The Influence of Trade Unions on Wages & Employment (AQA A Level Economics)

• 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
  
  

The stronger a trade union, the more they can influence wages and employment levels

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

• 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

Wages increase from W₁ to W_TU

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

• 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

Wages increase from W₁ to W_TU

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