Trade Unions and Competitive Markets Flashcards
What are trade unions?
They are organisations which consists of workers that collectively bargain for higher wages and better conditions.
What are the characteristics of trade unions?
They take part in collective bargaining where they bargain together.
We assume they are part of a closed shop trade union. This is where in a given profession, all the workers are apart of one union only.
Due to this, we say TU are a monopoly supplier of labour, who controls supply of labour at given wage rates.
What does it mean if TUs get involved in a competitive market and what do they want?
1
They may not be happy with the competitive wage rate so they want to bargain for higher wages.
What happens to supply when tu propose a higher wage rate?
2
Everyone under the new wage rate will be very willing and happy to work for this new wage rate. This forms a new supply curve. Those beyond this point are not under the control of the TU.
To increase supply of labour beyond this we must increase wages.
What does this new supply curve mean and why does the proposed wage rate become a supply curve?
3
It means workers want to work for this wage rate.
It turns into a new supply curve because if the wage is rejected TU will strike, so basically this rate must be accepted.
What is the trade of and issue of TUs increase wage rates?
4
It means businesses will have to reduce the quantity they employ leading to unemployment as seen on the graph. There is an excess supply of labour known as real wage unemployment.
Those who are willing to work for the new wage rate, may not even be able to do so.
Evaluation of Trade Unions in competitive markets.
Impact of TU.
In a comp labour market, it seems things get worse due to unemployment. In a monoposonist market outcomes may be better as they tend to set wages lower than competitive wages. Employment here is also low. TUs here can get workers closer to competitive outcomes with higher wages and employment.
Overall strength of TU.
In real world, closed shop TUs are illegal. We must measure the union density of TUs to determine its usefulness. If most people in the profession are part of the TU, then they are more effective.
Success determined by union markup.
This refers to the differences in wages in terms of what workers are getting in a particular profession who are part of a TU, compared to those in a similar profession who are not part of a TU. The higher the difference, the bigger the success.
Real world evidence proves limited TU power.
Closed shops TUs are ilegal, which limits the density of TU, reducing their powers.
Legislation in terms of striking where they can only happen if 75% of members in the union agree.
Reconstruction of the UK economy, where many work in the service sector. Many different employers here and different conditions so organising TU activity is harder.
