Assume you are the head of the newly formed Airlines Pilots'Association and your brother is head of the newly formed Garment Workers'Association. Your union faces an elasticity of demand for labour of -0.2 and your brothers'union faces an elasticity of demand for labour of -0.6. You both can bargain only over wages.

1. a)If you both negotiated the average union wage premium of 10 percent that exists in the economy, what employment effects would result?
2. b)If you both were willing to accept a 2 percent reduction in the employment of your membership, what wage increase would you each bargain for?
3. c)If the airline that you bargained against just bought out another airline so there was very little competition, and this cut the elasticity of demand for labour that you faced by half, what wage would you now bargain for if you were willing to accept a 2 percent reduction in the employment of your membership?