Do You Agree That If a Trade Union Persuades Employers to Increase Wage Rates in a Labour Market Employment Must Inevitably Fall in That Labour Market? Justify Your Answer.

999 Words Feb 19th, 2011 4 Pages
Trade unions can be very powerful organisations, however their power does not inevitably lead to increases in wage rates, but not always.
The power that the union has can have a big impact upon whether or not it can affect the wage rates within that particular market. It largely depends upon the financial status of the employer. If the union is powerful enough to get wages to rise then it may not lead to a loss in jobs, because it shows that the employer has money in which to raise the wages of its employers and still make supernormal profits. A very powerful trade union may be able to negotiate this rise with the employer, but it would depend on the type of job, if the workers were skilled and difficult to replace then it is likely that
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If each extra worker that is employed is adding to the companies output then the business will continue to grow. However as soon as a new employee does not add anything to the business then no more will be employed. This should not change if the wages rise, because as long as the employee is adding value to the business then they are worth employing, meaning that if a union does employ as many workers as it feels is enough to add value to the business then the price of labour should be irrelevant.
If the economy is booming then there is likely to be a rise in wages to entice new people to work for certain companies. This could mean that a trade union forces a rise in wages because of how it views that the company is likely to have more money than previously meaning that it could raise the prices of its wages whilst keeping the same number of employees. This force by the trade union could lead to a standoff between the trade union and the employer, because the employer would argue that the workers were prepared to work before hand, and therefore it does not see the value in raising its wages just because the company is doing well at that point in time.

The diagram to the left shows how a trade union can force a rise in wages, but it could lead to a cut in the number of jobs. If the union secures the rise in wages from W1 to W2, the trade union mark up, then this leads to an increase in wages. However it also intersects the demand curve at a much higher point
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