A2 microeconomics presentation on aspects of the economics of trade union activity in the UK

1. Labour Market – The Economics of
Trade Unions
A2 Micro Economics Unit 3

2. Unions – can you name them?
• BFAWU
• PFA
Retail & Leisure • NUJ
& Media
• BALPA
• ASLEF
Transport • RMT
• FBU
• PSU
• RCN
Public Services
• NUT

3. Union Personalities – Can you
name them?

4. UK Trade Union Stats
• Trade union density for employees in the UK
was 26.6 per cent in 2010
• Trade union membership levels for UK
employees was 6.5 million
• Across all sectors of the economy, just under
half of UK employees (46.1 per cent in 2010)
were in a workplace where a trade union was
present
• The hourly earnings of union members,
averaged £14.00 in 2010, 16.7% more than
earnings of non-members (£12.00 per hour)

5. Union activity in the UK

6. Key functions of trade unions
• Protecting and improving real living standards
– E.g. Campaign for a living wage
• Protecting workers against unfair dismissal
(employment rights)
• Promoting better conditions & health and safety
– Workload issues
– Workplace training and education, accumulation of
human capital
• Protection of pension rights
• Counter-balance to possible monopsony power
of employers in the labour market

7. Battling for their members

8. Unions in the News

9. Unions in the News

10. Influencing wages and earnings
• Collective bargaining with employers
– National wage bargaining
– Plant level wage bargaining (micro level)
• Can trade unions achieve a “mark-up” for their
members (i.e. a premium wage)?
• What are the possible employment consequences?

11. Factors influencing bargaining power
• Macroeconomic climate
– Unemployment rates / labour shortages
– Profitability of businesses
– Stage of the economic cycle
• Public support / sympathy for unions
• Union density – % of the workforce in an industry
who are members of a union
• Legislation – legal powers of union to take action
• Financial consequences of industrial action
• Impact of globalisation – and power of
multinationals (TNCs) to outsource production
around the world

12. A competitive labour market
Competitive labour market
Wage
Rate
Ls
W1
Ld
E1
Number of people employed

13. Unions may negotiate minimum pay
level – at the cost of jobs?
Competitive labour market Union negotiated wage rate
Wage Wage
Rate Rate
Ls Ls
Wtu
W1 W1
Ld Ld
E1 E2 E1 E3
Number of people employed

14. Controlling labour supply to boost
wage rates – restricting entry
Competitive labour market
Wage Wage
Rate Rate Labour supply
after trade union
Labour supply Labour supply
before trade before trade
union W2 union
W1 W1
Ld Ld
E1 E2 E1
Number of people employed

15. Declining union membership

16. Long term decline in union power
• Employment laws:
– Employment legislation has
• Outlawed illegal strikes
• Given employers the right to seek
compensation for the effects of certain
forms of industrial action
• Requires all unions to hold secret ballots of
their members before any strike action is
permitted

17. Long term decline in union power
• Market competition / globalisation
– The effects of increased competition in
product markets – in nearly every domestic
market for goods and services, there is
greater competition now

18. Long term decline in union power
• Changing pattern of employment
– There has been a long term change in the
structure of employment away from
traditionally strong union sectors such as
heavy engineering, coal-mining, steel and
textiles, towards service sector jobs in the
private sector where union density is lower

19. Trade Union Membership
• There has been a large decline in union
membership over the last thirty years
• Union membership peaked in the late
1970s at over 13 million, and then fell
dramatically in the 1980s as Margaret
Thatcher took on the trade unions.
• Membership then stabilised and the
figure has remained between seven
and eight million since the mid-1990s.

20. The number of industrial stoppages

21. Days lost from strikes in the UK

22. Total days lost to industrial action

23. The standard case against unions
• Unions act as a distortion in the labour market
• They drive wages higher and profits & employment
lower than if the labour market was fully competitive
• They may prevent the introduction of new, flexible
work practices
• They may delay the introduction of new technology
• Their collective bargaining power can lead to higher
wages and cost-push inflationary pressures
• Unions can cause labour market failure

24. Evaluating: Questioning this view
• Unions and their members stand to gain from
– Higher productivity
– The workforce having more flexible skills
– Improved working conditions and employment rights
• Higher pay does not automatically lead to fewer jobs
– Monopsony argument
– Higher pay can create incentives for higher productivity
– Keynesian effects of increased incomes on demand
• Many unions have modernised to reflect changes in the
domestic and global economy
• They can work with management and employers to
improve efficiency and competitiveness – in partnership
and cooperation

25. Evaluation on trade unions
• Trade unions have (in the main) changed radically
from the 1970s and 1980s
– Reduced influence over pay and jobs
– Greater willingness to enter into agreements
with management over work practices
– Still some “militant fringes” – mostly in the
public sector
– Britain now has one of the best industrial
relations records of any rich advanced nation
• Possible globalisation of trade unions

26. Tutor2u