6.5 Trade Union Impact Flashcards
We shall now move to understanding trade unions and their influence in determining wages and levels of employment. Firstly, what is a ‘trade union’? What form of bargaining do trade unions go thorugh? We assume that a trade union is a ‘closed shop’. What does this mean and how does this relate to the idea that a trade union is therefore a monopoly supplies?
a) A trade union is a group of workers who join together to maintain and improve their conditions of employment including their pay. It’s an association of worker formed to protect and promtote the intersts of its members. Workers ‘collectively bargain’.
b) We assume that a trade union is a ‘closed shop’ i.e. there is only ONE trade union operating in a labour market. In this sense the trade union is the sole monopoly supplier.
Let’s assume that the labour market is competitive. Where demand meets supply that is where wage rate is set. What can a trade union do if they are NOT happy with this?
a) They can fight for higher wages above the competitive wage rate through the process of competitive bargaining.
There is a limit to the number of workers who will be happy with the wage rate that the trade union is working hard to bring forward. This can be represented on a diagram. What happens to the supply curve up until that point on the origional supply curve?
Although a trade union can make wages increase above the competitive wage rate it can impact the employment of workers in relation the level of employment at the competitve wage rate. Exaplain this.
a) The supply curve becomes horizontal up until the point at which workers are only willing to supply their labour if wage is increased further. The firm would have to increase wage rate if it would want more workers beyond that point.
b) When wage rate is increased the firm MUST accept the new wage rate due to the trade union holding monopoly power regarding supply of labour in that market. However, although they do this because of the higher wage rate/ higher AC therefore, they reduce the number of workers they employ! This is a DISADVANTAGE of TRADE UNIONS influencing a competitive labour market! This can be shown on a competitive labour demand curve. As a result of the reduction in workers There is an EXCESS of supply of worker - therefore higher UNEMPLOYMENT!
