Question

Which of the following is correct? a. In unionized industries, wages are above the level that would prevail in competitive markets. b The introduction of a union in some industry reduces the quantity of labor demanded in that industry, causes some workers in that industry to be unemployed, and reduces wages in the rest of the economy. c Critics argue that the allocation of labor resulting from unions is both inefficient and inequitable. d. All of the above are correct.

Answer 1

All of the above

When labour forms union, they demand for a higher wage which is above the equilibrium wage. This inturn reduces the labour demanded, leaving many unemployed and the overall wages in the economy falls. Allocation of labour is inequitable as few gets employed for a higher wage at the expense of others. It is inefficient as firms would reduce their production below the equilibrium quantity.