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A trade union's power is primarily focused on negotiating the nominal wage. It cannot unilaterally determine the prices firms set for their products, and thus cannot control the real wage. Similarly, the union does not decide how many workers a firm will employ, as hiring decisions remain the prerogative of the company.

Limitations of Union Power in Wage Bargaining

Analyze the following scenario and explain the discrepancy between the union leader's optimistic statement and the actual outcomes, based on the typical limitations of a union's bargaining power.

Unintended Consequences of a Wage Negotiation

A labor union is negotiating a new contract with a large corporation. Match each economic variable or decision to the category that best describes the union's ability to influence it directly.

A labor union successfully negotiates a significant increase in the nominal wage for its members. Explain why this victory might not translate into a corresponding increase in the workers' actual purchasing power or job security.

The Limits of Nominal Wage Gains

A powerful manufacturing union successfully negotiates a 10% increase in the nominal wage for its members. Assuming the firm's primary goal is to maintain its profit margin and there is no change in worker productivity, which of the following outcomes is the most likely consequence of this wage increase?

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