3. Excess supply with union wages Scree 0 https:// Consider the housing construc

Question

3. Excess supply with union wages Scree 0 https:// Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through collective bargaining, a labor union negotiates an industry-wide wage for various kinds of labor (electricians, plumbers, and so on). In particular, it succeeds in negotiating a wage increase for carpenters from $9 to $12 per hour. The following graph shows the labor demand of an individual firm Jul 16, 2 order t Buy Un of labor On the following graph, show what happens at the firm level as a result of the union negotiations. Grade Ho your ans advertisi be 4800 15 July- S2 www.ra Obama ri 12 Supply enter the Full tex https://a It does no these are and million we 0 5 10 15 20 25 30 QUANTITY OF LABOR PDF tota collection Apr 15, 20

Explanation / Answer

Solution:

1)As we know that,the initial wage was determined at the point where demand and supply intersects, ie at the point where wage was $ 9 and labour supplied was 15,000.

After the union negotiated an increase in wage rate to $12, there is a demand for labour of 10,000 units, determined by the point where ,the wage shown by the green line intersects the demand line .So, there is an excess supply of 5000 labourers after the wage increase.

2) Due to the advertising campaign, more labourers would be interested to work , so the new amount of labour supply would be at the point where green line intersects supply line, at the point where there is a supply of 20,000 labourers. However, demand for labour has not increased. it is same at 10,000.
so the excess supply of labour at $12 is 20,000 - 10,000 = 10,000

From (1))= > The union wage increase from 9$ to 12$ per an hour causes an excess supply of 5000 workers .

From (2) Suppose that the union,in order to mitigate the unemployment caused by the wage increase,bolsters demand by rolling a "Buy union" advertising campaign.If the union spends $ 3 million on the campaign .If the union spends $ 3 million on the campaign,the excess supply of labor will be 10,000 workers.

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