Question

home / study / business / economics / economics questions and answers /

Suppose that workers are deciding whether to be a part of a union. If they join the union, the wage will be $31, the probability of employment will be 98%, the union fees will be $1.27, and the social costs are $.92. If they do not join the union, the wage will be $27, the probability of employment will be 94%, the union fees will be $0, and the social costs will be (-$3.12). Suppose also that utility for these workers is only a function of the listed variables.

a. Given the listed information, what choice will a utility-maximizing worker make when considering whether to join a union? (Provide details of your calculation and choice).

b. Would there be any reason for the union to consider making more negotiations concerning this situation? If so, what would the managers of the union try negotiating? If not, explain your rationale for this determination.

c. Examine the following statement through a logical, historical, and cultural lens (United States): “Workers choose whether to join a union”.

Answer 1

a.U(joining) = 0.98*(31-1.27-0.92) = 28.24

U(not joining) = 0.94*(27-(-3.12)) = 28.31

b.Both have equivalent levels of Utility, Union managers can make an appeal about the higher wage and improvement of social costs scenario.

c. Historically, USA has been a Market driven society with value for higher productivity and capital intensive production. This was instrumental in very weak levels of Trade union movements. They arose in the sectors where pay was abysmally lower like School teachers, sanitation workers etc. Corporate workers never induced a trade union due to meritocratic nature of the industry and very high upside potential.Hence, it won't be wrong to say that " Only workers join the Union" because White collar occupations like Doctors, Managers, Engineers are generally paid based on their skill and their skill has high income generation potential so, there had neer been union for such occupations while it exists for menial occupations.