Question

1. A city can use several different combinations of labor and computers to run its departments. People can fill out information on a paper form or on a computer. Below are three estimates of the mix of labor and computers needed to run a specific department. Computers and software cost $2000 each and must be replaced once a year. In a table below three choices of combinations of labor and computers are listed. Use this set of information to answer the following: (4 points)

1. In a non-unionized labor market, the wage for the workers at this office will be $24,000 per year. Given this wage will choice A, B or C be preferred. Briefly explain.
2. A strong union is started and it manages to raise the wage of workers in this office to $40,000. Given this wage, will choice A, B or C be preferred. Briefly explain.
3. Based on your answer to the first two parts of the question, how has the union affected the number of jobs available?
4. Based on your answer to the first two parts of this question, is there a reason to believe that a union worker will be able to handle more citizens than a nonunion worker was able to handle before the creation of the strong union?

	# of workers	# of computers
Choice A	10	100
Choice B	6	160
Choice C	3	250

Answer 1

To compare choices A, B and C, the criteria of cost will be used.

The choice with least cost will be selected.

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A) Non-unionized market:

	# of workers	Cost of workers	# of computers	Cost of computers	Total Cost
Choice A	10	240,000	100	200,000	440,000
Choice B	6	144,000	160	320,000	464,000
Choice C	3	72,000	250	500,000	572,000

In the non-unionized market, Choice A should be preferred. The workers' wages are low, hence more workers can be hired at a low cost.

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B) Unionized market:

	# of workers	Cost of workers	# of computers	Cost of computers	Total Cost
Choice A	10	400,000	100	200,000	600,000
Choice B	6	240,000	160	320,000	560,000
Choice C	3	120,000	250	500,000	620,000

In the unionized market, Choice B should be preferred. The workers' wages are now higher, hence fewer workers can be hired.

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C) Earlier, 10 workers were hired. Now, 6 workers are hired.

Thus, the number of jobs available has fallen by 4.

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D) Due to the creation of the union, the wage rate of the workers has risen.

Due to union wages, the city will attempt to hire only the most efficient workers. This is because now workers have to be paid more. The city will have some choice in hiring workers, and this may also lead to a few job losses.

It is widely accepted that higher wages and formation of a union will lead to higher productivity.

At the same time, union wages also lead to higher costs.