purchase inputs from nonunion producers, rather than producing them with its own highly paid unionized

workers, or perhaps the firm moves or opens a new facility in a state or country where unions are less

powerful.

From the firm’s point of view, the key question is whether union workers’ higher wages are matched by higher

productivity. If so, then the firm can afford to pay the higher union wages and, the demand curve for

“unionized” labor could actually shift to the right. This could reduce the job losses as the equilibrium

employment level shifts to the right and the difference between the equilibrium and the union wages will have

been reduced. If worker unionization does not increase productivity, then the higher union wage will cause

lower profits or losses for the firm.

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