1. increase the number of workers employed in industries other than meat packing.
2. increase the amount of unemployment in the economy as a whole in the long run.
3. both of the above.
4. none of the above.
Choose the option that yields the correct answer.
Option 1 is the correct answer. The 25 percent increase in the wage of unionized meat packers will cause the supply curve of packaged meat to shift upward (because costs increase) leading to a reduction of the output of the meat packaging industry. It may also give firms an incentive to use more machines and less labor in the meat packaging process. For both reasons, the demand curve for labor will be negatively sloped. Less labor will therefore be used in packaging meats (in unionized firms, at least). Workers that are layed-off in this industry will switch to other occupations, increasing the level of employment in other industries. The level of unemployment in the economy as a whole will not be affected in the long run.
The level of unemployment in the economy as a whole might well increase in the short-run because it will take workers who are layed-off in the meat packaging industry a while to find jobs elsewhere. As long as there is a non-unionized sector of the economy (as the question is careful to state), there can be no increase in unemployment in the long run because wages will be bid down elsewhere until everyone who wants to work will have a job. Of course, it is normal for there to be some unemployment in the economy because there will always be workers who have been recently layed-off, or who have quit, and have not yet found new jobs.
Notice that the union increases the incomes of its remaining members at the expense of consumers of the product and workers in other industries. The consumers of other products actually benefit because the influx of workers into those industries will lower their prices---assuming, of course that the meat packing industry, and other industries whose unions have done the same thing, produce a significant fraction of the economy's output.