Chapter 17: Labor Unions
Solutions Manual
Learning Objectives for Chapter 17
After reading this chapter, you should know
LO 17-01. How unions secure higher wages.
LO 17-02. The factors that affect collective bargaining outcomes.
LO 17-03. How unions affect nonunion wages.
Questions for Discussion
1. Collective bargaining sessions often start with unreasonable demands and categorical
rejections. Why do unions and employers tend to begin bargaining from extreme
positions? (LO 17-02)
2. Does a strike for a raise of 5 cents an hour make any sense? What kinds of long-term
benefits might a union gain from such a strike? (LO 17-01)
3. Why do some college professors join a union? What are the advantages or disadvantages
of campus unionization? (LO 17-01)
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4. Are large and powerful firms easier targets for union organization than small firms? Why
or why not? (LO 17-01)
5. Nonunionized firms tend to offer wage rates that are close to rates paid by unionized firms
in the same industry. How do you explain this? (LO 17-03)
6. Why are farmworkers much less successful than airplane machinists in securing higher
wages? (LO 17-02)
7. In 1998 teaching assistants at the University of California struck for higher wages and
union recognition, something they had sought for 14 years. How might the availability of
replacement workers have affected their power? (LO 17-02)
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8. Why was the 2007 UAW strike (News, p. 367, and text, p. 378) so short? (LO 17-02)
9. Why did Walmart choose to close its store rather than hire 30 more workers (World View,
p. 378)? (LO 17-02)
10. How will union mergers affect the market power of unions? (LO 17-02)
Problems
1. Complete the following table:
Wage rate $14 $13 $12 $11 $10 $9 $8 $7
Quantity of labor
demanded 0 5 20 50 75 95 110 120
Marginal wage __ __ __ __ __ __ ___ ___
(a) What is the marginal wage when the nominal wage is $11?
(b) At what wage rate does the marginal wage first become negative? (LO 17-01)
Answers:
Wage rate $14 $13 $12 $11 $10 $9 $8 $7
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
(a) $10.33.
(b) $7.00.
Feedback:
(a) Marginal wage is the change in total wages paid divided by the change in quantity of
labor employed. Total wages paid are the wage rate times the quantity of labor demanded.
At a nominal wage of $11, the quantity of labor demanded is equal to 50, so the marginal
wage is ($550 – $240) / (50 – 20) = 310 / 30 = 10.33
(b) According to the table, the marginal wage rate first becomes negative at a nominal
wage rate of $7.00 when the marginal wage is -$4.00
2. Complete the following table: (LO 17-01)
Wage rate $6 $7 $8 $9 $10 $11 $12
Quantity of labor
supplied 80 120 155 180 200 210 215
Marginal factor
cost __ ___ ___ ___ ___ ___ ___
Answers:
Wage rate $6 $7 $8 $9 $10 $11 $12
3. Based on the data in Problems 1 and 2 above,
(a) What is the competitive wage rate?
(b) Approximately what wage will the union seek?
(c) How many workers will the union have to exclude in order to get that wage?
(LO 17-02)
Answers:
Wage rate $14 $13 $12 $11 $10 $9 $8 $7
Quantity of labor
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
demanded 0 5 20 50 75 95 110 120
Total wages paid $0 $65 $240 $550 $750 $855 $880 $840
Marginal wage — $13.00 $11.67 $10.33 $8.00 $5.25 $1.67 –$4.00
Feedback:
(a) The competitive wage rate is where labor demand intersects labor supply. At this wage
(b) Unions desire high wages for their members; this means wages above the competitive
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(c) At the competitive wage rate of $7, the number of workers employed is 120. When the
wage increases to the union’s desired wage rate (a little more than $9), the number of
4. At the time of the National Football League strike in 1987, the football owners made
available the following data:
Total Team Revenues and Costs
Source of Revenue Before the Strike During the Strike
Television $973,000 $973,000
Stadium gate 526,000 126,000
Luxury box seats 255,000 200,000
Concessions 60,000 12,000
Radio 40,000 40,000
Players’ salaries and costs 854,000 230,000
Nonplayer costs (coaches’ salaries) 200,000 200,000
(a) Compute total revenues, total expenses, and profits both before and during the strike.
Before Strike During Strike
Total revenue __________ __________
Total expense __________ __________
Total profit __________ __________
(b) Who was better positioned to endure the strike? A: NFL owners B: players (LO 17-02)
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Answers:
(a) Before Strike During Strike
Total revenue $1,854,000 $1,351,000
Feedback:
(a) Total revenue in this instance included television, stadium gate (ticket sales), luxury box
seats, concessions, and radio. Before the strike, total revenue equaled $1,854,000
($973,000 + $526,000 + $255,000 + $60,000 + $40,000). During the strike, total revenue
(b) The NFL owners were better positioned to endure the strike. One primary reason for
5. Suppose the following supply and demand schedules apply in a particular labor market:
Wage rate (per hour) $4 $5 $6 $7 $8 $9 $10
Quantity of labor supplied
(workers per hour) 2 3 4 5 6 7 8
Quantity of labor demanded
(workers per hour) 6 5 4 3 2 1 0
Graph the relevant curves and identify the
(a) Competitive wage rate.
(b) Union wage rate.
(c) Monopsonist’ s wage rate. (LO 17-03)
Answers:
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Wage rate (per hour) $4 $5 $6 $7 $8 $9 $10
Quantity of labor supplied
(workers per hour) 2 3 4 5 6 7 8
(a) $6 per hour.
(b) $7 per hour.
(c) $5 per hour.
Feedback:
(a) The competitive wage rate is at the point where quantity of labor demanded is equal to
(b) The intersection of the marginal wage and labor supply curve determines the union’s
(c) The intersection of the marginal factor cost and labor demand curve indicates the
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
6. In the Silicon Valley hiring case (News, p. 374), attorneys for the 64,000 plaintiffs asked
for $3 billion in damages.
(a) How much did this work out per worker?
(b) How much did the judge say they deserved (per worker)? (LO 17-02)
Answer:
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.