Answer to Question #149329 in Macroeconomics for qianhe

Question

-Due to recent spike in numbers of accidents involving workers’ health and safety in the construction industry particularly under company ABC, a union is established in the construction industry, graphically illustrate how the establishment of the union on construction industry will lead to unemployment.

-Assume that company ABC is an advocate of efficiency wage theory. What does efficiency wage theory suggest and how does it affect the unemployment level?

Answer 1

With the establishment of labor union, ABC company will only employ those workers in the union. Therefore, most workers will be left unemployed. From the above graph the level of unemployment increases from Q₀ to Q₁ with an increase in wages from p₀ to p₁ and vice versa. The labor unions help to negotiate for better wages for their employees. Thus, enjoy high wages than those workers who are not in any labor union

 

increasing wages can lead to increased labor productivity because workers feel more motivated to work with higher pay