How would the following circumstances affect workers’ ability to earn higher wag

Question

How would the following circumstances affect workers’ ability to earn higher wages by forming a labor union? Do these conditions increase the union wage premium, decrease it, leave it unchanged, or is the effect ambiguous? Clearly indicate how your answers relate to theories learned in this class.

1. The production process is capital intensive.

2. There are many close substitutes for the product being produced.

3. All firms in the industry use a standardized set of tools and techniques.

4. Creativity and analytical thinking are an important part of the value that workers add to the production process.

5. Established firms in the industry are well-known to customers, so a new firm would have to advertise extensively.

6. The good being produced is durable and easily transported.

Explanation / Answer

1. The production process is capital intensive: Labor required will be low. So, labor bargaining power will fall, and so will the premium.

2. There are many close substitutes for the product being produced: Labor required will be high. So, labor bargaining power will rise, and so will the premium.

3. All firms in the industry use a standardized set of tools and techniques: No change

4. Creativity and analytical thinking are an important part of the value that workers add to the production process Labor required will be high. So, labor bargaining power will rise, and so will the premium.

5. Established firms in the industry are well-known to customers, so a new firm would have to advertise extensively. No change

6. The good being produced is durable and easily transported: No change           

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