Trade Unions

Trade Unions

  • Trade Unions are labour organisations that seek to promote the interests of their members
  • Their main function is to negotiate the wage rate and conditions of employment for their members
  • Trade unions may also
    • Serve as a channel for communication between workers and employers
    • tend to reduce labour turnover
    • Raise the level of training
    • Reduce income inequality.
  • Pay scales in unionised firms tend to be flatter than in non-unionised ones

The Effect of Trade Unions on Wages and Employment

  • If all the workers in a labour market are members of a trade union, the union will act as a monopoly seller
    • This will alter the supply curve of labour


  • A union may also raise the wage rate by pressing for employers to raise the qualifications or skills required to do the job
    • Such an approach would shift the supply curve of labour to the left, which would increase the wage rate


  • The effect that a trade union will have on employment will depend upon the market structure in which the employers sell their products
  • If under conditions of perfect or monopolistic competition a union increased the wage rate, it would likely have an adverse effect on the firm
    • This is due to the firm only making normal profit in the long run, so a rise in their costs will cause marginal firms to leave the industry, causing output and employment to fall
  • In any market structure, a union may both increase employment of its members and wage rate by either increasing the labour productivity (e.g. training) or by increasing demand for the product (e.g. aiding advertising)
    • In both cases, the demand curve would shift to the right