Final answer:
Increasing union wages above the market-clearing level typically leads to an increase in unemployment and a decrease in employment because it creates a labor surplus and reduces the incentive for firms to hire at higher wages.
Step-by-step explanation:
When analyzing the impact of an increased union wage, which exceeds the market-clearing wage, it is essential to understand supply and demand dynamics within the labor market. If the union wage is increased and other factors remain constant, the number of unemployed individuals is likely to increase.
This is because the higher union wage exceeds the equilibrium wage, where the quantity of labor supplied equals the quantity demanded. As a result, this wage premium creates a surplus of labor, meaning more individuals are willing to work at this higher wage than there are jobs available at that wage level. Consequently, employers may hire fewer workers, decreasing the number of employed individuals as the firms' incentive to hire at these increased wages drops.
By increasing the union wage, the cost of hiring workers becomes more expensive for firms, leading them to hire fewer workers. As a result, more workers become unemployed. On the other hand, since the union wage is higher than the market-clearing wage, fewer workers are willing to work at the higher wage, causing a decrease in the number of employed workers.