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Principles of Economics- Mankiw (5th) 578

Principles of Economics- Mankiw (5th) 578 - 596 PA R T N I...

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596 PART NINE THE REAL ECONOMY IN THE LONG RUN Advocates of unions contend that unions are a necessary antidote to the mar- ket power of the firms that hire workers. The extreme case of this market power is the “company town,” where a single firm does most of the hiring in a geographic region. In a company town, if workers do not accept the wages and working con- ditions that the firm offers, they have little choice but to move or stop working. In the absence of a union, therefore, the firm could use its market power to pay lower wages and offer worse working conditions than would prevail if it had to com- pete with other firms for the same workers. In this case, a union may balance the firm’s market power and protect the workers from being at the mercy of the firm owners. Advocates of unions also claim that unions are important for helping firms re- spond efficiently to workers’ concerns. Whenever a worker takes a job, the worker and the firm must agree on many attributes of the job in addition to the wage:
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