Trades unions can give representation to workers facing legal action or unfair dismissal. Trades Unions can also protect workers from exploitation, and help to uphold health and safety legislation. However, in modern economies, many employers have a degree of monopsony power - related to difficulties of moving between jobs. Traditionally, monopsonies occur when there is only firm in a town or type of employment. In the face of monopsony employers, trades unions can increase wages and increase employment. If a trade union bargains for W3, it does not create unemployment, but employment stays at Q2. Even if a trade union successfully bargained for a wage of W3 - employment stays the same as Q2. If firms have monopsony power, then a trade union can increase wages without causing unemployment.

There are many cases of powerful firms making a very high level of profit, but paying relatively low wages. It enables firms to pay wages below a competitive equilibrium (W2) and also employ fewer workers at Q2. This means firms have market power in employing workers. In many industries, firms have a degree of monopsony power. If workers feel they are getting a higher wage, they can feel more loyalty towards the firm and seek to work for its success. The efficiency wage theory states that higher wages can also lead to increased productivity. Trade unions can pursue collective bargaining giving workers a greater influence in negotiating a fairer pay settlement. Industries with trade unions tend to have higher wages than non-unionised industries. This is a look at the main pros and cons of trade unions in the modern economy.Īdvantages of Trades Unions 1. However, with the decline of manufacturing industries, unions have gone into decline and some economists argue this has contributed towards increased wage inequality.

In the post-war period, trade unions gained substantial power and had a large influence over wages, unemployment and the economy. Furthermore, powerful unions can lead to macroeconomic problems such as wage inflation and lost productivity due to strike action. They were formed to counter-balance the monopsony power of employers and seek higher wages, better working conditions and a fairer share of the company's profits.Ĭritics of trade unions argue they can be disruptive to firms, discouraging investment and improved working practices. Trade unions are organisations representing the interests of workers.

Advantages and disadvantages of rom