Minimum Wages and Unions Assume an industry without legal minimum wages and unions. Show in a diagram how the equilibrium wage W* is determined, and briefly explain all the concepts in the diagram. Now suppose a minimum wage, WMIN, is legislated at a level lower than W*, i.e. WMIN<W*. Show it in the diagram and explain whether the labour market outcomes in part a. change, and how. Now suppose a minimum wage is legislated at a level higher than W*, i.e. WMIN>W*. Show it in the diagram and explain what the labour market outcomes will be. Now suppose a workers’ union is created and successfully negotiates wage WUNION, which is above both W* and WMIN, i.e. WUNION>WMIN>W*. Explain what the labour market outcomes will be compared to the previous part.

The minimal amount of remuneration that an employer is compelled to pay wage earners for the job…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Minimum Wages and Unions
1. Assume an industry without legal minimum wages and unions. Show in a diagram how the equilibrium wage W* is determined, and briefly explain all the concepts in the diagram.
2. Now suppose a minimum wage, W^MIN, is legislated at a level lower than W*, i.e. W^MIN<W*. Show it in the diagram and explain whether the labour market outcomes in part a. change, and how.
3. Now suppose a minimum wage is legislated at a level higher than W*, i.e. W^MIN>W*. Show it in the diagram and explain what the labour market outcomes will be.
4. Now suppose a workers’ union is created and successfully negotiates wage W^UNION, which is above both W* and W^MIN, i.e. W^UNION>W^MIN>W*. Explain what the labour market outcomes will be compared to the previous part.

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