meet the union’s wage demand.

What are the limits on how much higher pay union workers can receive? To analyze these questions, let’s

consider a situation where all firms in an industry must negotiate with a single union, and no firm is allowed to

hire nonunion labor. If no labor union existed in this market, then equilibrium (E) in the labor market would

occur at the intersection of the demand for labor (D) and the supply of labor (S) as we see in Figure 14.12. This

is the same result as we showed in Figure 14.6 above. The union can, however, threaten that, unless firms

agree to the wages they demand, the workers will strike. As a result, the labor union manages to achieve,

through negotiations with the firms, a union wage of Wu for its members, above what the equilibrium wage

would otherwise have been.
338 14 • Labor Markets and Income

FIGURE 14.12 Union Wage Negotiations Without a union, the equilibrium at E would have involved the wage We
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