Answer to Question #222950 in Macroeconomics for katrichie

Question

(a) Explain fully the conditions on which a worker’s bargaining power depends. (6)

(b) Define a reservation wage and explain why firms want to pay more than the reservation wage. (6)

(c) Use an illustrative diagram to show and explain how the natural rate of unemployment is affected by an increase in unemployment benefits. (8) 

Answer 1

a) For the trade union to being able to raise rates of wages more than competitive level, it calls for surplus which may be shared amongst companies as well the union that will recommend for bargaining power in inducing the organization in sharing respective surplus.

b) reservation wage is known to be lowest rate of wage which the workforce may be willing to accept respective job.

c). When there are unemployment benefits, people tend to concentrate much on the benefits and forget about getting employment. This tends to increase the natural rate of unemployment based on the ignorance to get the unemployment benefits.