Labor unions are some of the strongest proponents of the minimum wage. Yet in 2008, the median full-time union member earned $886 per week, an average of over $22 per hour (www.bls.gov/news.release/union2.nr0.htm). Therefore, a rise in the minimum wage doesn’t directly raise the wage of many union workers. So why do unions support minimum wage laws? Surely, there’s more than one reason why this is so, but let’s see if economic theory can shed some light on the subject.
a. Skilled and unskilled labor are substitutes: For example, imagine that you can hire four low-skilled workers to move dirt with shovels at $5 an hour, or you can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. Using the tools developed in Chapter 4, what will happen to the demand for skilled labor if the price of unskilled labor increases to $6.50 per hour?
b. If the minimum wage rises, will that increase or decrease the demand for the average union worker’s labor? Why?
c. Now, let’s put the pieces together: Why might high-wage labor unions support an increase in the minimum wage?