15-4 and 15-5

Which of the following is not correct? a. Union membership is very small in most European countries. b. Unions play a much smaller role in the U.S. labor market now than they did in the past. c. A union is a worker association that bargains with employers over wages, benefits, and working conditions. d. A union is a type of cartel.

a. Union membership is very small in most European countries. Union membership in many European countries is relatively high. In some European countries more than half of workers belong to unions. In the 1940's and 1950's about a third of U.S. workers belonged to unions, now only about 11% do.

Efficiency wages create frictional unemployment. True False

False Efficiency wages are wages paid above equilibrium and so create structural unemployment.

In 1914, Henry Ford began paying his workers $5 per day, about twice the going wage. As a result, turnover and absenteeism fell. However, profits fell. True False

False Profit rose

Unemployment generated by the existence of labor unions is frictional unemployment and so contributes to the natural rate of unemployment. True False

False Unemployment generated by the existence of unions is structural unemployment and so contributes to the natural rate of unemployment.

About 25% of U.S. workers belong to unions. True False

False About 11% of U.S. workers belong to unions.

According to the theory of efficiency wages, it cannot be profitable for firms to keep wages above equilibrium. True False

False The theory of efficiency wages says that paying workers above equilibrium wages increases their productivity and reduces hiring and training costs.

Most economists believe unions are good for the economy as a whole. True False

False There is no consensus among economists that unions are either good or bad for the economy as a whole. While in some cases they may provide protection to workers employed by noncompetitive firms, they tend to raise wages in unionized industries above equilibrium increasing unemployment and causing wages in other industries to fall.

When a union raises the wage above the equilibrium level, it raises the quantity of labor supplied and reduces the quantity of labor demanded, resulting in higher unemployment. True False

True When a union raises the wage above its equilibrium level, the quantity of labor supplied rises and the quantity of labor demand falls. This results in surplus labor and so increases unemployment

When a union bargains successfully with employers, in that industry, a.the quantity of labor demanded falls and the quantity of labor supplied rises. b.the quantity of labor demanded rises and the quantity of labor supplied falls. c.the quantity of labor demanded and the quantity of labor supplied rise. d.the quantity of labor demanded and the quantity of labor supplied fall.

a. the quantity of labor demanded falls and the quantity of labor supplied rises. When unions bargain with employers, they do so to raise the wages of workers in that industry. If they are successful, wages will rise. However, at higher wages, fewer employers are willing to hire and more workers will seek work. The result is an increase in labor supplied, but also a decrease in labor demanded.

If outsiders had more say in union contracts then it is likely that union wages would be a.lower which would make structural unemployment lower. b.higher which would make frictional unemployment higher. c.higher which would make structural unemployment higher. d.lower which would make frictional unemployment lower.

a.) lower which would make structural unemployment lower. Outsiders are those who become unemployed when the union raises wages. They'd prefer to the union reduce wages so they would be hired back. Moving the wage closer to equilibrium would reduce structural unemployment.

Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages? a.Henry Ford b.Steve Jobs c.Safara Catz d.Mark Zuckerberg

a.Henry Ford Henry Ford introduced above equilibrium wages to increase worker productivity.

Efficiency wages a.create a surplus of labor and so create structural unemployment. b.increase turnover and so create structural unemployment. c.increase turnover and so create frictional unemployment. d.create a surplus of labor and so create frictional unemployment.

a.create a surplus of labor and so create structural unemployment. By providing a high wage, efficiency wages reduce turnover. However, a wage above the equilibrium creates structural unemployment.

Mary manages a data entry center. Workers sometimes play games on the internet, check their personal email, or go slow. According to efficiency wage theory to reduce this shirking Mary could a.pay above equilibrium wages. This would raise unemployment. b.pay below equilibrium wages. This would raise unemployment. c.pay below equilibrium wages. This would reduce unemployment. d.pay above equilibrium wages. This would reduce unemployment.

a.pay above equilibrium wages. This would raise unemployment. Paying above equilibrium wages makes workers more eager to keep their jobs and so they reduce shirking to reduce the chances of getting fired. Wages above equilibrium raise structural unemployment.

Right-to-work laws mean that a.workers cannot be required to join the union where they work. b.workers can unionize. c.workers that go on strike cannot be permanently replaced. d.workers can call for a vote to have a union no longer represent them.

a.workers cannot be required to join the union where they work. Right-to-work laws mean that a worker in a business where the workers have unionized does not have to join the union.

Which of the following is an example of an efficiency wage? a.A high wage paid to a college graduate for a high-skill job such as electrical engineering. b.An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants. c.A high wage paid to compensate for dangerous work such as truck driving. d.A wage based on the amount of goods a worker produces per hour.

b.) An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants. Efficiency wages are above equilibrium wages intended to increase worker productivity. For example, higher wages attract a better pool of applicants.

Tony manages a company where electrical engineers work to improve existing products and develop new ones. He considers paying higher wages in hopes of attracting better applicants. According to efficiency wage theory Tony will get a a.larger but not better pool of applicants and hire fewer workers. b.better pool of applicants but hire fewer workers. c.better pool of applicants and hire more workers. d.larger but not better pool of applicants and hire more workers.

b.) better pool of applicants but hire fewer workers. By paying higher wages more quality applicants will apply. The increase in the wage means the firm's demand for workers falls.

Since the 1940's U.S. union membership has a.risen. Union membership is higher in the U.S. than Europe. b.fallen. Union membership is lower in the U.S. than Europe. c.fallen. Union membership is higher in the U.S. than Europe. d.risen. Union membership is lower in the U.S. than Europe.

b.) fallen. Union membership is lower in the U.S. than Europe. Since the 1940's and 1950's union membership in the U.S. has fallen from about one third of workers to about 11%. Union membership is higher in European countries

The worker health version of the efficiency wage theory is a.not relevant for explaining unemployment. b.less relevant for explaining unemployment in developed countries than in less developed countries. c.less relevant for explaining unemployment in less developed countries than in developed countries. d.equally relevant for explaining unemployment in less developed countries and in developing countries.

b.) less relevant for explaining unemployment in developed countries than in less developed countries. Efficiency wages are above equilibrium wages to increase productivity. By providing a nutritious diet workers may be stronger and have fewer sick days. Given the lower level of real wages in developing countries, this explanation is most relevant for developing countries.

Economists have found that union workers earn what percent more than similar nonunion workers? a.20 to 30 b.10 to 20 c.0 to 10 d.30 to 40

b.10 to 20 Union workers earn about 10 to 20 percent more than similar nonunion workers

Clyde is the president of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Clyde decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision? a.The higher the wage, the more he will have to monitor his workers for shirking. b.The higher the wage, the less turnover in his work force. c.The higher the wage, the more his competitor's profits will fall. d.The higher the wage, the more he can charge for his beer.

b.The higher the wage, the less turnover in his work force. Higher wages encourage workers to stay on the job longer. At higher wages, workers face a higher cost if they lose their jobs and so have incentive to reduce shirking.

The theory of efficiency wages explains why a.it is efficient for firms to set wages at the equilibrium level. b.firms may increase productivity and profits by setting wages above the equilibrium level. c.setting wages at the equilibrium level may increase unemployment. d.the most efficient way to pay workers is to pay them according to their skills and any risks they take.

b.firms may increase productivity and profits by setting wages above the equilibrium level. Efficiency wage theory claims that firms may increase productivity and profits by setting wages above the equilibrium level.

Steve manages a warehouse where workers need to find, pack, and ship items ordered by online customers. He considers raising wages hoping that workers will spend more time doing their work and less time chatting with each other and checking their cell phones. According to efficiency wage theory if Steve decides to pay higher wages a.profits will fall and he will hire fewer workers. b.profits will rise but he will hire fewer workers. c.profits will rise and he will hire more workers. d.profits will fall but he will hire more workers.

b.profits will rise but he will hire fewer workers. Above equilibrium wages reduce shirking as workers do not want to lose high paying jobs where there are plenty of applicants. The reduction in shirking increases productivity so the firm can hire fewer workers.

Suppose that autoworkers are unionized. If autoworkers choose to abolish their union, then the quantity of autoworkers demanded will a.fall. The supply of workers in other industries will rise. b.rise. The supply of workers in other industries will fall. c.rise. The supply of workers in other industries will rise. d.fall. The supply of workers in other industries will fall.

b.rise. The supply of workers in other industries will fall. As workers in other industries look for or accept jobs in the auto industry, the supply of labor in other industries will fall, so the wages in other industries will rise.

Tom has no job but keeps applying for one at a business that is unionized. He is qualified and he finds the pay attractive, but the firm always has many applicants. Tom is a.frictionally unemployed. Frictional unemployment is created by job search. b.structurally unemployed. Structural unemployment is created by above equilibrium wages. c.structurally unemployed. Structural unemployment is created by job search. d.frictionally unemployed. Frictional unemployment is created by above equilibrium wages.

b.structurally unemployed. Structural unemployment is created by above equilibrium wages. Tom is structurally unemployed due to the union negotiating a wage above its equilibrium level.

Since the 1940's U.S. union membership has a.risen. This increase should have reduced the natural rate of unemployment. b.fallen. This decline should have raised the natural rate of unemployment. c.fallen. This decline should have reduced the natural rate of unemployment d.risen. This increase should have raised structural unemployment

c. fallen. This decline should have reduced the natural rate of unemployment In the 1940's and 1950's about one third of U.S. workers belonged to unions, now only about 11% do. By negotiating above equilibrium wages, unions create structural unemployment which contributes to the natural rate of unemployment.

Efficiency wages a.decrease profits and unemployment b.increase profits and decrease unemployment c.increase profits and unemployment d.decrease profits and increase unemployment

c.) increase profits and unemployment Efficiency wage theory claims that paying above equilibrium wages will increase profits and productivity, but raise unemployment.

Which of the following is correct? a.Unions increase the level of employment in unionized firms. b.Outsiders would prefer unions to raise union wages. c.There is no consensus among economists that unions are either good or bad for the economy. d.Unions decrease the supply of workers in other industries.

c.There is no consensus among economists that unions are either good or bad for the economy. There is no consensus among economists that unions are either good or bad for the economy. While some economists argue that unions are a type of cartel that increase unemployment, while also reducing the wages in the rest of the economy, other economists argue that unions are necessary in order to give workers some level of bargaining power against firms.

Which of the following is not correct? a.The National Labor Relations Board is the U.S. government agency that enforces workers' right to unionize. b.The Wagner Act of 1935 prevents U.S. employers from interfering when workers try to organize unions. c.Unions are subject to antitrust laws. d.Right-to-work laws allow workers in a unionized firm to choose not to join the union.

c.Unions are subject to antitrust laws. Unions are not subject to antitrust laws.

Unions a.are not cartels but can balance a firm's power and so protect workers. b.are cartels but they cannot balance a firm's power and so protect workers. c.are cartels and they may balance a firm's power and so protect workers. d.are not cartels and cannot balance a firm's power and so protect workers.

c.are cartels and they may balance a firm's power and so protect workers. Unions act as cartels in that the members of the union collude in order to restrict the supply of labor in a particular industry to raise wages and protect the rights of the union members. In that sense, unions can achieve a level of bargaining power in labor contract negotiations with the firms that employ them.

Efficiency wages a.decrease productivity and profits. b.increase productivity but decrease profits. c.increase productivity and profits. d.decrease productivity but increase profits.

c.increase productivity and profits. Efficiency wage theory claims that paying above equilibrium wages increases productivity and profits.

When a union forms in some industry its negotiations a.lower wages and create a shortage in the market for labor in that industry. b.lower wages and create a surplus in the market for labor in that industry. c.raise wages and create a surplus in the market for labor in that industry. d.raise wages and create a shortage in the market for labor in that industry.

c.raise wages and create a surplus in the market for labor in that industry. A union raises the wage in that industry above the equilibrium which creates a surplus.

Unionization in one industry causes wages to a.fall in that industry causing labor supply to rise in industries that are not unionized. b.rise in that industry causing labor supply to fall in industries that are not unionized. c.rise in that industry causing labor supply to rise in industries that are not unionized. d.fall in that industry causing labor supply to fall in industries that are not unionized.

c.rise in that industry causing labor supply to rise in industries that are not unionized. A union negotiates for above equilibrium wages. This results in some workers becoming unemployed. Some of these workers will look for work in other industries. This increase in the supply of labor in other industries reduces the wages in those industries.

Suppose that neither workers in the paper industry nor workers in the furniture industry are unionized. If workers in the paper industry unionize, the supply of workers in the furniture industry will a.fall, reducing the wages of workers in the furniture industry. b.rise, raising the wages of workers in the furniture industry. c.rise, reducing the wages of workers in the furniture industry. d.fall, raising the wages of workers in the furniture industry.

c.rise, reducing the wages of workers in the furniture industry. If workers in the paper industry unionize, then they will bargain to raise the wages of workers in the paper industry. This increase in wages reduce the demand for workers in the paper industry and so some of them will lose their jobs. Some of those who lose their jobs will search for jobs in the furniture industry. This search raises the supply of workers in the furniture industry and so reduces wages in the furniture industry.

Caroline is the president of a nationwide company that provides janitorial services. She decides to raise the wages of her workers so that they are above equilibrium. According to the theory of efficiency wages her workers are likely to a.shirk more and leave their jobs more frequently. b.shirk less but leave their jobs more frequently. c.shirk less and stay on the job longer. d.shirk more but stay on the job longer.

c.shirk less and stay on the job longer. Two reasons for paying efficiency wages are to reduce shirking and worker turnover.

Claire manages a health clinic. Once receptionists, patient-care representatives, and record keepers are trained they often leave to find other work. Claire considers paying a higher wage hoping workers will stay on the job longer. According to the theory of efficiency wages, if Claire raises wages paid to these types of employees they will a.not tend to stay on the job longer and profits will be unchanged. b.tend to stay on the job longer but profits will fall. c.tend to stay on the job longer and profits will rise. d.not tend to stay on the job longer and profits will fall.

c.tend to stay on the job longer and profits will rise. Paying above equilibrium wages reduces turnover. With less turnover the firm spends less on hiring and training so its profits rise.

In which of the following situations is a firm most likely to see the largest benefits by paying above equilibrium wages? a.worker turnover is low, the cost of hiring and training new workers is low. b.worker turnover is high, the cost of hiring and training new workers are low. c.worker turnover is high, the cost of hiring and training new workers is high. d.worker turnover is low, the cost of hiring and training new workers is high.

c.worker turnover is high, the cost of hiring and training new workers is high. Efficiency wages may reduce worker turnover and so reduce the cost of hiring and training new workers.

Paying efficiency wages means that wages are a.above equilibrium, and unemployment is lower than otherwise. b.below equilibrium, and unemployment is lower than otherwise. c.below equilibrium, and unemployment is higher than otherwise. d.above equilibrium, and unemployment is higher than otherwise.

d.above equilibrium, and unemployment is higher than otherwise. Efficiency wages are above equilibrium wages intended to raise productivity and profits, but they also raise unemployment.

According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n) a.decrease in the quality of job applicants but need to replace workers less frequently. b.increase in the quality of job applicants and need to replace workers less frequently. c.increase in the quality of job applicants but need to replace workers more frequently. d.decrease in the quality of job applicants and need to replace workers more frequently.

d.decrease in the quality of job applicants and need to replace workers more frequently. Efficiency wages increase the quantity of quality job applicants and reduce worker turnover.

An argument for the presence of unions is that they ____ a.increase employment. b.keep wages low. c.reduce the productivity of workers. d.help firms respond to workers' concerns.

d.help firms respond to workers' concerns. When a worker takes a job, there are many attributes of the job that the worker and employer must agree to, and union representation can efficiently address workers' concerns.

An argument for the presence of unions is that they ____ a.increase employment. b.keep wages low. c.reduce the productivity of workers. d.increase the happiness and productivity of workers.

d.increase the happiness and productivity of workers. When a worker takes a job, there are many attributes of the job that the worker and employer must agree to, and union representation can efficiently address workers' concerns. This representation can increase worker happiness and productivity.

Suppose that coffeehouse employees are not unionized. If they unionize, then the supply of labor in other sectors of the economy will a.increase, raising wages in industries that are not unionized. b.decrease, reducing wages in industries that are not unionized. c.decrease, raising wages in industries that are not unionized. d.increase, reducing wages in industries that are not unionized.

d.increase, reducing wages in industries that are not unionized. If coffeehouse employees unionize they will raise wages for coffeehouse employees. Because of the increase in wages, coffeehouses will choose to employ fewer workers. Some of the workers who lose their jobs will look for jobs elsewhere and so raise the supply of labor in other industries. The increase in supply reduces wages in those industries.

An argument against the presence of unions is that the resulting allocation of labor ____ a.creates an increase in employment. b.creates lower wages. c.reduces the productivity of workers. d.is inequitable.

d.is inequitable. If a union is simply acting as a cartel, then it raises wages above the competitive level which decreases the efficiency of the labor market. This benefits some workers at the expense of other workers who are unemployed, resulting in an inequitable allocation.

Hasina is a plant manager at a factory in a relatively poor country. Even though market wages are low, she decides to raise the wages of her workers so they can have a more nutritious diet. According to efficiency wage theory the increase in wages will a.raise productivity and decrease unemployment. b.reduce productivity but decrease unemployment. c.reduce productivity and increase unemployment d.raise productivity but increase unemployment.

d.raise productivity but increase unemployment. Efficiency wages are above equilibrium wages. They increase productivity, but also create a surplus of labor which creates higher unemployment.

Efficiency wages a.reduce structural unemployment. b.reduce frictional unemployment. c.raise frictional unemployment. d.raise structural unemployment.

d.raise structural unemployment. When the wage is above equilibrium, it creates a surplus of labor and raises structural unemployment.