4.1.6.5 Influence of trade unions in deterring wages and levels of employment

Question 1

Define trade union

Answer 1

A group of workers that bargains collectively with employers to increase its members’ wages.

• Set up to further the interests of workers - through ‘collective bargaining’

Question 2

Introduction of a TU to a perfectly competitive labour market

Answer 2

• Theoretically - will increase wages for those who keep their job, but reduce employment levels
• TU controls labour supply at given wage rates

Question 3

Diagram - effects of introducing a TU to a competitive labour market

Answer 3

• Competitive wage rate before the introduction of TU is W1 - with Q1 workers employed
• If employees join trade union - able to negotiate a higher wage of W2 - with Q3 workers willing to supply their labour at this wage
• Firm willing to demand only Q2 of labour at the higher wage - excess supply of workers of Q3-Q2 - effectively unemployment
• Introduction of a TU to a previously competitive labour market has thus resulted in additional unemployment of Q1-Q2

Question 4

Critics of the analysis about higher wages meaning unemployment

Answer 4

• Too simplistic - TU may not reduce U
• Many modern instances of bargaining between TU and employers - have led to pay rises for workers in return for agreement to adopt more productive working methods - such as using computers or agreeing to retrain

Will increase workers’ MRP and hence D for labour - may lead to excess demand arising

Question 5

Evaluation of Trade Unions?

Answer 5

1) TU in a monopsony labour market - employment goes up, wages go up
2) Depends on strength of TU power - union density
3) Success determined by union mark up (difference in wage between what workers part of a TU and not part of one) - the bigger the difference, the greater the success of the TU
4) Legislation, restructuring of UK economy, competitive pressures (real world evidence proves limited power of TUs in UK)
- Closed shop TUs are illegal