Question

The Brain Surgeons’ Brotherhood faces an own-wage elasticity of demand for their labor that equals –0.1. The Dog Catchers’ International faces an ownwage elasticity of demand for their labor that equals –3.0. Suppose that leaders in both unions push for a 20 percent wage increase but have no power to set employment levels directly. Why might members of the Dog Catchers’ International be more wary of the targeted wage increase?

Answer 1

Dog Catchers 'International members should be more cautious about salary increases because their labor demand elasticity is greater than Brain Surgeons' Brotherhood labor demand elasticity.

Demand elasticity is a concept that measures the sensitivity of demand to price changes. When elasticity is greater than 1, we say that demand is elastic, that is, sensitive to price changes. This is the case with Dog Catchers' International. When elasticity is a value between 0 and 1, we say that demand is inelastic, that is, little sensitive to changes in price. This is the case with Brain Surgeons' Brotherhood.

Thus, Brain Surgeons' Brotherhood employees have greater bargaining power in wage bargaining, as wage variation does not significantly reduce the demand for labor. However, in the case of Dog Catchers' International, the demand for work is more sensitive to the price of wages, so these workers have less bargaining power. If they demand too much, they will be unemployed.