The city of Sundown is considering a plan to build a convention centre to revitalize the downtown area. The project requires hiring workers in the construction union. Because of unionization, the workers’ wage rate is above the value that would be determined by supply and demand. However, city analysts have econometrically estimated the wage that would prevail if the labour market were competitive.

a. If the convention centre increases the total number of construction workers employed, what is the appropriate cost of labour?

b. Suppose instead that total employment is unaffected; workers leave private projects to work on the convention centre. Does your answer to (a) change? Why?