Monday, April 23, 2007

Advantages and Disadvantages of Trades Unions

When Mrs Thatcher came to power in 1979, her stated aim was to reduce the power of unions. She felt that unions were a major contributor to the declining competitiveness of the UK economy. To a large extent Mrs Thatcher was successful in reducing the power of unions. However, it is worth considering whether unions are necessarily the demonic forces that some commentators have made them out to be.


Advantages of Trades Unions.

1. Increase wages for its members.

Industries with trade unions tend to have higher wages than non-unionised industries.

2. Counterbalance Monopsony Power
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If a trade union bargains for W3, it does not create unemployment, but employment stays at Q2.

In the face of Monopsony employers, Trades Unions can increase wages and increase employment. Monopsony employers are those who have market power in setting wages and employing workers. Traditionally, monopsonies occur when there is only 1 firm in a town, or type of employment. However, in modern economies, many employers have a degree of market power (monopsony).

3. Represent Workers

Trades Unions can also protect workers from exploitation, and help to uphold health and safety legislation. Trades unions can give representation to workers facing legal action.

4. Productivity deals.

Trades Unions can help to negotiate productivity deals. This means they help the firm to increase output; this enables the firm to be able to afford higher wages. Trades unions can be important for implementing new working practices which improve productivity.

5. Important for Service Sector.

Modern economies have seen a fall in trade union power. This is because of a decline in manufacturing and rise in service sector employment. Service sector jobs tend to more likely to be part time and temporary; unions are needed to protect workers in these kind of jobs.


Problems of Trades Unions.

1. Create Unemployment.

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If labour markets are competitive, higher wages will cause unemployment (Q3-Q2). Trades unions can cause wages to go above equilibrium through the threat of strikes e.t.c. However when the wage is above the equilibrium it will cause a fall in employment.

2. Ignore non Members

Trades unions only consider the needs of its members, they often ignore the plight of those excluded from the labour markets, e.g. the unemployed.

3. Lost Productivity.

If unions go on strike and work unproductively (work to rule) it can lead to lost sales and output. Therefore their company may go out of business and be unable to employ workers at all.

4. Wage Inflation.

If unions become too powerful they can bargain for higher wages, above the rate of inflation. If this occurs it may contribute to general inflation. Powerful trades unions were a significant cause of the UK's inflation rate of 27% in 1979.


The benefits of trades unions depends on their circumstances. If they face a monopsony employer they can help counterbalance the employers market power. They can increase wages without causing unemployment.

If unions become too powerful and they force wages to be too high, then they may cause unemployment and inflation

It also depends on whether they cooperate with firm or not on increasing productivity.

see also:

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