6.5 The Influence Of Trade Unions In Determining Wages And Levels Of Employment

Question 1

What is the main aim of a trade union?

Answer 1

• Trade unions aim to protect workers, secure jobs, improve working conditions and try and achieve higher wages

Question 2

What factors affect the ability of trade unions to influence wages and the levels of employment in different labour markets?

Answer 2

• If trade unions try and increase wage rates too much, firms might no longer be able to afford to employ workers.
• This could cause them to close down or reduce the number of workers they employ.
• Some workers might prefer a low paid job rather than be without employment.

Question 3

How are wages and employment likely to be affected by the introduction of a trade union into a perfectly competitive labour market and into a monopsony labour market?

Answer 3

• In a market where an employer has monopsony power, workers are only paid W2, and only Q2 number of workers is employed.
• This is the profit maximising level.
• A trade union aims to increase marginal revenue product in the market, as well as increase wages to the level of MRP.
• This is to stop the exploitation of labour.
• (The perfectly competitive level of employment and wage rate is W1, Q1)