Principles of Microeconomics / Unit 13 MIC 1221 worked example, 60 to 90 seconds
The Union Wage in a Competitive Market
The idea
From a labor market's demand and supply schedules, find the equilibrium wage and employment. Then impose a union wage above it: read employment from demand at the union wage, the quantity supplied from supply, and report the employment loss and the excess supply of workers wanting union jobs. Then state the union's alternative: shifting demand right, by raising members' productivity or the demand for what they make, raises the wage without the job loss.
In practice
Worked example: electricians are demanded at seven hundred, six hundred, five hundred, four hundred and three hundred for wages of thirty, thirty-five, forty, forty-five and fifty dollars an hour, and supplied at three hundred, four hundred, five hundred, six hundred and seven hundred. Equilibrium is forty dollars and five hundred jobs. A union wage of forty-five cuts employment to four hundred while six hundred want the work: one hundred jobs lost, two hundred in excess supply. A union training program that raises each electrician's marginal product shifts demand right and lifts the wage with no such loss.
Where people slip
The lost hundred jobs go to fewer hours, slower hiring and outsourcing as often as to layoffs. And the union also gains from restricting supply, by licensing or apprenticeship limits, which raises the wage by the same mechanism as the floor.
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