Question

The "Threat Effect" implies that:

The ability of unions to increase wages may be understated due to threatened employment cuts by companies

None of the other answers are correct

The ability of unions to increase wages may be overstated due to the upward movement of union wages as the result of market wage rate increases

The ability of unions to increase wages may be overstated due to the increased supply of labor in the nonunion sector

The ability of unions to increase wages may be understated due to nonunion employers matching union wage increases to keep unions out of their plants

Answer 1

Since the threat effect can be defined as an increase in non-union wages that a non-union employer offers as a response to the threat of unionization. The main reason is that non-union employers will feel threatened with unionization when workers in union firms obtain wage increases. This threat effect leads to The employer of non-union firm does respond to threat effect because they do not want union in their firms.

Hence it can be said that The "Threat Effect" implies that the ability of unions to increase wages may be understated due to nonunion employers matching union wage increases to keep unions out of their plants.

Hence option fifth is the correct answer.

Fifth; The ability of unions to increase wages may be understated due to nonunion employers matching union wage increases to keep unions out of their plants.