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. Use the following graph to answer the questions that follow. Your work with the graph will not be graded 20 16 12 4 10 20 25 QUANTITY OF LABOR (Thousands of workers)

Explanation / Answer

if the demand is inelastic then union should increase the wage rate as in case of inelasticity a small change in labour wage rate does not lead to a large change in qty of labour.

whereas in case of elastic demand a small rise in wages will lead to a large fall in demand for labour and a small decrease in wages will lead to a large increae in demand and so they should decrease wage rate in case of an elastic demand.

this will maximise the total wages received by workers aas expalined by the relationship of price*quantity.

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