Question

1. In the following situations, are labor unions likely to be more successful or less successful in raising the wages of their members? Briefly explain your reasoning.
   1. It would be difficult to automate the production process.

[Type your answer here.]

2. The workers represented by the union have very specialized skills that are valuable to only five employers, who are located in five different states.

[Type your answer here.]

3. The development of internet search engines has made consumers’ demand for the product more elastic than it was before.

[Type your answer here.]

4. Employers’ costs are mainly driven by capital expenditures, overhead, and legal costs; workers’ salaries and benefits comprise only 20 percent of the firm’s total costs (versus 70 percent in the average firm across all industries).

[Type your answer here.]

Answer 1

a) Since automation is difficult . So more labourers will be demanded. So, union will be successful in raising wages.In this case demand for labor will be inelastic.

b) Here Labor have specialized skills. So there demand is inelastic.When specialised labour is needed, then the demand for labour will be more inelastic with respect to the wage rate.So, union will be successful in increasing wages.

C) Since demand for product is more elastic, it can be purchased from different sources online or offline thus making demand of labor byeby firms elastic. The union will be less successful in raising wages.

d) In this case they will be successful in increasing wages The significance of labour costs as a proportion of total costs also influences the degree of response to a wage change. For the inelastic case, it is likely that wages do not constitute a significant proportion of total costs, hence only a relatively small number of workers lose their jobs following a wage rise.As majority of the firm's cost is cobvered by capital expenditures, legal costs and overhead costs. So, if the wages are risen then very small people will loose job.