Trade unions provide an organisation for workers to have joint representation with their employers. Trade unions have several functions:
- Represent workers with regard to pay and working conditions.
- Bargain for higher wages with the possibility of going on strike to target higher wages.
- Co-ordinate with firms to implement new working practises and negotiations with workers
What are the effects of unions on employment?
In theory, trades unions can push wages above the equilibrium wage rate. This rise in real wages can lead to less employment. However, the impact of unions on employment rates is not certain.
- It depends on the employer. If a firm has monopsony power then the monopsony is able to restrict labour and lower wages. In this case, a trade union can provide a counter-balance to the monopsony power of an employer.
- Efficiency wage theory. This states higher wages can lead to increased productivity.
- Productivity deals. A trade union may be able to bargain for higher wages in return for improving working practices and implementing higher productivity.
Effect of Trades Unions on a Competitive Labour Market
In a competitive labour market, wages were W1. If a trade union successfully bargains for a higher wage of W2, then employment falls to Q2
This situation can lead to real wage unemployment of Q3-Q2.
Trades Unions on Monopsony
Initially, a monopsony is able to pay a wage of W2 and employ just Q2. Note this profit maximising level is a lower wage and lower employment level than a competitive equilibrium of Q1, W1.
In this situation, if a Trade union bargains for W3, it does not create unemployment, but employment stays at Q2.
See: Monopsony for more details.
What determines the success of Trades unions?
- The density (% of workforce in the trade union
- Bargaining power of workers, e.g. power plant workers have more economic leverage than supermarket shelve stackers.
- Economic climate – is firm highly profitable or struggling to survive?
- Government legislation, e.g. since the 1970s, UK government has reduced the power of trades unions, e.g. abolishing closed shops, outlawing secondary picketing.
Trade union density
In 2011 there were 6,135,126 members in TUC-affiliated unions, down from a peak of 12,172,508 in 1980. Trade union density was 14.1% in the private sector and 56.5% in the public sector
The decline of trades unions is partly related to the decline of heavy manufacturing – industries such as steel and coal – which were traditionally areas of strong union involvement.
Trade unions in different industries
Do trades unions increase economic welfare?
In a competitive market, there may be an adverse impact on trade unions
- Wages above equilibrium, fewer people employed by the firm – loss of earnings to those outside the trade unions.
- Time lost due to strike action.
- Trade unions can provide counter-balance to monopsony – increasing wages and employment
- Trade unions can provide greater coordination between firms and employers, e.g. introducing productivity deals
It depends on the quality of the relationship – is it antagonistic or mutually beneficial?