Practice mode Labour Market

How do unions tend to widen the pay gap between insiders and outsiders?

Correct answer C. By increasing the wage in the unionised sector, which may create an increase in the supply of workers in the non-unionised sector

Explanation

A higher union wage reduces jobs in the unionised sector, so displaced workers seek work elsewhere. That extra labour supply pushes down non-union wages, widening the insider-outsider gap.

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