4.1.6.5 The influence of trade unions in determining wages and levels of employment Flashcards
What are the main goals of trade unions?
Increase wages
Improve working conditions
Enhance job security
Protect workers’ rights
What factors determine a union’s ability to influence wages?
Union density (% of workers unionized)
Elasticity of labour demand (more inelastic → greater power)
Profitability of firms (high profits → more wage concession)
Legal environment (right-to-strike laws)
Substitutability of labour (harder to replace → more power)
How does union introduction affect a perfectly competitive labour market?
Before: Wage = W₀, Employment = Q₀ (D=S)
After: Union pushes wage to Wᵤ > W₀
Result: Unemployment (Qₛ > Qᴅ)
Diagram: Horizontal wage line at Wᵤ above equilibrium
How does union introduction affect a monopsony market?
Before: Wage = W₂ (< competitive W₁), Employment = Q₂
After: Union negotiates wage up to W₃ (toward MRP)
Result: Can ↑ both wages and employment (Q₂ → Q₃)
Diagram: New wage floor between W₂ and W₁
Draw union wage effect in perfect competition. Label:
Original W₀/Q₀
Union wage Wᵤ
Unemployment gap
Supply-demand intersection (W₀/Q₀)
Horizontal line at Wᵤ → Qᴅ < Qₛ
Show how unions can fix monopsony exploitation.
Monopsony: W₂/Q₂ (MC=MRP)
Competitive: W₁/Q₁ (S=D)
Union: Sets wage ∈ [W₂, W₁] → employment rises
What is the wage-employment trade-off for unions?
Higher wages → lower employment if:
Wage > MRP
Labour demand is elastic
Exception: In monopsony, can ↑ both
Give an example of union impact in different markets.
Perfect competition: UAW in auto industry → higher wages but job cuts
Monopsony: Teachers’ unions in rural areas → ↑ wages without job loss
Why does labour demand elasticity affect union success?
Inelastic demand (e.g., nurses): Unions can ↑ wages significantly with small job loss
Elastic demand (e.g., retail): Wage hikes cause large employment drops
Are unions always beneficial for workers?
Pros: Higher wages, better conditions
Cons: Potential job losses, may hurt non-union workers
Net effect: Depends on market structure (helpful in monopsony)
Contrast union effects in perfect competition vs. monopsony.
Market Wage Change Employment Change
Perfect competition W₀ → Wᵤ (↑) Q₀ → Qᴅ (↓)
Monopsony W₂ → W₃ (↑) Q₂ → Q₃ (↑)
How might governments respond to union actions?
Support: Minimum wage laws (reinforce union goals)
Restrict: Anti-strike legislation
Balance: Encourage wage-productivity linkage
