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
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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