Question

If firms hire more productive workers due to union wage increases: The effect of unions on...

If firms hire more productive workers due to union wage increases:

The effect of unions on wages would be overstated

None of the other answers are correct

The effect of unions on wages would not be affected, due to the Drift-Off Effect

The effect of unions on wages would be understated

The effect of unions on wages would not be affected, due to the Threat Effect

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Homework Answers

Answer #1

Productivity is directly linked to the wage rate.

Higher the productivity, higher will be the wage rate.

Due to increase in union wage, if firm hires more productive workers then in that case higher wage rate offered may also be due to the higher productivity of the workers hired and thus higher union wage in such case gets overstated.

Thus, if firm hires more productive workers due to union wage increases then in such case the effect of unions on wages is would be overstated.

Hence, the correct answer is the option (1).

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