Impact of Trade Unions on Wages and Employment

Impact of Trade Unions on Wages and Employment


In various labor markets, the labor demand and supply is affected by the actions of government and trade unions. Imperfections occur in labor market due to such interventions. This essay will look at the Impact of Trade Unions on Wages and Employment.

A labor or a trade union is an organization of workers who have come together to realize a common goal in major areas such as work conditions, working hours and wages. The union through its management and leadership bargains with the employer on behalf of other union members. They also negotiate for better contracts with employers. Labor union negotiations include that of

  • Work rules
  • Complaint procedures
  • Rules governing hiring and promotion of workers
  • Disciplinary and grievances meetings
  • Workplace safety and policies and
  • Benefits among other employee interests
  • Education facilities and consumer benefits such as discounted insurance

By doing so, they impact wages and employment as discussed below

Impact of trade unions on wages and employment sector

Impact on wages

One of the most important and primary goals of a trade union is to improve and maintain good terms and conditions for members of the union. This is done by ensuring collective bargaining with relevant employers. The success of the union largely depends on their bargaining power or their ability to restrict supply of labor to employer. The ability of the employer to acknowledge with above market wages also determines success of the union.

Generally, the mechanism by which labor unions create a union premium wage for employees is through their direct impact on wages of workers by bargaining. Even so, there are many ways in which a union non-union wage differential can occur including the ability of the union to downward pay flexibility during in hardship relative to their uncovered parts.

The other way is the possibility that wage hikes induced by unions thus limiting entry of workers to the union department. This further lowers wages in regards to the salaried in the covered sector.

The other impact of trade unions on wages is the threat effect where non-union employers raise their salaries to avoid unionization. Unions can have a significant and an indirect effect on wages. For example, their unity and voices face lengthens and strengthens their job tenure. This is in many cases correlated with higher pay and changes the incentives bosses and personnel face when investing in their human capital.

Impact on employment

Trade unions have had an impact on employment sector for many years. Employment in a typically unionized environment in the private sector for instance has significantly reduced at a rate of 1.8 percent per year. On the other hand, in a non-unionized environment, employment grew at relatively 1.4 percent per year. The difference grew after controlling for other factors that affect level of employment.

Therefore, union recognition restricted growth of employment and of continuing workplaces in the workplace in the 1990s. This is a negative effect of unions employment growth was relatively larger in service industries compared in manufacturing.

Workplace closure

Trade unions have also been closely associated with workplace closure because in many cases, jobs are not transferred anywhere else. This means large-scale loss of jobs. However, this happens in presence of other factors that affect workplace closing and industrial features, type of employment and nature of workforce as well as the manner in which it is managed.

With these factors in mind, employment sector fully recognizes trade unions. Ever since the Industrial Revolution, trade unions have been credited with securing improvements on working conditions and wages. In the employment sector, unions negotiate for a better pay, negotiate for better and ideal working conditions like enhanced health and safety as well as holidays, offer quality training for new skills and give general advice and support.

Trade unions impact wages and employment in different ways. This is why workers and employers approach the issue from different perspectives. Therefore, trade unions have a great role especially in the worker-employer dialogue for many centuries. For employers it is always good to understand the role of the unions and how they fit into current business environment and the role they play in modern economy.

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