Answer to Question #62855 in Macroeconomics for Gian

Question

The insider-outsider theory of unemployment says that ...(several answers possible)
(a) trade unions do not internalize sufficiently the well-being of the unemployed.
(b) trade unions can be a cause for involuntary unemployment.
(c) trade unions tend to increase wages above the competitive level.
(d) the position of trade unions should be bolstered in order to lower unemployment.

Answer 1

(b), (c)
Monopoly power of insiders allows them to overestimate wage above the equilibrium level. As a result, the economy appears unemployed contingent of which is formed by outsiders of various firms.