Think of the labour market as a big team sport – the players (workers) and the coach (employer) must agree on the playbook (wages). Trade unions are like a team captain who talks to the coach on behalf of the players. Their power depends on how many players they can rally and how much the coach values their support.
Imagine a game of “Monopoly” where each worker is a player. The union is the bank that can offer a better deal if enough players agree. If the bank (union) has many players (members), it can demand higher rent (wages). If only a few players join, the bank has less leverage.
The union’s wage demand can be represented as:
\$ w_d = \bar{w} + \alpha (1 - \theta) \$
where \$\bar{w}\$ is the market wage, \$\alpha\$ is the union’s strength, and \$\theta\$ is the proportion of workers not in the union.
The employer’s cost function is:
\$ C(w) = w \cdot L + \phi \$
where \$L\$ is labour hours and \$\phi\$ is fixed costs. The equilibrium wage is where the union’s demand meets the employer’s cost curve.
| Scenario | Union Strength (α) | Resulting Wage (w) |
|---|---|---|
| Low Membership | 0.2 | \$w = \bar{w} + 0.2(1-\theta)\$ |
| High Membership | 0.8 | \$w = \bar{w} + 0.8(1-\theta)\$ |
• Identify the key factors that influence union power (membership, industry concentration, legal support).
• Explain how these factors shift the union demand curve for wages.
• Use the equilibrium condition (union demand = employer cost) to show the resulting wage.
• Remember to label variables clearly and use LaTeX for equations.
• Provide a short real‑world example (e.g., teachers’ unions, airline pilots).
The National Union of Teachers (NUT) represents about 30% of teachers. In 2023, they negotiated a 2% pay rise, which was higher than the market average of 1.5%. The union’s strong membership and the public importance of education gave them high bargaining power. 📚