Effects of Trade Unions on the Economy

A trade union is a formal organization that brings workers of an organization, profession or industry with an aim of achieving common goals. Some of these goals could be better pay, improved working conditions, and increasing the labor force depending on the amount of work available. Mostly, trade unions offer a bargaining platform with the employer as the decisions reached are binding to all members for a specified period. Thus, a union gives workers a better and firm voice when engaging with the employer on any matter that touches on their welfare. While this is the case, trade unions can harm the economy. In this article, we shall discuss the effects of trade unions on the economy to help you understand the economic threat unionization of workers poses.

An overview of the effects of trade unions on the economy

Trade unions have been around for a while now. They emerged and became popular during industrial revolution period. At this time, most jobs required minimal skills or training, giving employers all bargaining powers. Even though unions have a wide range of objectives, their sole mandate has been pushing for higher wages for their members. Sometimes, this goes against the prevailing conditions and harms the economy.

For example, trade unions cause unemployment. Since they are powerful and have bargaining power, many trade unions raise wages and turn the labor market into a monopoly field where they dominate. In this case, the unions create a scenario whereby there are numerous buyers against one seller, trade unions. The effect of this is equilibrium with lower supply and higher prices, above the competitive equilibrium.

In a labor market, the dominance of trade unions leads to higher wages and unemployment. Joblessness arises because employers cannot meet the demands of workers at the same time absorbing unemployed people in the market. Employers may also choose to lay off some workers in order to meet the demands for higher pay by trade unions. Other effects of trade unions on the economy are emergence of an imperfect labor market and low productivity.

 How trade unions affect the business world

Trade unions have a great impact on businesses because their wage gains come from business earnings. This means that any decision by unions has a direct effect on business. For example, increasing employees in a company should base on job evaluation and analysis, which comes with a cost. To meet this cost and remain competitive in the market unionized companies end up raising prices of commodities, losing loyal customers in the process.

Fewer customers against higher prices lead to reduced company earnings. In worse situations, some organizations may crumble, unable to meet the needs of workers with a spiraling operating cost. This can be economically devastating as thousands go jobless and the government misses taxes coming from the business world.

Research further shows that unionized companies earn lower profits than non-unionized firms, in the range of 10 to 15%. This points to how unions limit the performance and overall potential of business organizations. Thus, effects of trade unions on the economy are real since unionization is a major cause of low profits among organizations. While unions hold that they fight for their members’ rightful share, employers opine that unionization makes them uncompetitive in the market.

Positive Effects of trade unions on the economy

It is evident that unions may have far-reaching negative effects on the economy. While this is the case, not all unions harm the business world. In this section, you will learn more on the benefits of trade unions. At the heart of many trade unions is active representation of members. Every worker needs protection against any form of exploitation by the employer. It becomes impossible to achieve this in the absence of an umbrella body that brings together workers.

In addition, trade unions help to counterbalance monopsony power within the market. In cases where monopsony employers are taking the labor market at ransom, trade unions can come in and increase wages and employment. This is crucial since monopsony organizations always have the market power determining the wages and employing workers. Other effects of trade unions on the economy include negotiation of productivity levels, and low economic recovery among others.

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References:

http://econ.economicshelp.org/2007/04/advantages-and-disadvantages-of-trades.html

http://www.heritage.org/research/reports/2009/05/what-unions-do-how-labor-unions-affect-jobs-and-the-economy

https://www.boundless.com/economics/textbooks/boundless-economics-textbook/unemployment-22/understanding-unemployment-104/impact-of-unions-on-unemployment-396-12493/

https://www.cairn.info/revue-reflets-et-perspectives-de-la-vie-economique-2007-2-page-33.htm

https://www.jrf.org.uk/report/impact-trade-unions-jobs-and-pay