Question

Given the trade-off between wages and employment, an increase in the union wage will lead to:

A. an increase of the income of union workers who keep their jobs and increase of number of union jobs

B) an increase of the income of union workers who keep their jobs and decrease of number of union jobs

C) an increase of the income of union workers who keep their jobs and a decrease in the number of unions in the industry

D) none of the above.

Answer 1

Workers are employed by firms and the number of workers employed is inversely related to wage. Higher the wage lower will be the number of workers employed by firm and lower the wage higher is the number of workers employed by firms. This is a simple law of demand.

So when union increases the wage , the firm's demand for worker is reduced and hence firm will decrease the number of workers employed. But the workers who did not lose their job will get higher wage than before and hence their income will increase.

Thus the union is able to increase the income of workers but at the cost of decreased number of jobs than before.

So correct answer is option (B)