Question

. In the retail trade industry, unionized workers earn 19.0% more than non-unionized workers do. As you learned in class, this does not necessarily mean that non-union workers who gained union membership would receive raises of (on average) 19%, nor does it mean that the existence of the union increased the wages of workers who were able to join the union by 19%.

a. As we noted in class, many unions prefer to grant union membership to workers with a significant amount of work experience in the industry. In light of that fact alone, is the 19% difference between union and non-union wages an overestimate or an underestimate of the value of belonging to a labor union? (Other factors might also affect that comparison, but ignore them for this part of the question.)

b. Define the “spillover” and “threat” effects. If the spillover effect were larger in magnitude than the threat effect, would the existence of unions raise or lower the earnings of non-union workers? Would the 19% difference between union and non-union wages overestimate or underestimate the value of belonging to a labor union? (Again, ignore other factors for this part.)

c. Briefly explain how the “product market” effect may operate in this industry. If the product market effect were large, would that suggest that the 19% wage difference is an underestimate or an overestimate of the amount by which unions increase workers’ wages? (Ignore other factors again here.)

Answer 1