lower profits or losses for the firm.

Union workers might have higher productivity than nonunion workers for a number of reasons. First, higher

wages may elicit higher productivity. Second, union workers tend to stay longer at a given job, a trend that

reduces the employer’s costs for training and hiring and results in workers with more years of experience.

Many unions also offer job training and apprenticeship programs.

In addition, firms that are confronted with union demands for higher wages may choose production methods

that involve more physical capital and less labor, resulting in increased labor productivity. Table 14.7 provides

an example. Assume that a firm can produce a home exercise cycle with three different combinations of labor

and manufacturing equipment. Say that the firm pays labor $16 an hour (including benefits) and the machines

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14.3 • Market Power on the Supply Side of Labor Markets: Unions 339
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