When a union bargains successfully with employers, in that industry,
a. both the quantity of labor supplied and the quantity of labor demanded increase.
b. both the quantity of labor supplied and the quantity of labor demanded decrease.
c. the quantity of labor supplied increases and the quantity of labor demanded decreases.
d. the quantity of labor demanded increases and the quantity of labor supplied decreases.
The correct answer and explanation is :
Correct Answer: c. the quantity of labor supplied increases and the quantity of labor demanded decreases.
Explanation:
When a union bargains successfully with employers in a particular industry, it typically negotiates for higher wages for its members. While this might seem entirely beneficial for workers, it has broader implications for the labor market based on the laws of supply and demand.
In economic terms, the labor market operates like any other market, where wages are the “price” of labor, and labor itself is the “good.” Employers represent the demand side (they demand labor), and workers represent the supply side (they supply labor).
When unions negotiate higher wages, the price of labor increases. According to the law of supply, when the price of a good (in this case, labor) rises, the quantity supplied increases. This means more individuals are willing to work at the higher wage, or current workers may be willing to work more hours.
On the other hand, the law of demand states that when the price of a good increases, the quantity demanded decreases. Employers now face higher labor costs and may choose to hire fewer workers, reduce work hours, or replace some labor with automation or outsourcing to reduce costs.
Therefore, as a result of successful union bargaining:
- More people want to work at the higher wage (increase in quantity of labor supplied).
- Fewer employers want to hire at the higher wage (decrease in quantity of labor demanded).
This situation can lead to labor surpluses, meaning more people want jobs than there are jobs available at the negotiated wage. This is a potential downside to union wage negotiations and reflects the natural consequences of wage-setting above the equilibrium level in a competitive market.
Thus, the correct and most economically accurate answer is:
c. the quantity of labor supplied increases and the quantity of labor demanded decreases.