Call Trade Union Raise Wage.
For a long time. the economists held the view that thc trade union action in increasing wages was futile and ineffective. The classical economists argued that wages could be raised only at the expense of profits and a fall in profits. by reducing industrial activity. would reduce demand for labor and cause unemployment.
It is said that the wage level is ermines ultimately by economic forces to which the strength of . the contracting parties is irrelevant and which the bargaining power of the trade unions is powerless to bend. Hubert Henderson hold a similar opinion It is an illusion to suppose that the general level of wages can be appreciably and permanently raised by trade union action. except in so far as it increases the efficiency of workers or incidentally stimulates the efficiency of the employers,”?
Futility uf trade unions in raising wages is illustrated by the diagram 32.6. Here MRP is the Marginal Revenue Productivity curve which is the employer’s demand curve. When ON is the supply of labour. equilibrium of demand and supply is at E and at OW (= NE) wage. ON is the number of workers employed. But if the wages are forced up through trade union action to OW’ (= N’ E’). the number of workers employed is reduced to ON’ remains unemployed or through competition they will bring down the wages to OW. the previous level.
But. the modem economists do ion subscribe to the above view. On the other hand. they strongly hold ,that trade unions can raise wages in a number of ways:(i) Stopping Exploitation. The trade unions can ensure that labour is paid the full value of its marginal productivity. Under perfect competition. no doubt, wages tend to equal the marginal productivity of labour. But competition, in the real world, is not perfect. Hence, wages do not crone up to the marginal productivity level due to the weak bargaining power layabout. By improving their bargaining power, the trade unions . can raise wages up to the marginal productivity level and put an end to the exploitation of labour by powerful employers. (ii) Raising Marginal Productivity. Trade unions can improve the marginal productivity of labour itself: (a) They can force the employer to use more up-to-date appliances and organisation (b) They improve the efficiency of labour itself. Thus they do by fostering habits of sobriety, thrift and honesty and by helping the younger generation to acquire better education and training and (c) Trade unions may also increase the marginal productivity of a particular group of labourers by restricting its supply.
the trade union has raised the marginal productivity from MRP to MRP’ by improving worker’s efficiency. In this way. they have raised the equilibrium wage from OW (= NE) to OW’ (=N’ E = NF) without reducing the number of workers employed. In this case. no unemployment has been created even though the wages have been forced up by trade union action.
(iii) Restricting Lab our Supply. nle trade unions usually adopt a number of restructure devices, e.g., forcing the government to pass Immigration laws. pressing for the reduction of working hours. long apprenticeships. restricting entry III the union and not permitting non-union labour 10 work. and so on. The aim clearly is to raise wages by reducing supply of labour when demand for it remains the same. When men workers get higher wages and are able to support the family, women workers may withdraw or the workers may work short-time preferring leisure to wages. In these ways. reduction in the supply of labor may raise the equilibrium wage rate. There are special circumstances in which a particular set of workers can raise their wages by withdrawing their supply: (a) when the demand for that group of labour is inelastic, (b) when the wages of the said group font a small proportion of the total cost of production of the commodity concerned, and (c) when the other factors of production are “squeezable.” In the long run. however, if the employers are forced to pa.y too high wages. there is a danger that they may adopt labour-saving devices and the demand for labour may fall. thus bringing down wages. (iv) Raising Standard Wage Rates. Instead of pulling restrictions on the supply of labour. modem trade unions fight for the raising of standard wage rates. This is a very common metho.d of raising wages adopted by the unions today. Once certain stilu<lard wage rates are accepted by a representative body of the industry. individual firms quickly fall in line. (I’) Increasing Labour Demand. The trade unions also adopt ways and means to increase the demand for labour on the part of the employers. We know that demand for labour is a derived demand. i.e.• derived from the demand for products that labour produces. The unions try to shift this derived demand curve upward. For instance. by improving labour productivity. they may enable the management to reduce cost of production and hence the price. This in turn will increase the demand. Ttie unions may agitate for the protection of the industry so that domestic industry expands and employs more labour. They may influence the government to pay higher rates on public contracts for the goods made by the industry. They may help the employers to charge a high monopoly price and wrest a share for labour out of monopoly price and wrest a share for labour out of monopoly profits. Some unions have agitated for higher tariff in order to increase the domestic demand for goods they produce and consequently for labor used in their production.