It can be shown that an industry’s demand for labour will become more elastic when the demand for the industry’s product becomes more elastic. Let’s consider the implications of this fact for the UK car industry and for the Transport and General Workers’ Union (T&G) – the main labour union for UK car workers.

a. What happened to the elasticity of demand for British cars when the Japanese developed a strong car industry? What happened to the elasticity of demand for UK car workers? Explain.

b. As the chapter explains, a union generally faces a trade-off in deciding how much to raise wages, because a bigger increase is better for workers who remain employed but also results in a greater reduction in employment. How did the rise in car imports from Japan affect the wage – employment trade-off faced by the T&G?

c. Do you think the growth of the Japanese car industry increased or decreased the gap between the competitive wage and the wage chosen by the T&G? Explain.