Question 1

Suppose in a given labor market, the wage rate without a union is $$8 and with a union is 10. $$What is the pure union wage advantage, and which formula would you use to calculate it?

Accepted Answer

The pure union wage advantage is 25%, calculated as $$\frac{Wu - Wn}{Wn} 	imes 100$$

Question 2

Which of the following best describes the 'spillover effect' of unions on nonunion wages?

Accepted Answer

Union wage increases cause unemployment in the union sector, and these workers move to the nonunion sector, lowering nonunion wages.

Question 3

If the measured union wage advantage is calculated as $$\frac{Wu - Ws}{Ws}$$, and the spillover effect is present, what does this imply about the measured advantage?

Accepted Answer

It overstates the pure union wage advantage.

Question 4

Which of the following is a likely result of the 'threat effect' in labor markets?

Accepted Answer

Nonunion employers raise wages to prevent unionization, causing the measured union wage advantage to understate the pure advantage.

Question 5

How might unions affect productivity in a positive way?

Accepted Answer

By increasing worker morale and reducing turnover through collective voice.

Question 6

Which of the following is NOT a way unions can decrease income inequality?

Accepted Answer

Increasing the wages of skilled blue-collar workers relative to unskilled blue-collar workers.

Question 7

If unions are able to extract a large part of the returns to capital, what is a likely long-run effect on the firm?

Accepted Answer

Firms will be less likely to invest in capital, reducing productivity growth.

Question 8

Which of the following statements about the impact of unions on firm profitability is supported by empirical evidence?

Accepted Answer

Unions nearly always reduce firm profitability.

Question 9

Which of the following is a negative effect of unions on allocative efficiency?

Accepted Answer

Unions cause labor misallocation, where the loss in output in the union sector is greater than the gain in the nonunion sector.

Question 10

Which of the following best describes the empirical evidence on unions and productivity?

Accepted Answer

The evidence is mixed; unions can have both positive and negative effects on productivity.

Question 11

If union wage increases cause firms to substitute capital for labor, what is a possible effect on the share of national income paid as wages?

Accepted Answer

The share of income going to labor will decrease or remain unchanged.

Question 12

Which of the following is a plausible reason why union workers receive more fringe benefits than nonunion workers?

Accepted Answer

Unions are able to express workers’ preferences for more fringe benefits.

Question 13

Which of the following is a likely effect of unions on unemployment?

Accepted Answer

Unions may slightly increase unemployment by reducing wage flexibility and attracting new entrants.

Question 14

Which of the following is an example of a restrictive work rule imposed by unions?

Accepted Answer

Requiring unnecessary workers to be hired.

Question 15

If a union wage increase causes some workers to become unemployed and they choose to wait for a union job rather than take a nonunion job, what is the effect on the measured union wage advantage?

Accepted Answer

The measured wage advantage is less overstated due to a reduced spillover effect.

Question 16

Which of the following is a way unions can increase income inequality?

Accepted Answer

Increasing the wages of skilled blue-collar workers relative to unskilled blue-collar workers.

Question 17

Which of the following is NOT a reason why union wage advantage is greater for certain groups?

Accepted Answer

Highly educated white-collar workers.

Question 18

Which of the following is a possible positive effect of unions on firm investment?

Accepted Answer

Higher union wages may cause firms to invest in capital to substitute for more expensive labor.

Question 19

Which of the following best describes the effect of unions on inflation?

Accepted Answer

Unions are not a cause of inflation like monetary policy.

Question 20

If unions seek a wage policy of equal absolute dollar wage increases for workers, what is a likely effect?

Accepted Answer

Wage differentials within the firm will decrease.

The Economic Impact of Unions: Wage Advantage, Efficiency, and Distributional Effects

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