Jonathan owns a shoe factory that produces flashy shoes, but he pays his workers the bare...

Jonathan owns a shoe factory that produces flashy shoes, but he pays his workers the bare minimum wage so that he can live large. The workers at his factory, led by Cosku, have formed a union, and are threatening to go on strike unless they receive a higher wage so that they can reasonably support their families. Five years ago, when Jonathan hired most of the workers, unemployment was very high. Now, unemployment is very low. This has changed the relative bargaining power of the employers and the employees, which Cosku and Jonathan remember from when they took ECON 104. Which statement most accurately describes how their relative power now may affect the campaign for higher wages?

Select one:

a. Jonathan - the factory owner - has more bargaining power than before, because he knows they will be very grateful to him for hiring them when unemployment was high. He thinks he won't have to pay workers more.

b. Cosku and the workers have higher bargaining power, because they are less replaceable due to unemployment. There are very few people who Jonathan can hire to replace the workers, and if there are no workers, Jonathan cannot continue to live large. Thus, the power dynamics of the situation favor the workers winning higher wages.

c. Both parties are in a better position. If Jonathan gives workers a higher wage, it will cause inflation, and then he can charge more for the flashy shoes from his factory. Workers will make more, and so will Jonathan.

d. Cosku and the workers are in a worse position because they already make minimum wage. The government will see their protests and think that it's silly, because they are already paid a legal wage.

Expert Solution

b. Cosku and the workers have higher bargaining power, because they are less replaceable due to unemployment. There are very few people who Jonathan can hire to replace the workers, and if there are no workers, Jonathan cannot continue to live large. Thus, the power dynamics of the situation favor the workers winning higher wages.

(Workers are in a better position because they have bargaining power because of less unemployed workers available due to which Jonathan will have to agree to give them higher wages else they can leave operation.)

Rahul Sunny answered 2 years ago

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