State whether the spillover effect might cause the measured union wage advantage
ID: 1223961 • Letter: S
Question
State whether the spillover effect might cause the measured union wage advantage to be overstated or understated from the pure advantage. Please answer with either overstated or understated. State whether the product market effect might cause the measured union wage advantage to be overstated or understated from the pure advantage. Please answer with either overstated or understated. State whether the superior worker effect might cause the measured union wage advantage to be overstated or understated from the pure advantage. Please answer with either overstated or understated.Explanation / Answer
State whether the spillover effect might cause the measured union wage advantage to be overstated or understated from the pure advantage.
Answer: Overstated
Explanation: With raise in union wage, labour declines, and these workers joins non-union work force which leads to increase supply in non union work force, and thus causing wage rate to decline. Therefore, measured union wage advantage OVERSTATES pure wage advantage.
State whether the product market effect might cause the measured union wage advantage to be overstated or understated from the pure advantage.
Answer: Understated
Explanation: Raise in wage rate in union firms increases cost, which leads to raise in price, thus their demand decreases in comparison to cheaper goods by non-union firms. Increase in demand in non-unionized firms demands wage increase in non-unionized firms. Therefore, measured union wage advantage UNDERSTATES pure wage advantage.
State whether the superior worker effect might cause the measured union wage advantage to be overstated or understated from the pure advantage
Answer: Overstated
Explanation: High wages in union firms attract efficient workers. Therefore, measured union wage OVERSTATES pure wage advantage.
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