ECO101H1 Chapter Notes - Chapter 11: Defined Contribution Plan, Procyclical And Countercyclical, Marginal Revenue Productivity Theory Of Wages

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Suppose the firm"s labor demand curve is given by: w = 20 - 0. 01 e, where w is the hourly wage and e is the level of employment. Suppose also that the union"s utility function is given by. Utility maximization requires the absolute value of the slope of the indifference curve equal the absolute value of the slope of the labor demand curve. The absolute value of the slope of the labor demand function is 0. 01. Substituting for e with the labor demand function, the wage that maximizes utility must solve w. 100 w which implies that the union sets a wage of , at which price the firm hires 1,000 workers. Suppose the union in problem 1 has a different utility function. In particular, its utility function is given by: U = (w - w*) e where w* is the competitive wage.

Related Questions

Suppose that all workers in a town belong to a union (monopoly union) and there is a single firm (monopsony) hiring labor in the town. Now, suppose that the supply for labor function the monopsony faces is LS = w (where w refers to wages per day) and the demand for labor function faced by the monopoly union is LD = 90 â 3w. a. Find the wage rate and number of workers that the firm (the monopsony) would like to hire. b. Find the wage rate and level of employment that the union would seek if it behaved as a monopolist union. c. What is the likely outcome?

There are two sectors of the construction industry that currently pay their employees the market-clearing wage. The demand for labor in each sector is w = 18 – Ed, where Ed = the number (in thousands) of workers. The supply of labor in each sector is Es = w – 2, where w = the wage rate (dollars per hour). A union organizes in one of the sectors, and it restricts supply to that sector by insisting that only those in the union are hired by firms in that sector (and it is difficult to get into the union). When the employees in this sector unionize, the supply of labor in that sector changes to Es = w – 4.

a) What is the wage rate in both sectors before unionization? How many employees will be hired in each sector?

b) What is the wage rate in the unionized sector? How many employees will be hired in the unionized sector?

c) If the unemployed workers in the newly unionized sector spill over into the nonunion sector, what will be the wage rate in the nonunion sector? How many employees will be hired in that sector?

d) What is the union relative wage advantage (union-wage/nonunion wage)? What is the true absolute effect (union-wage/equilibrium wage in the absence of a union)?

e) Suppose the employees in the non-unionized sector want a union to represent them as well. In an attempt to discourage a union from forming in this sector, the employers in that sector offer a wage rate of $10.50. How many nonunion workers will be hired? What is the union relative wage advantage?

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8.The demand for labor by an industry is given by the curve L = 1200 â 10w, where L is the labor demanded per day and w is the wage rate. The supply curve is given by L = 20w. What is the equilibrium wage rate and quantity of labor hired? What is the economic rent earned by workers?

9.Using the same information as in Exercise 8, suppose now that the only labor available is controlled by a monopolistic labor union that wishes to maximize the rent earned by union members. What will be the quantity of labor employed and the wage rate? How does your answer compare with your answer to Exercise 8? Discuss. (Hint: The unionâs marginal revenue curve is given by MR = 120 â 0.2L.)

ECO101H1 Chapter Notes - Chapter 11: Defined Contribution Plan, Procyclical And Countercyclical, Marginal Revenue Productivity Theory Of Wages

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