the-influence-of-trade-unions-on-wages-and-employment

Factors that Affect Trade Unions Power in Influencing Wages & Employment

• The higher the percentage of workers from a firm that belong to a trade union, the greater the collective bargaining power of that union with the employer to influence wages and employment

• The higher the percentage of workers from an economy that belong to trade unions, the greater the collective bargaining power of the unions with the government

• There are numerous other factors which influence the collective bargaining power of specific unions at different periods of time

1. The unemployment level: the higher the unemployment level, the weaker the bargaining power as firms can more easily replace existing workers

2. Wage levels as proportion of total costs: the lower the percentage of total costs that a firms’s wages represent, the higher the bargaining power

3. Swapping labour for capital: the nearer the replacement cost of capital for labour to meet the increased costs demanded by the union, the weaker the bargaining power

4. The level of profits: higher profits strengthen the unions demands for higher wages

5. State of the economy: less bargaining power in a recession and more when the economy is booming

6. Overall size of the trade union: the larger the union, the stronger their bargaining power

7. The productivity of labour: if the workers are extremely productive, generating high levels of output from low levels of input, they are more valuable to the firm, and the union has stronger bargaining power

Impact of a Trade Union on Perfectly Competitive Labour Markets

• Trade union intervention changes the equilibrium wages and employment of a perfectly competitive labour market

  • Through collective bargaining, workers have the power to increase wages

  • This impacts the supply and demand of labour, making the labour market more imperfectly competitive 

Diagram: Impact of Trade Union on Perfectly Competitive Labour Markets

Diagram analysis 

• Before trade union intervention, the equilibrium wage rate is set at W₁ and quantity of workers is Q₁

• Trade unions negotiate for a wage rate (WTU) higher than the market rate

• More workers are willing to work at the higher wage rate (Q₁ to Q₃)

• At the higher wage rate, W_TU firms demand fewer workers (Q₂)

  • This creates an excess supply of labour and unemployment between Q₂ – Q₃

Impact of a Trade Union on Monopsony Labour Markets

• The British Medical Association (BMA) is a trade union that is engaged in negotiating (2023) on behalf of doctors in the NHS (the main employer of UK doctors) 

• Through collective bargaining, they are looking to improve wages and working conditions

  • This includes improving the workload, staffing levels and standards of patient care

Diagram: Impact of Trade Union on Monopsony Labour Market

Diagram analysis 

• Before trade union intervention, the market equilibrium in the monopsony is set at W₁ and Q₁

• The BMA Union negotiate for a higher wage at W_TU

• This raises both the wage and level of employment (Q₁ → Q₂)

• The new supply curve in the monopsony labour market is now W_TUa AC_L

  • The marginal cost of labour (MC_L) continues to remain higher than the AC_L