Principles of Macroeconomics 7th Edition

Published by South-Western College
ISBN 10: 1-28516-591-8
ISBN 13: 978-1-28516-591-2

Chapter 15 - Unemployment - Questions For Review - Page 317: 5

Answer

Unions will affect the NARU( Natural Rate of Unemployment). Unions raise wages above the equilibrium level, This causes surplus of workers and unemployment rises. There are two types of people in the unions ( insiders vs. outsiders) in unions when there is a surplus of workers the insiders keep their jobs while the outsiders either look for a new job or wait until they can get an open position.

Work Step by Step

The lesson to learn here is that unions keep the NARU artificially higher than it should be without unions.
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