Suppose that a car factory initially hires 1500 workers at $30 per hour and that

Question

Suppose that a car factory initially hires 1500 workers at $30 per hour and that each worker works 40 hours per week. Than the factory unionizes, and the new union demand that wages be raised by 10 percent. The firm accedes to that request in collective bargaining negotiations but then de cides to cut the factory's labor force by 20 percent due to the higher labor costs. L07 What is the new union wage? How many workers does the factory employ after the agreement goes into effect? How much in total did the factory's workers receive in wage payments each week before the agreement? How much do the factory's remaining workers receive in wage payments each week after the agreement? Suppose that the workers who lose their jobs as a result of the agreement end up unemployed. By how much do the total wages received each week by the initial 1500 workers (both those who continue to be employed at the factory and those who lose their jobs) change from before the agreement to after the agreement? If the workers who lose their jobs as a result of the agreement end up making $15 per hour at jobs where they work 40 hours per week, by how much do the total wages received each week by the initial 1500 workers change from before the agreement to after the agreement?

Explanation / Answer

1,500 workers at $30/hr, each worker works 40 hrs/week

Union demands wage increase by 10% ==> labor force cut by 20%

a) The new union wage is $30(1 + 0.1) = $33

New labor = (1,500)(1 - 0.2) = 1500(0.8) = 1,200 workers

b) Before the agreement: (30)(1,500)(40) = $1,800,000

After the agreement: (33)(1,200)(40) = $1,584,000

c) ($33 - $30)(40) = $3 x 40 = $120 more

d) Before the agreement: (30)(1,500)(40) = $1,800,000

After the agreement: (33)(1,200)(40) + (15)(300)(40) = $1,584,000 + $180,000 = $1,764,000

Change = $1,800,000 - $1,764,000 = $36,000

They now make $36,000 less

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