Even though non-union workers maybe just as skilled as union ...

[JGIBBSON]

Even though non-union workers maybe just as skilled as union workers, wages are almost 15 percent higher in union jobs. Why?

Question 2

Does U.S. Steel prefer to own coal mines? Give reason for your answer.

[sokh]

Answer to Question 1

When unions become successful in obtaining higher wages through bargaining or restricting memberships, employment in the union sector will fall as a result of rise in wages. Equally skilled workers who are unable to find jobs in the union sector will then seek employment in the non-union sector. This increases supply of labor, thereby decreasing wages in the non-union sector.

Answer to Question 2

U.S. Steel is integrated into iron mining, it currently does not own any of the mines that supply its coking coal. Unlike iron ore, the company's coking requirements are a tiny percentage of the coal industry's output, and coal is easily transportable by rail. No coal producer can profit by acting opportunistically toward U.S. Steel because so many other mines produce coal that it can use. The company has delivery contracts with several mines, but if necessary it can enter the spot market to obtain or dispose of coal. Futures and options markets are available for coal, and the company can manage its risks with them as it cannot in the much thinner market for iron ore. Coal is a less specific resource than iron ore; it trades at competitive prices, and U.S. Steel can hedge any remaining risks without having to own mines.

[JGIBBSON]

Correct answers!

[sokh]

Great! Please up vote