1.6.5 The Influence of Trade Unions in Determining Wages and Levels of Employment

Trade Unions

Trade Union: an organisation formed by workers to protect their rights, improve pay and secure better working conditions.

Trade unions use their collective bargaining power to negotiate with employers for higher wages, by threatening industrial action i.e. Strikes.

The power that a trade union has over its employer is dependent on its Union Density, which measures the proportion of the total workforce that are members of the trade union.

Other factors that influence the power of trade unions include:

• Size of the union: Larger unions have more bargaining power.
• Profitability of the firm: Unions are more likely to be successful in negotiations if the firm is profitable.
• Economic conditions: In a booming economy, unions are more likely to be successful in negotiating higher wages, as firms are more profitable and can afford to pay higher wages.
• Government policies: Governments can either support or restrict the power of trade unions through labour laws and regulations.

Impact of Trade Unions on Competitive and Monopsony Labour Markets

In a competitive market: Successful trade unions increase wages from W1 to W(TU). However, since this increases labour costs for businesses, employment falls from Q1 to Qd. The unemployment created by the trade union is known as real wage unemployment.

In a monopsony: Successful trade unions counter the power of monopsonies, creating a bilateral monopoly, meaning there is a single buyer (the monopsonist) and a single seller (the trade union) of labour. This results in higher wages of W(TU) and an increase in employment from Qm to Qc.