6.5 The Inflence Of Trade Union In Determining Wages And Levels Of Unemployment

Question 1

What is a trade union?

Answer 1

Organisation of workers who group together to maintain improve their conditions of employment such as pay

Question 2

What is collective bargaining?

Answer 2

A process by which wage rates and other conditions of work are negotiated and agreed upon by a union or unions which an employer or employers

Question 3

What essentially is the function of a trade union?

Answer 3

Bargain with employers to improve wages and other conditions of work

Question 4

A trade union is described as….

Answer 4

A monopoly supplier of labour

Question 5

Why are trade unions monopoly suppliers of labour?(2 reasons)

Answer 5

-able to keep non members out the labour market
-prevent members from being able to supply labour below the union wage rate

Question 6

In labour markets where unions are strong how are wage rates determined?

Answer 6

Collective bargaining

Question 7

Why has power recently shifted away from the trade unions and caused less employers willing to undertake collective bargaining?

Answer 7

-series of employment acts that have restricted their legal rights
-international competition (trade unions only powerful if there is no overseas competition

Question 8

What has the decline of collective bargaining led to?

Answer 8

More rates of pay determined on take it or leave it basis

Question 9

What are the effects of introducing a trade union on a perfectly competitive market?( 4 asp)

Answer 9

-becomes in perfectly competitive
-supply of labour S=AC changes to wage rate W2
-supply of labour perfectly elastic
-excess supply of labour and employment

Question 10

What does a trade union do to the MRP curve

Answer 10

Shifts it to the right

Question 11

Why would labour markets argue they don’t cause unemployment?

Answer 11

In an expanding goods market, increased demand for labour would not lead to unemployment

Question 12

What does increasing wages in the economy lead to?

Answer 12

Increase aggregate demand for firms producing consumer goods

Question 13

What are the two ways a trade union can increased pay to its members?

Answer 13

-preventing union members supplying labour below a certain wage rate
-closed shop

Question 14

What is a closed shop?

Answer 14

Keeps non members out the labour market
-control barriers to entry and shift supply of labour to the left making it more inelastic

E.g long training courses to get qualified where only low wages are paid-makes there not an excess of labour

Question 15

What is the assumption that wages are raised at the expense of jobs heavily dependent on?

Answer 15

Assumption market was perfectly competitive before the union

Question 16

Diagram for introducing a trade union into a previously perfectly competitive labour market

Answer 16

Question 17

Describe this diagram(introducing a trade union to a previously perfectly competitive labour market)

Answer 17

-market would become instantly imperfectly competitive

After members join and collective bargaining agreement W2 is agreed

-excess supply of labour as employers only want to hire
L2 but the supply of labour is L3-resulting in unemployment

(Use as argument that trade unions cause unemployment)

Question 18

What does increased productivity create?

Answer 18

Scope for increased wages and increased employment

Question 19

What do higher wages encourage firms to do?

Answer 19

Adopt improvements in productivity to pay for higher wages (however unions may resist changes in working practises that lead to increase productivity

Question 20

What happens when a union negotiates for higher wages in an expanding goods market?

Answer 20

Increased demand for output creates increased demand for labour to produce the output

(Increased real wages throughout the economy are likely to increase aggregate demand for the output of all firms producing consumer goods)

Question 21

Diagram for a trade union shifting the market supply of labour?

Answer 21

Question 22

Describe this diagram where a trade union establishes a closed shop?

Answer 22

Keeps non-union members out of the market

-the union controlled entry barrier shifts the supply curve of labour to the left and increases the inelasticity of the curve

-employment falls from L1 to L2 and wages rise to W2(not an excess supply of labour)

Question 23

What is the assumption that unions raise wages at the expense of jobs dependent on?

Answer 23

The assumption the market is perfectly competitive

Question 24

Why is the introduction of a trade union in a monopsonistic labour market good for workers?

Answer 24

-increases wages
-increases employment
-does not require MRP curve to shift to the right

Question 25

Diagram for introducing a trade union into a monopsony labour market?

Answer 25

Question 26

Describe the impact of introducing s trade union into a monopsony labour msrket

Answer 26

-increases wages to W2

-the kinked line W2 X S becomes the labour supply curve (also the Average cost of labour curve)

-the marginal cost of labour curve is the double kinked line W2 X Z V

Question 27

Provided the monopsony employer employs a labour force smaller than L2

What is the marginal cost of employing an extra worker?

Answer 27

Equals both the average cost of labour and the union determined wage of W2

Question 28

Beyond L2 and point X why must the monopsony offer a higher wage?

Answer 28

Persuade the members of an enlarged labour force to supply their labour

Question 29

Why does the marginal cost of labour change from X to Z

Answer 29

Because there is a higher wage rate for employing one more worker and the entire work force already employed

Question 30

What happens to unemployment after the point L2

Answer 30

It increases