Trade Unions - Powerful Organisations

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 an employer would raise wages. However if the employer is operating to tight marginal figures then it would lead to a loss in jobs, so that the total amount paid out stays the same but the overall number of employees drops.

A Government intervention could lead to a fall of labour within the market. The minimum wage can actually reduce employment because employers who employ workers for as little as possible often mean that the minimum wage is higher than they would have originally paid. Restaurants were found out to be paying employees less than the minimum wage and the topping up their salaries with tips. When this was found out 5% of restaurants workers lost their jobs because the restaurants were paying out more than they were originally, and could not afford to keep their staff. Government intervention does not always lead to a reduction employment, often the Government can subsidise certain areas of work that need more employees meaning that wages might rise and so might staff, because of how the Government are acting.

Labour is a derived demand; Labour demand is a derived demand, in other words, the employer's cost of production is the wage, in which the business or firm benefits from an increased output or revenue. The determinants of employing the addition to labour depend on the Marginal Revenue Product (MRP) of the worker. 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