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If a firm operates in a competitive industry and its unionized labor force is successful in bargaining for a wage increase, where is the firm likely to get the money to pay the higher wages?
On Sep 23, 2024
If it is a competitive industry, the owners are likely to be earning the normal return, so paying out of profits would not be an option. Also, competition limits the firm's ability to raise its price and pass along the increase to consumers. It is most likely that the firm will cut other costs. A strong possibility is that this will result in fewer employees.