trade unions in a monopsony labour market

Question 1

What do trade unions do?

Answer 1

trade unions bargain for higher wages. call monopsonyies out for being unfair

Question 2

Arguments for trade unions

Answer 2

1. Improves wages and conditions
   Unions negotiate collectively for better wages and working conditions
   This raises the standard of living for workers
   Increased wages boost consumer spending (C), raising aggregate demand (AD)
   Higher AD may lead to economic growth and lower unemployment
   Over time, this contributes to greater economic stability and social welfare
2. Reduces inequality
   Unions raise wages for low-income workers more than for high-income ones
   This compresses the wage distribution, reducing income inequality
   Lower inequality can improve social cohesion and reduce poverty
   It may also enhance human capital if more people can afford education and healthcare
   Long term, this supports more sustainable and inclusive growth Improves productivity
   Workers with better pay and job security tend to be more motivated
   This can lead to higher output per worker (labour productivity)
   Increased productivity reduces unit labour costs over time
   Firms become more competitive, especially in export markets
   This enhances national economic growth and trade performance

Question 3

Arguments against trade unions

Answer 3

1. Higher labour costs
   Strong union demands often lead to above-equilibrium wages
   Firms face rising labour costs, reducing profits
   This may force firms to raise prices (cost-push inflation) or cut jobs
   Leads to lower competitiveness and potential deindustrialisation
   Can harm long-term employment and economic stability
2. Risk of strikes and disruption
   If negotiations fail, unions may call strikes
   This halts production or service delivery (e.g. in public transport or healthcare)
   GDP falls due to reduced output, and consumers face delays or losses
   Business confidence may drop, discouraging investment
   Harms short-term growth and trust in economic stability
3. Could deter investment
   High union power signals higher costs and potential disruption
   Investors may choose countries or regions with more flexible labour markets
   Reduced FDI limits capital inflow, slowing down technological advancement
   This weakens economic growth potential and reduces employment opportunities
   In the long run, it may cause capital flight or relocation of industries