SOWWIE CAN YOU PLEASE QUICKLY RUN OVER THE SUPPLY FACTORS FOR THE MRP AND THEIR RELEVANCE ?



MRP is about the demand for labour, not the supply

MRP = Marginal Revenue Product.

MRP = MPP * MR

MRP depends on the productivity of workers and Price (marginal revenue) of the good produced. Therefore, Labour demand is a derived demand.

Wages are determined by both demand (MRP) and Supply.

• Supply of labour depends on things like
• number of qualified workers
• Time taken for qualifications
• Non monetary benefits e.t.c

Wage determination

Labels: labour markets, wages

help please: assess the effects on income distribtuion that are likely to result from the sad decline of the UK pensions (2006 labour markets papaer?

Sad decline relates to state pensions being indexed linked. This means they are increased in line with inflation, therefore the value of state pensions falls relative to average wages (which increases faster than inflation.

This means that those who rely on state pensions will become relatively poorer than the rest of the society. There will not be an increase in absolute poverty. Pensioners should maintain the same standard of living. But they fall further behind the rest of society causing lorenz curve to shift further to the right.

Also, some pensioners relying on private pension schemes will suffer from them going under like Maxwell pensions and some other schemes.

Don't forget to refer to data, I'm sure there is another point to be got from using the data.

Evaluation

However, inflation rates for pensioners have been increasing faster than actual inflation, therefore pensioners could actually become worse off.

Not all pensioners will become worse off.
Some will have generous private pensions
Some pensioners will have benefitted from rising wealth, due to rising house prices. From this wealth they can get income (e.g. remortgaging)

Therefore, there will be an increase in inequality amongst pensioner.

Government has given more means tested pensions to old people, who rely on state pensions. This reduces effect on increasing income inequality.

Labels: labour markets

HOW HAS LABOUR MARKET FLEXIBILITY HELPED WITH EMPLOYMENT rising?


1. Labour Market flexibility means it is easier to hire and fire workers. Therefore this encourages firms to invest and take on workers. If it is difficult to fire workers, or reduce their hours they may not want to have the risk of increasing costs. Difficulty of hiring and firing workers is said to be a factor behind unemployment in France

2. Flexibility Means wages have been kept at competitive levels. (there is an abscence of trade union power and minimum wages) Therefore, this helps to reduce real wage unemployment.As wages fall to competitive levels demand for labour increases.

3. the growth of temporary and part time workers create new job opportunities for firms who don't want to pay a full time / permanent workers

However Evaluation

1. Employment is rising but employment is only temporary. More people in between jobs
2. Employment has risen but workers feel insecure.
3. Rising employment may be due to other factor like economic growth and not flexible labour markets

Labels: labour markets

Heya can you draw me the diagram for the nmw and monospony power. Im conufsed with Nmw is below the compeititvelevel but above monospony where how do i find the quanitiy demanded is it when D=AC or when the wae rate and demand curve meet?


Unfortunately I don't have time to draw a new diagram, but lets have a look at this monopsony diagram

Diagram of monopsony

The competitive wage is at W1,

The monopsony maximises profits where MR = MC. therefore can pay a wage of W2.

If there is a minimum wage between W1 and W2. The quantity employed will be where the NMW line meets the Supply curve. Basically, in this case a wage above W1, but below W2, should in theory increase the quantity of workers.

Labour Market Imperfections

Labels: labour markets

Evaluate how EU labour market policies might affect wage differentials between men
and women in the UK?

not an easy question. Need to first be aware of EU labour market policies. These are from the EU social chapter

EU Labour Market policies include:

• Maximum working week
• Minimum wage
• Extension of Full time rights to part time and temporary workers
• Works councils,
• parental leave,
• regulation on sexual harassment,
• minimum wage,
• minimum four weeks' paid holiday,
• 40-week maternity leave

• Extension of full time rights to part time workers may benefit women more than men. This is because women are more likely to work in part time / temporary jobs.
• The same is true for minimum wage legislation. It is more likely to benefit female workers, because they are more likely to do part time / service sector jobs, which benefit from a minimum wage.
• However, on the other hand it could be argued the increased legislation may make firms less willing to take on female workers. If women are likely to receive generous maternity leave, the firm may be inclined to pay less so that it can afford to pay maternity leave (more likely they will just not get taken on)
• Maximum working week is more likely to apply to men. Women are more likely to do part time / temporary jobs. This will reduce the total take home pay for men (as opposed to hourly wage) This will bring total earnings of men closer to women.
• The legislation has its limitations. Differences in wages are due to many factors such as; women choosing lower paid jobs, taking career breaks and therefore not getting promoted. Therefore these legislation may not tackle the fundamental reasons for imbalances.

See also: Why Women Get paid less than men

The EU and the Social Chapter

Labels: labour markets, wages

Discuss policies to Increase labour Market Flexibility

(apart from reducing working hours and more flexible shifts)

Labour market flexibility refers to free movement of labour within labour markets. It also means wages, hours and conditions can change in response to different factors.

1. Reduction of Minimum wages / Trade Union Power.

Minimum wages can cause wages to be kept above the equilibrium. This means wages are not flexible and responsive to market conditions. If minimum wages are abolished wages can be determined by market equilibrium. This increases flexibility. However, minimum wages in the UK have not caused much , if any, unemployment, therefore it suggests that minimum wages are not much above the equilibrium. Min wages can also protect against the abuse of monopsony firms. Reducing min wages reduces protection for workers.

2. Education and training.

If workers have better education and training it is easier for them to move in between jobs. If workers are skilled and trained it will be easier to take on jobs in any sector. This is important in a fast changing economy. However, there is no guarantee that the education and training schemes will work. Also, if workers become highly trained they may be more reluctant to move; they may expect better and more secure job contract.

3. Government legislation to protect Temporary workers.

If temporary workers have legislation against unfair dismissal and the promotion of good working conditions it may encourage more people to take on temporary contracts, this is good for firms who need the flexibility of temporary workers. However, government legislation may actually make it more difficult to employ temporary workers and therefore, this policy may not actually increase flexiblity

other policies

• better childcare provision.
• This enables women to take on more part time jobs

Labels: labour markets

The working time directive is an EU initiative to safeguard the amount of hours worked. It wasn't adopted in the UK until 1998. It was introduced by EU in 1993.

Basically the WTD includes rights such as:

· A maximum working week of 48 hours
· A rest period of 11 consecutive hours a day
· A rest break when the day is longer than six hours
· A minimum of one rest day per week
· The statutory right to four weeks' holiday
In addition:
· Night working must not average out at more than eight hours at a stretch
· Workers will be entitled to a free health check-up before being employed on night work and at regular intervals thereafter

Possible Essay questions on the Working Time Directive:

Discuss the potential costs and benefits of abolishing Working time directive.

Benefits of Working Time Directive.

1. Good for workers.
2. Could increase productivity, if workers are tired their productivity falls.
3. Increases motivation. Some workers feel exploited if they are forced to work long hours.
4. Good for safety of workers, especially in industries like driving.
   
5. gives protection to workers working for monopsonies or have no trade union to represent
6. Could increase employment. Firm needs 2 workers, rather than 1 worker doing 70 hours.
   

Disadvantages of Working Time Directive

1. Some workers may wish to work longer hours. Prevents workers gaining overtime, an important source of income for some workers.
2. Some jobs have variable hours, therefore at critical times it is important to be able to work longer hours if necessary. Some jobs are very seasonal like strawberry pickers.
3. Discourage investment. Firms may see the working time directive as an unnecessary burden and indication of lack of flexibility. This may discourage firms from starting up. UK may attract more inward investment if it got rid of working time directive

• working time directive at Guardian
• Working Time Regulations at DTI
  

Labels: labour markets

How govt can tackle unequal opportunities in the labour market

1. Education and training. Give unskilled and unemployed better chance to get a job

• However, is expensive, govt training may not be effective, will take a long time

2. Legislation against racial and sexual discrimination

prevent employers discriminating on grounds of non economic factor. in theory gives everyone equal chance to get a job.

• However, legislation like this already exists, difficulty is in implementing it. For example, how do you prove not getting a job is due to discrimination

3. Child care provision. This enables all women to be able to enter the labour market. and get jobs after having children.

• Very expensive to implement women may still be limited to just having part time jobs

Labels: labour markets

-examine whether extention of NMW to 16-18 yr old's affect their participation in the labour market [10] (i know that it increases coz opportunity cost of studying has increased, but what's the second point?)

(Be careful: participation is not equivalent to getting job unemployment can mean participation)

National minimum wage increases incentive to work, rather than study. Subsitution effect.

However, in the long term the benefits of getting a job rather than studying are relatively minor.
The national minimum wage for 16-18 year olds is less than for those over 21. Therefore, the impact may be small.

If firms have to pay higher wages to 16-18 year olds they may offer less apprenticeships, therefore there are choices for 16 year olds to enter labour force, as a consequence they choose to remain in education rather than work.

wages isn't only factor affecting decision over whether to enter labour force.

Labels: labour markets

-in edexcel's unit 5 june 2003, there was one question asking how NMW is effective in tackling poverty while the other question asked if income distribution in the UK has become more equal. since passage is on NMW, for the second part do we have to talk about NMW's effect on income distribution - but isn;t that the same as its effect on relative poverty?, as in the first question.


From what you say I'm not sure entirely of the questions. But, I seem to remember marking those questions. But, if it is relevant you may find yourself repeating SOME ideas between different parts, but it doesn't happen that often. In this case income distribution and relative poverty are very closely related. Basically greater income inequality is very likely to increase relative poverty.

Labels: exam technique, labour markets

Reasons why there is a difference in wage between part time and full time worker include;

• Lower union density in part time jobs - yes. part time see less benefit from joining unions
  
• Part time Usually employed by the public sector - To some extent, although it is not clear cut. There are many part time jobs in the private sector.
  
• As they work less hours MRP will be lower - Not necessarily. It would be better to say those who work part time have less opportunity to get on the job training. Therefore, they are more likely to remain unskilled. This is one reason why they have lower MRP and therefore get higher wages. Some part time workers (e.g. management consulatants may have a high MRP and wage.
• Part time Workers often work with less formal contracts, therefore they are perhaps more likely to work for monopsony employers and get lower paid as a result.
• Part time workers more likely to be in service sector and jobs which are traditionally low paid, e.g. cleaners, bar staff e.t.c.. These jobs have elastic supply and low skills qualifications.
  

Labels: labour markets

What causes shift in the lorenz curve?

The Lorenz curve is a measure of inequality.
The Lorenz curve shows cumulative income against cumulative income groups.

Diagram lorenz curve

The further the Lorenz curve is from the 45 degree line, the greater the inequality.

If the government introduced policies to reduce inequality. Higher income tax on rich, benefits for the poor, the Lorenz curve would shift to the left and get closer to the line of equality.

If there was an increase in wages for the highly skilled but not low skilled workers the lorenz curve would shift to the right, showing an increase in inequality

Inequality
Causes of Poverty in UK

Labels: labour markets

Why has there been an increase in the number of part time workers?

• Increase in service sector. Many jobs in catering and retail lend themselves to part time. Manufacturing jobs tend to be full time
• Increased female participation in labour markets. The number of women in the labour market has increased due to changing social trends and rise in childcare provision. However, many women returning to work prefer part time work so that they can look after children as well.
• However, there has also been an increase in the number of men doing part time work,
• Increased labour market flexibility. In response to increased competitiveness of globalisation, firms are seeking to cut costs. One way is to only employ workers when they are needed, therefore part time and temporary workers are one way to do this. However, part time workers don't necessarily increase productivity, they tend to have less loyalty and are less likely to get training suitable for the job. Labour turnover is higher for part time workers.
• national minimum wage. This has increased the pay of low skilled workers. Therefore, it has encouraged firms to be more careful with employing people.

Labels: labour markets

hello I was wondering if you could present the case for part time workers which could be used in my labour markets exam. Thank you.

"The case for part time workers" is a little vague.

Firstly what kind of questions may come up on part time workers?

Examine why there has been an increase in the number of part time workers in the UK labour Markets.

Examine Why part time workers receive lower pay than full time workers.

Examine the advantages and disadvantages of flexible labour markets.

see: flexible labour markets

Labels: labour markets

hello, i was wondering if you could point of what arguements could be used for the advantages and disadvantages to employees, employers and trade unions would the fairness at work scheme create thank you

The Fairness at Work policy is a set of procedures and advice to follow in the event of a complaint of harassment, discrimination or bullying. It aims to avoid racial, sexual and other forms of discrimination.

Potential Advantages of Fairness at Work

• Provides clear guidelines for preventing discrimination
• Gives unions the right to recognition. This right had been eroded meaning employers could ignore workers and unions.
• Guarantees maternity leave
  
• If more than 50% of workers are in a union, a union is by de facto recognised by employers. If it is less than 50% it can be recognised if the workforce vote for it.
• As a result of this legislation the number of unions being recognised in the worforce had a small increase post 2000, (after 2 decades of decline)
• Unions also have restrictions on closed shops and striking without ballot. It is a 2 way process designed to prevent less conflict between unions and employers
  
• Provides a framework for either stopping discrimination or even filing complaints and charges against employers who allow it.

Disadvantages of Fairness at Work

• Getting recognition by employers does not mean trades unions necessarily have much influence over wages and conditions.
• If unions are given too much power it could lead to an increase in the prevalance of strikes and wage inflation. The UK economy suffered in the 1970s from unions having too much influence; it led to a climate of antagonism between workers and firms. (However, the stated aim of fairness at work is to avoid this antagonism)
• There is concern that an increase in government legislation can be a factor in discouraging firms from investing. Inflexible labour markets are seen to be a factor in contributing to high unemployment levels in France and Germany. More legislation like Fairness at work can increase the bureaucracy and red tape of hiring and firing workers.
  
• Many of the ideas have been previously covered by the Sex Discrimination Act (1976) and racial discrimination legislation. Some of the fairness at work legislation is merely repetition.
• Legislation and policy's are no guarantee of being able to prevent it in practice.
• In some sectors of the economy trades unions have a low density (service sector) therefore it is more difficult to implement there.
• To be effective it requires active cooperation of respected parties, trades unions, and employers.

Fairness at Work pdf

Labels: labour markets

hello when looking at reasons why there is a difference in wages in regions what reasons are there? thank you

Let us assume wages in London are higher than in Newcastle.

The first thing to do is to consider what determines wage differentials in general.
The basic theory behind wage determination is:

1. Marginal Revenue Product of Labour MRP = MPP *MR
2. MPP = productivity of workers - Are workers in the London more productive than Newcastle? - Unlikely to be the case. Work environments are similar
3. MR - The price of goods is higher in London than Newcastle. This is related to the cost of living. Because goods are more expensive, the workers add a greater MRP than in Newcastle. For example, to get a hair cut in london is more expensive. THerefore, you would expect hairdressers to be paid higher wages. This point is quite significant, especially for service sector type jobs. However, it wouldn't explain differences in Mcdonalds workers where the price of a Big Mac is the same
4. Supply of Labour. Labour shortages in London are likely to push up wages. If there is a surplus of labour in Newcastle this puts downwards pressure on wages. Note: there is a shortgage of nurses in London, but free market forces don't operate for nurses.
5. Government pay London Bonus. Because of London's costs of living, the government pay higher wages

Other factors that may be of importance

• Monopsony power of workers in north?
• Trades Unions more powerful in London? - not the case
• High paying firms set up in London. E.g. More solicitors and bankers in London. Therefore, it is differences in types of jobs, that is quite important.

If you understand the basic principles behind wage determination you can use the theory for related questions:

• Why are women paid less than Men?
• Wage determination in competitive markets
  

Labels: labour markets, wages

This short essay is concerned about the impact on labour markets, it does not consider political and social issues arising from immigration.

Effect of Net Migration

1. Increases the supply of labour. This may depress wages, especially in job sectors where immigrants tend to find work.

2. Immigration increases AD This is because there are more people spending and therefore, demand for labour. This means that wages may not fall. However, if immigrants send a high % of their earnings back to family and friends in their original country, AD may not increase that much.

3. Unemployment.

Immigration may cause unemployment if:

• Immigrants have low skills and / or struggle with English. This limits the range of jobs available and can lead to structural unemployment. This structural unemployment may be exacerbated by racial discrimination.

• However, on the other hand some economists argue unemployment levels amongst immigrants are often exaggerated. The reason behind this is that immigrants are more likely to work on the black market (underground economy) For example, immigrants often work for less than the NMW for cash in hand. (This can lead to exploitation of workers and ignoring health and safety legislation)

Immigration may not cause unemployment if the immigrants have the relevant skills and capacities to work. Also, the UK economy has a shortage of certain key public sector workers, especially in London. Therefore, if immigrants are trained to be nurses, doctors or teachers they can help fill labour market shortages.

4. Age profile of immigrants.

Immigrants tend to be of working age. Therefore, they can help overcome the demographic problems of an ageing population. This may enable income tax to be lower than it otherwise would have been. Immigrants of working age will help contribute taxes (assuming they find official work) They will not require pensions.

Labels: labour markets

"I am going to sit my labour markets exam soon but have comeacross a question which i am having diffculty with:

Asses the likely impact of reomivng the 35- hour working time restriction on wage and unemplyment levels in france and germany."

For thi answer i did think about agruements such as reducing motivation therefore may leave the work force. May be forced to work longer hours Could increase
accdients and also could increase wages helping people out of relative poverty i think these are wrong please help. Many thanks!"

Yes, you would be wrong, because you have to consider effects on unemployment levels in Fr, and germany. If you talk, in general, about effects of removing restriction you will get zero. (I remember marking this paper, and I think many people did badly)


Some ideas for the effect of removing 35 hour working week on unemployment:

1. People will work longer hours. Therefore, there is firms can produce the same with less workers - therefore unemployment

• However, people may not want to work longer hours, or companies may not ask workers to work more. Even if people work longer, would firms really want to employ less workers?
  

2. Removing restrictions may help firms be profitable and encourage them to invest in these countries. This investment may lead to more jobs created.

3. May have little impact because people ignore regulations already (e.g. work on black market)

4. If people work longer hours they may have more income which they spend, this creates employment opportunities.

5. Unemployment in Fr and Germany already high. This is caused by structural unemployment and labour market rigidities. Freeing labour markets may help in long run because of increased competitiveness. (similar to no.2)

6. .

Labels: labour markets

Temporary employment means that you work for a short time. Either on a very short contract, or no contract at all. The % of temporary employment has increased in the UK because:

1. Increase in service sector employment, rather than manufacturing sector. Generally, the service sector needs more temporary workers for catering e.t.c

2. Globalisation has increased pressures to be efficient. Therefore, firms are looking for ways to cut costs. One way is to only employ workers when they are needed.

3. More flexible labour markets. Trades unions now have less power; workers are also more willing to take on temporary employment.

4. More women in the labour force. Women are more likely to take temporary employment in between having children.

Labels: labour markets

Examine Reasons Why Women's average wage is Less than Men's average wage.

• In US. The National Committee on Pay Equity used the occasion to announce that among full-time workers, women make only 77 cents for every dollar paid to men. (1)
• In UK the gender pay gap is 12.6% (down from 17% in 1997) (2)
  

Reasons for Wage differentials include:

1. Level of Skills.

Skills and qualifications are an important factor in determining wages. If men had better qualifications, this could explain their higher wages. With regard to A-levels and university degrees, female qualifications are generally as good as men. However, for certain high paying professions, such as, accountancy and law, there are more qualified men than women, although even this gap is now closing.


2. Differences in Productivity.

According to MRP theory, it is a workers productivity (MRP) that determines wages. In heavy manufacturing, male productivity is likely to be higher. However, now that the economy is mostly service sector, this argument is only applicable to a small % of jobs.


3. Discrimination

Lower wages for women could be due to discrimination. Employers may be less willing to promote women; they may be even pay lower wages for same job.

In theory, sex discrimination, in the labour market, is outlawed by Sex Discrimination Act 1976. However, in practice it can be difficult to prove, especially with regard to promotion - if a women isn't promoted, is it really discrimination or something else?

4. Women take Career Breaks to Have Children.

UK Maternity law means a women can be secured of her job, whilst having a child. However, taking a break from work means women are less likely to get promoted. Also, women of childbearing age, may be viewed as a liability. This is because if they become pregnant the firm has to pay maternity leave, and find somebody to fill the temporary gap. For small firms, this can be a significant cost. This reason is quite significant, although, many women are choosing to have children later in life - if at all.

5. Women Choose Lower Paying Jobs.

Traditionally it has been argued women choose lower paid jobs like nursing, childcare. These are lower paid than other careers such as lawyers, and accountants. However, traditional job patterns are changing, women are increasingly choosing to do do "male dominated jobs". This is due to changing social changes, and changing educational standards. But, this remains one of the most significant factor for explaining wage differentials between men and women.

6. Different Types of Jobs

Women more likely to have part time / temporary jobs. in the service sector, these jobs are lower paid because firms often have monopsony power. Women also have lower travel time. In order to look after children, they need jobs closer to the home; this limits the range of jobs available.


Harvard economist Claudia Goldin replied "There are certainly instances of discrimination, she says, but most of the gap is the result of different choices. Other hard-to-measure factors, Goldin thinks, largely account for the remaining gap -- "probably not all, but most of it."

More on: Labour Market Economics

References:

(1) Women's Pay Gap explained
(2) Women and Equality Unit:

(3) Wage Gap amongst Male and female Engineers

Labels: labour markets, wages

1. Subsidised Childcare provision.

This reduces the cost of childcare and therefore makes it easier for women to return to the labour Market. This is increases flexibility because; firstly there is a greater supply of labour; secondly, women are more likely to take flexible, part time jobs.

However, it is very expensive to subsidise childcare. Also, there is no guarantee that cheaper childcare will actually encourage women back into the labour market.

2. Increases spending on training and education.

If workers have a greater range of skills and training, then they will be able to take a variety of jobs. This is important for labour market flexibility because if people are made unemployed they can find work quicker.

However, this will cost money and require higher taxes. Also there is no guarantee the government will be able to increase labour productivity.

3. Reduce Minimum Wages.

This enables firms to set wages according to the dictates of the markets, rather than through government legislation. It will mean, in some labour markets, wages can fall closer to the equilibrium. This is important for flexibility. However reducing minimum wages may enable greater exploitation of workers, especially by monopsonies. Also, in the UK, minimum wages have been increased without causing unemployment.

Other policies to increase labour market flexibility could include:

• Better information about job availability.
• Reduce Power of Trades Unions.
• Abolish maximum working week legislation (part of social chapter)

• Advantages and disadvantages of Flexible Labour Markets

• Imperfections in Labour Markets
• Increasing Labour Market Flexibility
  

Labels: labour markets

Flexible labour markets involve a minimum of government intervention, they are labour markets which work efficiently and are competitive. Many supply side economists argue flexible labour markets are of great importance in reducing unemployment and improving the competitiveness of the economy. However, although they have some benefits the advantages of flexible labour markets are not equally shared. In particular, there are concerns over the negative impact on job insecurity.

This is a short answer to an exam essay question. "Examine the Benefits of Flexible Labour Markets"



1. Reduce Classical (Real Wage) Unemployment

Real wage unemployment occurs when wages are set above the equilibrium, for example, through trades unions or minimum wages. Flexible labour markets help to keep wages close to the equilibrium and therefore avoid creating unemployment.

However it is worth noting that minimum wages and trades unions don't always cause unemployment. For example, if firms have monopsonistic power, wages can be kept below the equilibrium. A true flexible labour market would require both workers and firms to lose their market power.

2. Increased Investment.

Flexible labour markets help to reduce costs for firms; for example, workers can be employed when they are needed. It is not necessary to pay for workers who are not productive. This will help attract inward investment. It is argued one reason, for higher unemployment in France is that there are costs in hiring and firing workers, this reduces the incentive for firms to expand.

However if labour markets are very flexible workers may have greater job insecurity, and this can lead to lower productivity.

3. Reduces Wage Price Spirals

If workers have too much market power they can bargain for higher wages, this can lead to inflation.

4. Increases Labour Participation Rates

Flexible labour markets can be beneficial for workers. This is because it gives them more options of, when and where to work. This is particularly helpful for women with young children, for example, they can work part time and still look after their children.

However, although flexible labour markets have created work in the part-time, service sector, there has been less success in creating permanent, full time jobs.

Labels: labour markets, supply side economics

When Mrs Thatcher came to power in 1979, her stated aim was to reduce the power of unions. She felt that unions were a major contributor to the declining competitiveness of the UK economy. To a large extent Mrs Thatcher was successful in reducing the power of unions. However, it is worth considering whether unions are necessarily the demonic forces that some commentators have made them out to be.


Advantages of Trades Unions.

1. Increase wages for its members.

Industries with trade unions tend to have higher wages than non-unionised industries.

2. Counterbalance Monopsonies.

In the face of Monopsony employers, Trades Unions can increase wages and increase employment. Monopsony employers are those who have market power in setting wages and employing workers. Traditionally, monopsonies occur when there is only 1 firm in a town, or type of employment. However, in modern economies, many employers have a degree of market power (monopsony).

3. Represent Workers

Trades Unions can also protect workers from exploitation, and help to uphold health and safety legislation. Trades unions can give representation to workers facing legal action.

4. Productivity deals.

Trades Unions can help to negotiate productivity deals. This means they help the firm to increase output; this enables the firm to be able to afford higher wages. Trades unions can be important for implementing new working practices which improve productivity.

5. Important for Service Sector.

Modern economies have seen a fall in trade union power. This is because of a decline in manufacturing and rise in service sector employment. Service sector jobs tend to more likely to be part time and temporary; unions are needed to protect workers in these kind of jobs.


Problems of Trades Unions.

1. Create Unemployment.

If labour markets are competitive, higher wages will cause unemployment. Trades unions can cause wages to go above equilibrium through the threat of strikes e.t.c. However when the wage is above the equilibrium it will cause a fall in employment.

2. Ignore non Members

Trades unions only consider the needs of its members, they often ignore the plight of those excluded from the labour markets, e.g. the unemployed.

3. Lost Productivity.

If unions go on strike and work unproductively (work to rule) it can lead to lost sales and output. Therefore their company may go out of business and be unable to employ workers at all.

4. Wage Inflation.

If unions become too powerful they can bargain for higher wages, above the rate of inflation. If this occurs it may contribute to general inflation. Powerful trades unions were a significant cause of the UK's inflation rate of 27% in 1979.


The benefits of trades unions depends on their circumstances. If they face a monopsony employer they can help counterbalance the employers market power. They can increase wages without causing unemployment.

If unions become too powerful and they force wages to be too high, then they may cause unemployment and inflation

It also depends on whether they cooperate with firm or not on increasing productivity.

see also:

• The UK economy under Mrs Thatcher 1979-1984
• Supply Side Policies

Labels: labour markets, Mrs Thatcher, trades unions