Campaigns to make customers aware of the label "Made in the U.S.A."
were conceived and implemented by union leadership and not by the owners of
the firms who manufacture the products. Use one of Marshall's rules of derived
demand to help you explain why a union might undertake such an advertising
campaign? Specifically, what does the union hope to achieve?
Use Marshall's four rules of derived demand to explain the decline in the
membership in the United Auto Workers. Specifically, how have the predicted
determinants of the labor demand elasticity changed to adversely effect the
demand for automobile workers.
Suppose that a monopoly union has an indifference curve U=wE, where w and
E are the daily wage and employment at the union firm. This utility function
implies that the marginal utility from wages (MUW) and from employment (MUE)
are to equal: MUW=E and MUE=w. The slope of the firm's isoprofit function
is: (1000-p)/(wE), where p is the level of profit. The only cost to the firm
is labor cost and the price of the output is equal to $1. (Hint: (1) remember
the slope of an indifference curve, MUE/MUW, must equal the slope of the isoprofit
line in equilibrium; (2) there are two unknowns and two equations, the tangency
condition and the profit equation).
If profit, p, equals $900 and the profit-maximizing level of output,
Q*, is equal to 1000, what is the Pareto-efficient wage and employment
level for the union firm?
If profit, p, equals $600 and the profit-maximizing level of output,
Q*, is equal to 400, what is the Pareto-efficient wage and employment
level for the union firm?
Sketch a graph of:
the union's indifference curves,
the firm's isoprofit curves,
the labor demand,
and the contract curv
implied by you findings in (A) and (B) above
Are there allocative efficiency losses due to the union
is this instance? Explain.
Use your knowledge of the labor market to:
provide two reasons why the union wage gap overstates the union wage
gain.
provide a reason why the union wage gap understates the union wage gain.
explain why high wage workers in a nonunion firm would be more inclined
to not support a union than those who are on the lower end of the pay
scale.
