what a trade union is

2.2.5 The Role of Trade Unions

Learning Objective

Explain what a trade union is, why it is formed, the main functions it performs, and evaluate its effects on employees, employers and the wider economy (Cambridge IGCSE Business Studies 0450).

1️⃣ Definition

A trade union (or labour union) is an organised association of workers who join together on the basis of a common trade, industry or employer to protect and promote their collective interests. Unions operate independently of the employer and are recognised by law in most countries.

2️⃣ Why Workers Form Trade Unions

• Better pay and wages – collective bargaining can secure higher rates than individuals achieve. Research shows union members typically earn 10‑15 % more than comparable non‑members (source: OECD “Trade Union Density and Wage Gaps”, 2022).
• Improved working conditions – health & safety, reasonable hours, and better facilities.
• Job security – protection against unfair dismissal, redundancy procedures and closed‑shop clauses.
• Collective voice – a single, stronger negotiating position with management.
• Support and advice – legal, financial and career guidance for members.

3️⃣ Core Functions of Trade Unions

4️⃣ Effects on Stakeholders

4.1 Employees (Positive)

• Higher average wages (union premium of ~10‑15 %).
• Safer workplaces – unions often secure stricter health & safety standards.
• Greater job security through collective agreements and redundancy procedures.
• Access to free legal advice and representation.
• Opportunities for training, apprenticeships and career advancement.

4.2 Employees (Negative / Mixed)

• Potential for reduced flexibility in job roles due to rigid contracts.
• Risk of industrial action disrupting personal income.
• Possible resentment from non‑union colleagues over wage differentials.

4.3 Employers (Impact on Decision‑Making)

Unions influence several key managerial choices:

• Workforce flexibility – collective agreements may limit the ability to alter shift patterns, introduce new technology or redeploy staff without negotiation.
• Wage‑setting and benefits – unions set wage floors and benefit standards, affecting budgeting and pricing strategies.
• Industrial relations strategy – early consultation with unions can improve relations and reduce the likelihood of strikes, but adversarial negotiations may erode trust.
• Training investment – union‑run training schemes can raise skill levels, reducing turnover and increasing productivity.

4.4 Wider Economy & Other Stakeholders

• Employers & Shareholders – must incorporate union demands into cost structures; may see lower short‑term profits but benefit from a stable, skilled workforce.
• Customers – may face higher prices if firms pass on increased labour costs; however, better‑trained staff can improve service quality.
• Government – regulates union activity (right to organise, ballot requirements, limits on essential‑service strikes) and is also lobbied by unions for pro‑worker legislation.
• Non‑unionised sectors – can experience “spill‑over” effects such as wage pressure or adoption of similar health & safety standards.

5️⃣ Legal Framework (Key Controls)

• Right to organise – protected by national labour laws and international conventions (e.g., ILO Convention No. 87).
• Recognition & Collective Agreements – employers may be legally required to recognise a union that represents a majority of workers.
• Industrial Action Regulations – most jurisdictions require a secret ballot, minimum notice periods and restrictions on essential services.
• Trade‑Union Legislation – limits on political contributions, funding rules and, in some countries, restrictions on secondary picketing.

6️⃣ Worked Example (AO2 Application)

Assume a small manufacturing firm has the following simplified profit‑and‑loss statement (all figures in £000):

If a union negotiates a 5 % wage increase, the new labour cost becomes £525. Re‑calculate profit:

Result: profit falls by £25 000 (8.3 %). The firm must decide whether to absorb the loss, raise prices, improve productivity or seek other cost‑saving measures.

7️⃣ Real‑World Examples

• UK – National Union of Mineworkers (NUM): 1970s strikes demonstrated the power of industrial action and prompted the 1974 Industrial Relations Act, which introduced stricter controls on picketing.
• USA – AFL‑CIO: Represents ~12 million workers; successfully lobbied for the 1963 Equal Pay Act and recent campaigns for a $15 minimum wage.
• Germany – IG Bau (Construction Union): Negotiates sector‑wide collective agreements that set wage floors and training standards, contributing to Germany’s low unemployment rates.

8️⃣ Suggested Diagram

9️⃣ Summary

Trade unions are collective organisations that give workers a stronger voice in the workplace. Through functions such as collective bargaining, industrial action, member representation, training and political lobbying, unions can secure higher pay, safer conditions and greater job security. They also shape employer decision‑making, influence government policy and affect the wider economy. While unions bring clear benefits to members, they can raise labour costs, reduce flexibility and cause industrial disruption. A balanced understanding of both the advantages and the drawbacks, together with the legal and economic context, is essential for analysing labour relations in business.