15.4 Unions and Collective Bargaining

15.4 a. The Economics of Unions

Unions are organizations that negotiate with corporations, businesses and other organizations on behalf of union members. Since the Industrial Revolution, unions have often been credited with securing improvements in working conditions and wages. Many unions were formed in manufacturing and resource companies, companies operating in steel mills, textile factories, and mines. Over time, however, unions have spread into other industries. The evolution of the modern worker has also changed the role of unions. The traditional focus of union leaders has been representing workers when negotiating with managers, but when developed economies shift away from a reliance on manufacturing, the line between manager and worker becomes blurred. Also, automation, computers and increased worker productivity results in fewer workers being needed to do the same job [18].

Unions can use several different techniques to increase the demand for labor, and thus, wages. Unions can, and do, use the following techniques [18]:

• Push for minimum wage increases. Minimum wage increases the labor costs for employers using low-skilled workers. This decreases the gap between the wage rate of low-skilled and high-skilled workers; high-skilled workers are more likely to be represented by a union.
• Support restrictions on imported goods through quotas and tariffs. This increases demand for domestic production and, therefore, domestic labor.
• Lobbying for stricter immigration rules. This limits growth in the labor supply, especially of low-skilled workers from abroad. Similar to the effect of increases in the minimum wage, a limitation in the supply of low-skilled workers pushes up their wages. This makes high-skilled laborers more attractive.

Example: When unions want to increase union member wages or request other concessions from employers, they can do so through collective bargaining. Collective bargaining is a process in which workers (through a union) and employers meet to discuss the employment environment. Unions will present their argument for a particular issue, and employers must decide whether to concede to the workers’ demands or to present counterarguments [18].

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15.4 b. Are Unions Good or Bad for the Economy?

Unions say that they help increase the wage rate, improve working conditions and create incentives for employees to learn continued job training. Union wages are generally higher than non-union wages globally [18].

Increases in union wages can come at the expense of non-unionized workers, who lack the same level of representation with management. If the labor supply increases faster than labor demand, there will be a glut of available employees, which can depress wages [18].

Example: Unions may be able to prevent employers from eliminating jobs through the threat of a walkout or strike, which will shut down production, but this technique does not necessarily work. Labor, like any other factor of production, is a cost that employers factor in when producing goods and services. If employers pay higher wages than their competitors, they will wind up with higher-priced products, which are less likely to be purchased by consumers [18].

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