Minimum Wages and Unions

a. Assume an industry without legal minimum wages and unions. Show in a diagram how the equilibrium wage W* is determined, and briefly explain all the concepts in the diagram.

b. Now suppose a minimum wage, WMIN, is legislated at a level lower than W*, i.e. WMINW*. Show it in the diagram and explain what the labour market outcomes will be.

d. Now suppose a workers' union is created and successfully negotiates wage WUNION, which is above both W* and WMIN, i.e. WUNION>WMIN>W*.

Explain what the labour market outcomes will be compared to the previous part