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1. Assume the following union impact equation: Where W is the wage rate in the establishment, CA represents the existence of a collective agreement in

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1. Assume the following union impact equation: Where W is the wage rate in the establishment, CA represents the existence of a collective agreement in the establishment, U represents the percentage of the industry that is unionized, CR represents industry concentration, and RLC. is the ratio of wage labour cost to value added. a. b. C. (L02) Theoretically justify the use of each of these explanatory variables. What sign would you expect for each regression coefficient? Why are the explanatory variables entered in the equation in that particular fashion-that is, multiplied by CA? What is the effect on wages of being covered by a collective agreement as opposed to not covered? Evaluate this effect at the following mean values of the explanatory variable: U=40, CR=7, RLC=36 Compare this union impact in an establishment with the impact that would occur if the industry in which the firm operated was completely unionized, other things being equal. Compare the union impact of (e) with the impact that would occur if the ratio of wage labour cost to value added were only 20 percent as opposed to 36 percent. What does such an equation imply about the impact of the control variable on union and non-union workers? How would you relax that implied assumption? a) This is a fine question. The justification for the U variable (the proportion of the labour force that is unionized) is given in the text at the beginning of the subsection entitled "Variation in the Union Wage Impact", beginning on page 468. Note the discrepancy between CA, which represents the union status of the firm (yes or no?), and U, which represents the proportion of the labour force that is unionized within an industry. The justification for the CR variable, representing the concentration of the industry, is similar to the effect posited for firm size and is explained in the subsection entitled "Variation in the Union Wage Impact." The justification for the RLC variable is tied to the elasticity of labour demand

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