In a perfectly competitive market, wages are set where the supply of labour equals demand. But in the real world, markets are often imperfect – think of a small town factory or a niche tech startup. Here, a few employers or workers can influence wages, just like a few big fish can set the price of a whole pond of fish.
Mathematically, we can write the wage equation as:
\$W = f(S, D, U)\$
where S is the supply of labour, D is the demand, and U represents unions and other market frictions. When unions are strong, U pushes the wage up: \$W{\text{union}} > W{\text{non‑union}}\$.
Higher wages can have a double‑edged sword effect. While they reward workers, they may also reduce the number of jobs available. Think of a bakery that raises the price of bread: it might sell fewer loaves, just as a firm might hire fewer workers if wages rise too high.
| Scenario | Average Wage (£) | Employment Level |
|---|---|---|
| No Union | £18,000 | 10,000 jobs |
| Strong Union | £20,000 | 9,500 jobs |
| Government Minimum Wage | £15,000 | 10,500 jobs |
In summary, trade unions push wages up, which can reduce employment slightly but increase worker welfare. Governments balance this by setting minimum wages and offering support, aiming for a fair and dynamic labour market. 🚀