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. Then the factory unionized, and the new union demands that wages be raised by 10 percent. The firm accedes to that request in collective bargaining negotiations but then decides to cut the factory's labor force by 20 percent due to the higher labor costs. LO7 A) What is the new union wage? How many workers does the factory employ after the agreement goes into effect? B.)How much in total did the factory's workers recieve in wage payments each week before the agreement? How much do the factory's remaining wokers recieve in wage payments each week after the agreement? C.) 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?

D.) If the workers who lose their jobs as a result of the agreement end up making $15/hr at jobs where they work 40 hr/week, by how much do the total wages recieved each week by the intital 1500 wokers change from before the agreement to after the agreeement?

Explanation / Answer

Suppose that a car factory initially hires 1500 workers at $30 per hour and that each worker works 40 hours per week. Then the factory unionizes, and the new union demands that wages be raised by 10 percent. The firm accedes to that request in collective bargaining negotiations but then decides to cut the factorys labor force by 20 percent due to the higher labor costs.

What is the new union wage? How many workers does the factory employ after the agreement goes into affect?

The original wage rate was $30.00 per hour.

The new union wage is 10% higher, or $33.00 (= 1.10 x $30.00)

The original level of employment was 1500.

After unionization the car factory reduces its work force by 20% due to higher labor costs.

Thus, the unionized level of employment is 1200 (= 0.8 x 1500).

Note the company cuts 20% of its labor force, which equals 300 (= 0.2 x 1500).

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How much in total did the factorys workers receive in wage payments each week before the agreement? How much do the factorys remaining workers receive in wage payments each week after the agreement?

Total earnings = hourly wage x hours worked x number of workers.

total earnings before unionization of $1,800,000.00 (= $30 x 40 x 1500).

total earnings after unionization of $1,584,000.00 (= $33 x 40 x 1200).

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?

Since the workers no longer employed with the car factory after unionization remain unemployed their effective earnings from employment are zero.

Thus, 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) decreases by $216,000 (= $1,584,000 - $1,800,000) from before the agreement to after the agreement.

That is, the workers as a group earn $216,000 less than before the agreement

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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?

The 1200 workers who continue to work for the company earn $1,584,000 (= $33 x 40 x 1200). The 300 workers who are no longer employed earn $180,000 (= $15 x 40 x 300).

The 1500 workers combined earn $1,764,000 ($1,584,00 (car factory) + $180,000 (other employment)).

The change in total compensation in this case is $36,000 less than before unionization (= $1,764,000 - $1,800,000).

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