Question

If outsiders had more say in union contracts then it is likely that union wages would...

If outsiders had more say in union contracts then it is likely that union wages would be

a.lower which would make structural unemployment lower.

b.lower which would make frictional unemployment lower.

c.higher which would make frictional unemployment higher.

d.higher which would make structural unemployment higher.

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Answer #1

According to the insider-outsider theory of labour economics , if the outsiders ( whi are searching for job and unemployed thus can be considered as a part of frictional unemployment) have more say in the union contracts they will try to expanding jobs for unemployed by lowering the wage than the insideres(who are already working under the firm) whose goal is to maximizing their own wages rather than expanding jobs .

Thus when outsiders have more say in trade union the union wages would be lower and the firm will demand for more labourers at lower wage rate thus frictional unemployment will be lower.(b)

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