Trade Unions

A group of workers who join together to maintain and improve their conditions of employment including their pay.

Collective Bargaining - A process where wages and other conditions of employment are negotiated and agreed upon by a union(s) with an employer(s)

A trade union bargains for a higher wage for all of its workers, creating a price floor on labour at WT. However - this can cause unemployment as firms have to reduce costs after their costs raise - they do this by firing some workers, so Q -> Q1. This unemployment may be mitigated by increasing labour productivity, such as workers agreeing to work harder. Sometimes workers will work harder due to their higher pay.

A trade union also creates a disequilibrium as there is excess supply of workers: more workers are willing to work at the wage WT than the firm demands.

What affects the amount of unemployment a trade union creates

• WED -> The more inelastic WED is, the less responsive firms are to changes in wage, so they will fire fewer workers.
• Amount wages have increased -> A smaller wage will mean firms will have fewer costs to recover
• Density of union membership -> If fewer people in the company are in the trade union then the wage will apply for fewer workers so costs have not increased as much.
• Legislation of unions -> More legislation will mean that unions will achieve a lower WT.