Final answer:
The union-negotiated wage acts as a price floor in the labor market, potentially leading to an excess supply of labor as unions negotiate for wages above the market equilibrium. This higher wage by the union Wu can cause firms to adjust employment levels or invest in capital to maintain productivity.
Step-by-step explanation:
The union-negotiated wage is a price floor in the market for the union members' labor. When a labor union engages in collective bargaining, it often aims to secure a wage rate that is higher than the equilibrium wage which would be set by supply and demand without union intervention. As indicated in your references to Figure 14.12 and Figure 15.3, the union's ability to negotiate a higher wage, denoted as Wu, can lead to a situation where the quantity of labor supplied (Qs) exceeds the quantity demanded (Qd) by employers, resulting in an excess supply of labor. This imbalance is often a result of the market's attempt to reach a new equilibrium between a union's wage goals and what employers are willing to pay, which may not always align perfectly with the competitive market's wage (We).
Labor unions play a significant role in the dynamics of labor markets by exerting market power on the supply side. They can impact the wages and conditions under which unionized workers are employed. While higher wages negotiated by unions can increase income for union workers, they can also lead to adjustments by employers, such as reducing the number of employees or investing more in capital to enhance productivity.