Graded Assigement | Read Ch Consider two states that adopt aifferent laws concer

Question

Graded Assigement | Read Ch Consider two states that adopt aifferent laws concerning labor unions The following graph shows the labor marsat·a gace n te Nam. Intan, the market. clearing wage is $4 per hour Suppose itis ern state ses laws that make t easy for workers to u on. Through collective bargoning, the union negotiates a wage of $6 per hour Use the black point (plus symbol) to show how many uion workers wi be employed the $6 wage. (Mint: Be sure to place the point on the appropate cwve The folowing graph shows the labor market in a state in the South. The legislature in this state passes strong "right-to-work" lows that make iR very difficuit for unions to organize workers, so the wage is always equal to the market-clearing value. Except for this difference in legislation, the two states are very similar The initial pesition of the graph corresponds to the inial abor market condition in the The initial position of the graph corresponds to the iSul labor market condition in the southern state before the labor union negonated the new, higher wage for workers in the northerm state Adjust the graph to show what happens erpayment and wages i, the southern state after southern state low Nbs and te move to the some workers in the novrthern state lose their jobs and decide te move to the

Explanation / Answer

The problem deals with labor market of states of North. It is a factor market. Labor is a factor used in maufacturing commodities. Its demand comes from maufactureres. With the increase in the production of main product demand of labor will rise. Wages is the price paid to them, High wage rate will make labor more costly. So less labor will be demanded. Therefore labor demand curve is inverse in shape.

Supply of labor comes from eligible people of the economy. High wage rate will attract more workers to the job. So supply will rise. Hence supply curve has upward slope.

The market is in a state of equilibrium when demand and supply of laborers are equal. It occurs at the intersection of two curves. In this problem, equilibrium wages is $4 and equilibrium quantity is also 4. Now union through collectrive bargainning has raised the wages to $6. It will reduce demand of labor to 2, although supply will move up to 6. Thus only 2 labor will be employed. Others will loss their job in the state. It is shown in the diagram by a black plus sign.

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Now consider graph of Souther state. Here labor unions power are restricted. So they cannot raise the wage rate. It is always paid at market clearing rate. If wokers lost job in Northern State moved here, then supply of labor will rise. It will shift the supply curve to the right. Thus market clearing point will shift to the right in downward direction. So market clearing wage rate will drop. Employed numbers of laborers will rise.

Diagram below indicates how initial supply curve (orange) has shifted (green). As a result market clearing intersection point has shifted from e1 to 32. So wages has dropped and employed workers has moved up.

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