the West worse off.
The employers in the western state are also made worse off as they now have to pay higher wages and have fewer employees.
