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

and the quantity of labor Qe. However, the union is able to use its bargaining power to raise the wage to Wu. The

result is an excess supply of labor for union jobs. That is, a quantity of labor supplied, Qs is greater than firms’

quantity demanded for labor, Qd.

This labor market situation resembles what a monopoly firm does in selling a product, but in this case a union

is a monopoly selling labor to firms. At the higher union wage Wu, the firms in this industry will hire less labor

than they would have hired in equilibrium. Moreover, an excess supply of workers want union jobs, but firms

will not be hiring for such jobs.

From the union point of view, workers who receive higher wages are better off. However, notice that the
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