How does a union raise wages in a competitive labour market, and what does that cost?

By restricting supply or bargaining a wage above equilibrium the union raises pay, but at that higher wage firms demand fewer workers, so employment falls and a surplus of labour appears.

Why can a union raise both the wage and employment when it faces a monopsonist?

A monopsonist pays below the competitive wage and hires too few workers, so a bargained wage set between the monopsony and competitive levels can raise pay and employment together.

What is a bilateral monopoly in a labour market?

A bilateral monopoly is a market with a single buyer of labour facing a single seller, so the wage is settled by relative bargaining power rather than by supply and demand alone.

Give two factors that strengthen a union's bargaining power.

A high proportion of the workforce in membership with a credible ability to halt production, and inelastic demand for the employer's product so that higher costs can be passed on in price.

Edexcel A-Level Economics B 9EB0

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Global Labour Markets

Trade unions and professional bodies

3 things to know
Papers 2 and 3

Overview

Trade unions and collective bargaining, raising wages in competitive and monopsony labour markets, bilateral monopoly, sources of bargaining power, falling membership and globalisation, professional bodies and entry requirements, the benefits and costs of professional licensing, and calculating the cost effect of a union pay rise.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

Why has union membership fallen in many developed economies?

Key term

What is a trade union?

Key term

Define collective bargaining.

Questions from this subtopic

Each one with the model answer underneath.

1
What is a trade union?
Model answer
A trade union is an organisation of workers that bargains with employers on its members' behalf over pay and conditions.
2
Define collective bargaining.
Model answer
Collective bargaining is negotiation between an employer and a union representing a group of workers, producing one agreement that covers them all.
3
How does a union raise wages in a competitive labour market, and what does that cost?
Model answer
By restricting supply or bargaining a wage above equilibrium the union raises pay, but at that higher wage firms demand fewer workers, so employment falls and a surplus of labour appears.
4
Why can a union raise both the wage and employment when it faces a monopsonist?
Model answer
A monopsonist pays below the competitive wage and hires too few workers, so a bargained wage set between the monopsony and competitive levels can raise pay and employment together.
5
What is a bilateral monopoly in a labour market?
Model answer
A bilateral monopoly is a market with a single buyer of labour facing a single seller, so the wage is settled by relative bargaining power rather than by supply and demand alone.
6
Give two factors that strengthen a union's bargaining power.
Model answer
A high proportion of the workforce in membership with a credible ability to halt production, and inelastic demand for the employer's product so that higher costs can be passed on in price.

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