Trade Unions are organizations of workers that aim at promoting and protecting the interest of their members (workers). They aim on improving wage rates, working conditions and other job-related aspects.
The functions of a trade union:
- Negotiating improvements in non-wage benefits with employers.
- Defending employees’ rights.
- Improving working conditions, such as better working hours and better safety measures.
- Improving pay and other benefits.
- Supporting workers who have been unfairly dismissed or discriminated against.
- Developing the skills of members, by providing training and education.
- Providing recreational activities for the members.
- Taking industrial actions (strikes, overtime ban etc.) when employers don’t satisfy their needs. These are explained later in this topic.
Collective bargaining: the process of negotiating over pay and working conditions between trade unions and employers.
When can trade unions argue for higher wages and better working conditions?
- Prices are rising (inflation): the cost of living increases when prices increase and workers will want higher wages to consume products and raise their families.
- The sales and demand of the firm has increased.
- Workers in other firms are getting a higher pay.
- The productivity of the members has increased.
When firms don’t satisfy trade union wants or refuse to agree to their terms, the members of a trade union can organize industrial disputes. Here are some:
- Overtime ban: workers refuse to work more than their normal hours.
- Go-slow: workers deliberately slow down production, so the firm’s sales and profits go down.
- Strike: workers refuse to work and may also protest or picket outside their workplace to stop deliveries and prevent other non-union members from entering. They don’t receive any wages during this time. This will halt all production of the firm.
Trade union activity has several impacts:
Advantages to workers:
- Workers benefit from collective bargaining power by being able to establish better terms of labour.
- Workers feel a sense of unity and feel represented, increasing morale.
- Lesser chance of being discriminated and exploited.
Disadvantages to workers:
- Workers might get lesser wages or none if they go on strike – as the output and profits of the firm falls and they refuse to pay.
Advantages to firms:
- Time is saved in negotiating with a union when compared to negotiating with individuals workers.
- When making changes in work schedules and practices, a trade union’s cooperation can help organise workers efficiently.
- Mutual respect and good relationships between unions and firms are good for business morale and increases productivity.
Disadvantages to firms:
- Decision making may be long as there will be need of lengthy discussions with trade unions in major business decisions.
- Trade unions may make demands that the firm may not be able to meet – they will have to choose between profitability and workers’ interests.
- Higher wages bargained by trade unions will reduce the firm’s profitability.
- Businesses will have high costs and low output if unions organise agitations. Their revenue and profits will go down and they will enter a loss. They may also lose a lot of customers to competing firms.
Advantages to the economy:
- Ensures that the labour force in the economy is not exploited and that their interests are being represented
Disadvantages to the economy:
- Can negatively impact total output of the economy.
- Firms may decide to substitute labour for capital if they can’t meet trade unions’ expensive demands, and so unemployment may rise.
- Higher wages resulting from trade union activity can make the nation’s exports expensive and thus less competitive in the international market
In modern times, the powers of trade unions have drastically weakened. Globalisation, liberalisation and privatisation of economies are making markets more competitive. Firms have more incentive to reduce costs of production to a minimum in order to remain competitive and profitable. Therefore, it is much harder for unions to force employers to increase wages. Most unions operating nowadays are more focused on bettering working conditions and non-monetary benefits.
Notes submitted by Lintha
Click here to go to the next topic
Click here to go to the previous topic
Click here to go back to the Economics menu