Adverse Effect of Trade Union Action
We may note certain implications of wage determination by trade uniuns. By imposing a high wage. a trade union may prevent undue expansion of an industry when the only attraction to the new firms was the prevalence of a low wage. But it may also cause unemployment by insisting on a wage which is beyond the capacity of the industry to bear. Some employers will be forced out and others will contract output. In both cases, some labour will be discharged. The movement of the discharged labour into other industries will depress wages there too.