2. Labor union strategies Consider the demand for labor in an industry in which

Question

2. Labor union strategies Consider the demand for labor in an industry in which workers are represented by a strong, inclusive union. Assume the union has all of the bargaining power during wage negotiations. Specifically, assume the union determines the wage in the market, and then firms choose how many workers to hire given the labor demand curve. The following graph shows the labor demand curve in this market-that is, the number of workers firms are willing to hire before the union undertakes any wage negotiations

Explanation / Answer

At union wage of 4, quantity of labor is 10000, total wage income per hour= 4*10000= 40000. Demand is inelastic or less elastic. Elasticity decreases as we move to the right from the unit elastic point.

At union wage of 12, quantity of labor is 5000. Total wage income per hour is 12*5000= 60000. Demand is unit elastic.

At union wage of 16, quantity of labor is 2500. Total wage income 16*2500= 40000. Demand is elastic or high. Elasticity increases as we to left from the unit elastic point.

In this case if labor demand is elastic, the union should set LOWER union wage rate.

And if labor demand is inelastic the union should set HIGHER wage rate.

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