Question

Given the decline in union membership over the past 50 years, what does the theory of bilateral monopoly suggest will have happened to the equilibrium level of wages over time? Why?

Short answer

Because union members in a bilateral monopoly are the ones who negotiate for greater wages, salaries in a bilateral monopoly have decreased with the reduction in union membership.

Step-by-step solution

Concept Introduction

When there is just one provider of a given type of good and clients do not have the option of choosing between several manufacturers, market forces are disrupted, resulting in a monopoly. A situation in which there is only one source of products and only one customer of those things is referred to as a "bilateral monopoly." If a country's railways are nationalized, for example, and railway wheels are built by a certain manufacturer (and hence cannot be exported), the wheels cannot be used for any other purpose. The country's railways are the only buyers here.

Explanation

The equilibrium wage is the best wage in a labor market where market forces decide wages. In a bilateral monopoly, however, market wages vanish because there is only one provider and one buyer (e.g., a special defense forces goods maker selling only to one customer, the army).

In an equilibrium wage, the point at which the marginal product of revenue crosses or equals market wages decides the wages to be fixed, the labor required, and so on.

A defined top wage-price band is submitted to unions for consideration in a bilateral monopoly. Similarly, when it comes to wage negotiations, management sets a lower price range.

This is because such enterprises lack well-defined market salaries.

The wage for workers is set somewhere in the middle, depending on the bargaining power of unions.

A single body, the union, is in charge of the entire workforce's supply, salary, and benefits.

Management sets pay at a lower level since the union's negotiating power falls as the percentage of union members decreases.

Final answer

Because it is union members who bargain for higher pay in a bilateral monopoly, it has declined as union membership has declined.