Trade unions

A trade union is an organisation of workers that aims to protect and improve its members' pay and working conditions. Its central activity is collective bargaining — negotiating with employers on behalf of all members at once, which gives workers more bargaining power than any one of them would have alone.

Unions also represent members in disputes and disciplinary cases, campaign for safer conditions and shorter hours, provide training and legal advice, and lobby governments on laws such as the minimum wage. In return members pay a subscription. Unions are usually classed by who they organise: craft unions (one skilled trade), industrial unions (all workers in one industry), general unions (workers across many industries) and white-collar unions (office and professional staff such as teachers).

When bargaining fails a union may take industrial action to put pressure on the employer. A strike withdraws labour altogether; an overtime ban refuses extra hours; a work-to-rule follows every rule to the letter so that work slows; a go-slow reduces the pace of work. The threat of action is often enough to move negotiations.

Industrial action is costly for everyone. Workers lose pay while on strike, firms lose output and customers, and the public loses services. For this reason many countries require a ballot of members before a strike and restrict action in essential services such as the police.

A union's bargaining power depends on how much the employer would lose if its members stopped work and how easily they could be replaced. Unions are stronger when membership is large and most of the workforce belongs (high union density); when members are skilled and hard to replace; when demand for the product is strong, so lost output is expensive; when the economy is booming and unemployment is low; and when the law allows closed shops and strikes.

They are weaker when unemployment is high (the employer can hire replacements), when the firm can switch to machines or move production abroad, when the industry is declining, and when legislation restricts industrial action. Public opinion also matters: strikes that inconvenience the public can cost the union support.

For workers, membership brings higher wages, better conditions, protection against unfair treatment and a voice at work; the costs are the subscription, the risk of lost pay in disputes, and being bound by decisions the member may disagree with. For firms, a union simplifies negotiation and can improve morale and reduce turnover, but it can raise costs and resist change. For the economy, unions can reduce exploitation and inequality, yet wage rises above productivity growth can raise prices and cost jobs.

The employment effect follows from the demand for labour. If a union raises the wage above the competitive level, firms demand fewer workers and more people want the job: some members gain higher pay while others become unemployed. The loss is smaller when demand for labour is inelastic (few substitutes, labour a small share of costs) or when the union negotiates a productivity deal that raises output per worker. Where the employer is a monopsony — the only big employer in town — a union can raise wages without cutting jobs.