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Suppose a union negotiates for its members a wage that is above the market-clearing wage. What problems does the union have to solve now? Explain.
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Economics Today: The Micro View
Edition: 19th
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The higher wage implies there will be an excess of labor so the union must find a way to ration the jobs. The excess supply is due to two factors—the firms' quantity demanded for workers decreases and new workers are attracted into the industry due to the higher wage. Further, the higher labor costs are likely to encourage management to find ways to substitute other factors of production for labor.
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