Assume a monopolistic employer is paying a wage rate of Wm and hiring Qm workers

Question

Assume a monopolistic employer is paying a wage rate of Wm and hiring Qm workers, as indicated in Figure 13.8. Now suppose an industrial union is formed that forces the employer to accept a wage rate of Wc. Explain verbally and graphically why in this instance the higher wage rate will be accompanied by an increase in the number of workers hired.

FIGURE 13.8 Bilateral monopoly n the labor market. A monopsonist seeks to hire Qm workers (where MRC MRP) and pay wage rate Wm corresponding to quantity Qm on labor supply curve S. The inclusive union a faces seeks the ove-equilibrium wage rate Wu The actual outcome cannot be predicted by economic theory. It Will result from bargaining between the two parties.

Explanation / Answer

The union wage rate Wc becomes the firm

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