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The Effects of Unions on Wages and Employment
In Competitive and Monopsonistic Labor Markets
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Assumptions Two labor markets
Market 1 is competitive Market 2 is monopsonistic Each labor market is in an initial equilibrium illustrated by the graphs A union exists in each of the markets
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1. Competency test required: the union is successful in requiring that new teachers pass a state competency test to be employed Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______
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1. Competency test required
Competitive Monopsonistic S1 MRC 2 MRC S1 S S Wage Rate Wage Rate D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment LOWER
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2. National advertising campaign: the labor union conducts a successful advertising campaign urging people to buy union made goods Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______
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2. National advertising campaign:
Competitive Monopsonistic MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER
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3. Increased Productivity: the labor union educates workers in new methods of production, which leads to increased productivity Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______
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3. Increased Productivity:
Competitive Monopsonistic MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER
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4. Quotas/Tariffs on Foreign Competition: the labor union promotes national legislation, which gets passed, to increase tariffs and/or quotas on foreign competitors Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______
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4. Quotas/Tariffs on Foreign Competition:
Competitive Monopsonistic MRC S S Wage Rate Wage Rate D1 MRP1 D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment HIGHER Employment HIGHER
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5. Wage Increase Above Equilibrium Rate: the labor union bargains for and wins an increase in the wage rate above the equilibrium wage rate Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______
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5. Wage Increase Above Equilibrium Rate:
Competitive Monopsonistic MRC S Wu S Wage Rate Wc Wu Wage Rate Wc D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment indeterminate
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6. Only Union Members Hired: the labor union signs an agreement with employers that forces employers to hire only union members who have gone through the union’s apprenticeship program Competitive Monopsonistic MRC S S Wage Rate Wage Rate D MRP labor labor Wage Rate ______ Wage Rate ______ Employment ______ Employment ______
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6. Only Union Members Hired:
Competitive Monopsonistic S1 MRC 2 MRC S1 S S Wage Rate Wage Rate D MRP labor labor Wage Rate HIGHER Wage Rate HIGHER Employment LOWER Employment LOWER
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