Factors Influencing Trade Union’s Bargaining Power

Factors Influencing Trade Union’s Bargaining Power

  • A trade union will be stronger:
  • The greater the financial reserves of the organisation
  • The higher the proportion of workers in the organisation
  • The more inelastic the demand for the firm’s product
  • The lower the degree of substitution between capital and labour
  • The lower the proportion of labour costs in total costs
  • The lower the rate of unemployment
  • The greater the support the workers have from the general public
  • The more legislation favours the rights of workers
  • The more disruption any industrial action would cause.

Imperfect Information

  • Workers may be in jobs that are less well paid and aren’t fully suited to them, or one could be unemployed because one doesn’t know of the suitable job vacancies available.
  • Likewise, an employer may not have the most productive workforce simply because they are not in touch with all of the potential workers.
  • Both groups have to consider the benefits of searching for a better employment situation against the costs of searching
    • For an employer, these costs could be interviews, advertising job vacancies, inducting new staff etc.
    • For a worker, this could be filling out application form, attending interviews, looking for new jobs, etc.

Skill Shortages

  • Skill shortages occur when firms have difficulties recruiting people with the required skills
    • This usually results in an increase in the costs of production
    • This is because due to the scarce resource that is skilled labour, firms may bid up the wage rate of staff, whilst others may try to fill the vacancies with less efficient, unskilled workers.
  • One cause of skill shortages is a lack of training, which is a merit good – it has greater private benefits than consumers realised, and has positive externalities
    • If left to market forces, training would be under-consumed, as some firms and works underestimate the benefits of training
    • Some firms are also afraid of other firms ‘poaching’ their staff.