Trade Union and Wages
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Trade Union and Wages

Trade Union and Wages The classical economists argued that wages could be raised only at the expense of profits. It is argued that wages are determined according to the marginal productivity principle, and the trade unions can have no say in the matter. On the other hand, the workers are confident that through the strength of their unions they can certainly raise their wages. But these views are only partially true. The fact is that trade unions can certainly raise wages but not to any extent and at any moment they like. The capacity of the industry to bear the higher wage is a very important consideration. Method employed by trade unions to raise wages:

Trade Union and Wages

The classical economists argued that wages could be raised only at the expense of profits. It is argued that wages are determined according to the marginal productivity principle, and the trade unions can have no say in the matter. On the other hand, the workers are confident that through the strength of their unions they can certainly raise their wages. But these views are only partially true. The fact is that trade unions can certainly raise wages but not to any extent and at any moment they like. The capacity of the industry to bear the higher wage is a very important consideration.

Method employed by trade unions to raise wages:

(i) Stopping Exploitation. They can ensure that labor is paid the full value of its marginal productivity. Under perfect competition, no doubt, wages tend to equal marginal productivity of labor. But competition in the real world is not perfect. Hence, wages do not come up to the marginal productivity level due to the weak bargaining power of labor. By improving the bargaining power of labor the trade unions can raise wages at least up to the marginal productivity level and put an end to the exploitation of labor by powerful employers.

(ii) Raising Marginal Productivity. Trade unions can raise wages in another way. They can improve the marginal productivity of labor itself. This they can do: (a) By forcing the employers to use more up-to-date machinery and organization; (b) They can improve the efficiency of labor itself. This they do by fostering habits of sobriety, thrift and honesty among their members and by helping the younger generation to acquire better education and training; (c) Trade Unions may also increase the marginal productivity of a particular group of workers by restricting its supply, by improving the efficiency of labor through their welfare activities and by increasing the marginal productivity of a particular grade through the restriction of supply.

(iii) Restricting Labor Supply. The trade unions usually adopt a number of restrictive devices, e.g., forcing the government to pass immigration laws, pressing for the reduction of working hours, long apprenticeships, restricting entry to the union and not permitting non-union labor to work, and so on. The aim clearly is to raise wages by reducing supply of labor 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 labor is inelastic, (b) the wages of the said group form a small proportion of the total cost of production of the commodity concerned, and (c) the other factors of production are "squeezable." In the long run, however, if the employers are forced to pay too high wages, there is a danger that they may adopt labor-saving devices and the demand for labor may fall, thus bringing down wages.

 

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