T412:18 3B19HEAC ese @ owl.uwo.ca 88% mm) QUESTION 6 Assume the following union impact equation: W = 0.5CA + 0.004CA X U + 0.003CA + CR 0.01CA X RLC + other control variables where W is the wage rate in the establishment, CA represents the existence of a collective agreementin 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) Theoretically justify the use of each of these explanatory variables. b) What sign would you expect for each regression coefficient? c) Why are the explanatory variables entered in the equation in that particular fashion that is, multiplied by CA? Page 7 of 18 d) What is the effect on wages of being covered by a collective agreement as opposed to not covered? T#12:18 3B19BAZ see 2O 88% mm) @ owl.uwo.ca Page 7 of 18 d) What is the effect on wages of being covered by a collective agreement as opposed to not covered? e) Evaluate this effect at the following mean values of the explanatory variables: U= 40, CR = 7, RLC = 36. f) 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. g) 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. Page 8 of 18