Figure 14-8 The Union Wage Premium and the Union Employment
Effect
featherbedding or advertising) can explain the absence of an observed
union employment effect.
Featherbedding and advertising may explain the absence of a union
employment effect even though there is a clear union wage premium
the labour market is competitive, wages and employment will be given by
and The collective bargaining between firms and unions results in
a wage of showing a clear premium above the competitive wage. If
the demand for labour remains at D, employment would fall to and
there would be a reduction in employment caused by the higher
negotiated union wage. If the collective agreement requires firms to use
more labour, however, or if the union successfully promotes union-made
products, the demand for labour shifts to In this case, the combination
of the higher wage and the greater demand for labour may result in the
competitive level of employment.
Unanswered Questions
w∗ L∗.
wu,
Lu
D′.