Imaging you were one of these workers. What would you do?

Monopsony and Trades Unions

Trades Unions in Labour Markets In this lesson we will Investigate how trades unions seek to protect the welfare of workers in monopsonistic labour markets. By the end of the lesson you should Be able to explain the purpose and activities of trades unions Understand the effects of unions on wage rates and employment levels in labour markets Be able to evaluate the effect of the trades unions on the productivity of firms and the wider economy

Definitions A labour market in which there is a single (or powerful) employer is called a monopsony A labour market dominated by one employer, but in which there are other employers is called monopsonistic Think of some examples of monopsony employers

Effects of tube strikes Tube Drivers' Pay

Trade Unions Trade unions are organisations of workers that seek through collective bargaining with employers to protect and improve the real incomes of their members. They seek to provide job security, protect workers against unfair dismissal and provide a range of other work-related services. Role of trade union

The Power of Trades Unions Unions have less power and influence in the labour market than they did two decades ago although in several big industries they can still exert their industrial muscle. Power has gradually ebbed away for a variety of reasons: Miners Strikes Changing nature of unions

Decline of Union Power Employment legislation which has outlawed illegal strikes, and requires all unions to hold secret ballots of their members before any strike action is permitted The effects of increased global competition in product markets meaning that jobs are less secure Patterns of employment have changed, moving workers away from traditionally unionised jobs such as mining to service based work in the tertiary sector Wildcat strikes

Unions and Wage Negotiation Unions seek to increase wages through collective bargaining Closed shop agreements made unions more influential but are now very rare Bi-lateral discussion is more common these days

What affects the balance of power? Unemployment: when labour is scarce and there are shortages of skilled workers, then the balance of power tilts towards unions. Unions are always less powerful when the demand for labour is falling and labour is less scarce. Competitive pressures in product markets when a firm is enjoying a dominant monopoly position and high levels of abnormal profit, the unions will know that the employer has the financial resources to meet a more generous wage settlement

Application Examine the recent dispute between junior doctors and the NHS. What are the objectives of each party? Who has sovereignty in the labour relationship? Explain, using a diagram, how the NUT campaign could influence the market wage rates of junior doctors.

Wages Union controlled labour supply Wages Union controlled labour supply W2 ELASTIC LABOUR SUPPLY W3 INELASTIC LABOUR SUPPLY W1 Labour supply to economy D D E2 E1 Employment E2 E1 Employment

The Power of Trade Unions How would economic theory account for the strengths and weaknesses of unions in these industries?

Discussion To what extent do Trades Unions benefit the economy? Benefits? Drawbacks?

Diagram Analysis Task Show how a monopsony employer might respond to: An increase in demand for its products The threat of strike action from a trade union representing the majority of its workforce Adverse publicity because of exploitation of workers in developing countries

Recap Why do trades unions exist? What activities do they undertake? How have they changed over time?

Trades Unions in Monopsony Labour Markets In this lesson we will Investigate how Trades Unions can increase the welfare of workers in monopsony labour markets. By the end of the lesson you should Be able to define monopsony and monopsonistic labour market Understand the effects of monopsony power on wage determination Be able to evaluate the effect of the Trades Unions on wage rates and employment levels

To what extent is it inevitable that trade union activity will lead to higher wages but lower employment?

Homework Powerful trades unions are bad for the UK economy. Evaluate this statement. 30 marks

Trade Union Mark Up Wages

Wages Union controlled labour supply Wages What does this show us? Union controlled labour supply W2 ELASTIC LABOUR DEMAND W3 INELASTIC LABOUR DEMAND W1 Labour supply to economy D D E2 E1 Employment E2 E1 Employment

Marginal Cost of Labour (p89) Weekly wage Marginal Cost of Labour(MCL) 210 110 100 A Supply = Average cost of labour (ACL) To attract an 11 th worker, the wage rate must rise to 110 a week. Why is this the case? However, if this increase is offered to new workers, it must also be offered to all existing employees. Why? This means that the MARGINAL cost of employing the 11 th worker is the 110 paid to that worker, added to the extra 10 paid to each existing employee (Point A) 10 11 No. workers employed

Wage rate Wage Determination in Monopsony (Without Trade Union) Marginal Cost of Labour(MCL) W2 W1 A L1 B MRP = D Supply = Average cost of labour (ACL) As in a competitive labour market, the firm s profit maximising level of employment is set where MCL=MRP (at point A). However, to employ this quantity of labour the firm need only pay W1, which is below the MRP of labour, so the firm is effectively exploiting the workforce. The monopsonist could pay higher wages (up to W2) but has no need to. No. workers employed

Wage rate Wc W2 W1 Wage Determination in Monopsony (With Trade Union) C A E MCL B S= ACL MRPL = D W1 is the wage rate achieved by non-unionised labour, employing Q1 workers. Wc is the market rate for labour. W2 is the minimum wage level negotiated by the trade union. The monopsonist does not need to pay more than this rate to hire workers up to Q2. The monopsonist might choose to employ more workers at this higher rate, as long as the MCL (W2ACE) is below the MRP. So a strong TU can lead to higher wages and higher levels of employment! Q1 Q2 Qc Labour Employed

How can strong TU power lead to both higher wages and higher levels of employment? Create a short video to explain this concept You have 45 mins!