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Impact of labour Unions

Impact of labour Unions

In a work environment, the Employers and the workers have varied approaches. This is resorted on a common platform with the help of Labour Unions.

Labour Unions help in negotiating with the corporations, businesses and other organizations on behalf of union members. They are the representatives of the workers & help them to achieve their rights. They also ensure improvements in the working conditions and wages..

The labour Unions widely affect the Labor Environment as they influence the two major tools of demand, supply & equilibrium wage rate of labor. They are:

  • Restricting the labor supply
  • Increasing the labor demand

The equilibrium wage rate can be defined as the wage rate at which the demand for labour is exactly equal to the supply rate of labour.

Thus, The Unions demand for a higher wage than the equilibrium wage rate. This is however responded by the employers who in turn lower the hours of work.

This impacts both the wage rates & the demand for the labour.. Thus, the labour unions should demand the minimum wage increases & at the same time increase the marginal productivity of the workers by imparting them appropriate training.

When Unions raise the price of labour above the equilibrium price, unemployment rises. This is because at this stage the employers will go for the labour which is ready to accept minimum wages. Thus unemployment increases widespread.

Thus, labor unions work to increase the wages and benefits of workers who are employed in the economy but in turn it also simultaneously increases the number of workers who are unemployed.

Every industry has the primary objective of maximizing its profit. This is done at times by charging a higher price & restricting the total output and thereby reducing economic welfare. The rise in price also reduces the consumer surplus. This reduction in consumer welfare is the pure transfer to the producer through higher profits, but some of the loss cannot be reassigned to any other economic agent. This is defined as the deadweight welfare loss. Unions can also influence this if they demand high wage rate which is ultimately increasing the price charged to the end user.

Trade Unions influence the elasticity of labour demand with respect to wage rate. Trade liberalization may also lead to a lowering of the cost of labour which will lead to an increase in the elasticity of substitution among inputs and increased price elasticity of demand.

Thus, if the Trade Unions work effectively it will lead to an increase in the per capita income of the economy which will further increase the GDP & lead to prospective economic growth.

Labour unions will also help to categorize the required labour as per the population growth in the aspect of ageing. This means allocation of proper jobs to labour as per their age category.

Therefore, as a result the marginal cost will reduce effectively & this will increase the marginal revenue & in turns the profits for the organizations.

The positive aspects of Unions are:

  1. Unions help in raising the wages of workers.
  2. Unions help in reducing the wage inequality because they raise wages for all the workers who belong to same category.
  3. Unions help in standardizing the policies & procedures.
  4. Unions help in providing fringe benefits to the workers.
  5. Unionized workers also receive more generous health benefits than nonunionized workers.
  6. Unionized workers are also entitled to better pension plans.

Thus, Unions play a significance role in securing the safety and health, overtime, and family/medical leave of the workers and help in enforcing those rights on the job. Unionized workers are more informed & therefore, they are more benefitted from social insurance programs such as unemployment insurance and workers compensation. Unions thus, act as an intermediary institution which provides a necessary complement to legislated benefits and protections.

Unions can resort to dismissal of firm’s policies due to which firms can decrease the wages and increase the employment level. As a result, the profit of firms with unions can be more than that without unions. Thus, the concept of moral hazard also applies to Labour Unions.

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