LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 10, Problem 2P
To determine
Calculate the wage that would be demanded by the
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Suppose the firm’s labor demand curve is given by w = 20 - 0.01E where w is the hourly wage and E is the level of employment. Suppose also that the union’s utility function is given by U = w * E It is easy to show that the marginal utility of the wage for the union is E and the marginal utility of employment is w. What wage would a monopoly union demand? How many workers will be employed under the union contract?
Describe the wage-employment outcome in a model of monopoly unionism. Explain why (and in what sense) this wage-employment outcome is inefficient.
Describe how we calculate the percentage decline in national income resulting from the misallocation of labor in a model of monopoly unionism. What is the dollar value of this allocative inefficiency if unions and firms reach efficient contracts and the contract curve is vertical?
Chapter 10 Solutions
LABOR ECONOMICS
Ch. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prob. 11RQCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Major League Baseball players are not eligible for...Ch. 10 - Prob. 15P
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- Consider a firm that faces a constant per unit price of $1,200 for its output. The firm hires workers, E, from a union at a daily wage of w, to produce output, q, w here q = 2E1/2 Given the production function, the marginal product of labor is 1/E1/2 . There are 225 workers in the union. Any union worker who does not work for the firm can find a nonunion job paying $96 per day. a. What is the firm’s labor demand function? b. If the firm is allowed to specify w and the union is then allowed to provide as many workers as it wants (up to 225) at the daily wage of w, what wage will the firm set? How many workers will the union provide? How much output will be produced? How much profit will the firm earn? What is the total income of the 225 union workers?arrow_forwardPart I: Suppose the firm's labor demand curve is given by: w = 60 – 0.03E where w is the hourly wage andE is the level of employment. Suppose also that the union's utility function is given by: U = w x E The marginal utility of the wage for the union is E and the marginal utility of employment is w. (a) How many workers will be employed under a monopoly union contract? (b) What wage would a monopoly union demand?arrow_forwardSuppose that the representative worker’s utility function takes the form = . Show that, if the union maximises expected utility, and unions and firms bargain according to the monopoly union model, the equilibrium level of employment declines as the value of the parameter γ increases.arrow_forward
- True or False? Union wages are similar to those in a perfectly competitive market. The wage is determined by the going rate for the position.arrow_forwardRefer to the diagram. An industrial union could maximize employment by negotiating a wage rate ofarrow_forwardDescribe the two basic strategies of unions in increasing wage rates for their members.arrow_forward
- Suppose the economy consists of a union and a nonunion sector. The labor demand curve in each sector is given by L = 1,000,000 - 20w. The total (economywide) supply of labor is 1,000,000, and it does not depend upon the wage. All workers are equally skilled and equally suited for work in either sector. A monopoly union sets the wage at $30,000 in the union sector. What is the union wage gap? What is the effect of the union on the wage in the nonunion sector?arrow_forwardA monopsonist's demand for labor can be written as VMPE = 40 – 0.005ED. Labor is supplied to the firm according to w = 5 + 0.01ES. Thus, the firm's marginal cost of hiring workers when it hires off of this supply schedule is MCE = 5 + 0.02ES. A. How much labor does the monopsony firm hire and at what wage when there is no minimum wage? B. How much labor does the monopsony firm hire and at what wage when it must pay a minimum wage of $25?arrow_forwardDiscuss how both unions and firms can be better off if they move off the demand curve. Derive the contract curve.arrow_forward
- Consider two provinces that adopt different laws concerning labour unions. The following graph shows the labour market in a province in the West. Initially, the market-clearing wage is $10 per hour. Suppose that the legislature in this western province passes laws that make it easy for workers to join a union. Through collective bargaining, the union negotiates a wage of $16 per hour. Use the black point (plus symbol) to show how many union workers will be employed at the $16 wage. (Hint: Be sure to place the point on the appropriate curve.) Labour Market in the West 20 18 Union Negotiations 16 14 Supply 12 10 2 Demand ㅇ 4 6 8 10 12 14 18 18 20 LABOUR (Millions of workers) The following graph shows the labour market in a province in Eastern Canada. The legislature in this province passes strong right-to-work laws that make it very difficult for unions to organize workers, so the wage is always equal to the market-clearing value. Except for this difference in legislation, the two…arrow_forwardAssume labor market demand is given by: lD = 10 – w and labor market supply by: lS = w – 2. Suppose that a union has a monopoly in the supply of labor. Suppose also that the goal it has decided to pursue is to maximize the total wage bill. In this case, the quantity of labor it will offer is?arrow_forwardWhich of the following statements is most accurate? Unionization almost always results in improvements to workplace productivity The effects of unionization on productivity are mixed; sometimes it results in an increase and sometimes it results in a decrease Unionization generally has no effect on workplace productivity Unionization almost never results in improvements to workplace productivityarrow_forward
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