Explain Analytically How Trade Unions Can Influence Firm Performance. How Best Should Employers Deal with Trade Unions?

Topics: Employment, Trade union, Collective bargaining Pages: 8 (2490 words) Published: February 13, 2013
Explain analytically how trade unions can influence firm performance. How best should employers deal with trade unions?


A trade union is an organisation of workers who have come together to achieve common goals such as increasing pay, increasing the number of employees which an employer hires, and improving working conditions. The trade union bargains with employers on behalf of all its members and negotiates labour contracts; the most common purpose of a union is to maintain or improve employment conditions.

There is the difficulty of measuring performance however this paper will only look to examine the effect of trade unions on a firms performance in economic and productivity terms. We will then look to analyse the different methods used by employers when dealing with trade unions and whether there actually is a best way to address them, whilst also arguing the benefits and disadvantages of each.

Trade unions have been defined as having two faces; as outlined by Freeman and Medoff in What Do Unions Do? As the basis of much of the literature surrounding unions has stemmed from this, I will be centring my discussions using Freeman and Medoff's theory.

The power of unions rests in their two main tools of influence which restrict labour supply and increase labour demand. Through collective bargaining, unions negotiate the wages that employers must pay; unions ask for a higher wage than the inter-sectional point of the labour supply and labour demand curve. This will most likely lower the hours demanded by employers and so unions may looks to increasing the demand for labour instead using several different techniques.

Trade Unionism

Trade unions not only covers the relations between an employer and employee but also the relationship between employers and unions. Trade unions usually look at the collective aspect of these relationships; this is confirmed from the central place occupied by labour law, freedom of association, collective bargaining, and the right to strike as well as others.

There are two main faces of trade unions, the concept being created by Freeman and Medoff. The first, being introduced by neoclassical economists, is known as the 'Monopoly face' and assumes that most unions have the power to raise wages above the competitive, industrial, level. This can have detrimental economic effects. Freeman and Medoff have broken down the two faces into three factors, the first being economic efficiency; according to the monopoly face, unions work rules can decrease worker productivity. The second factor is the distribution of income where it is argued that the monopoly face increase the income inequality by raising the wages of highly skilled workers as well as creating horizontal inequalities by creating differentials between comparable workers. Freeman and Medoff finally argue that, on the social nature of the organisation, unions monopoly face breeds corrupt and non-democratic elements, whilst discriminating in rationale positions.

These views are vastly different to those of the other face, known as the 'Voice effect', whereby unions have positive effects on productivity. They do so by reducing quit rates, altering managerial methods of production and adopting more efficient policies, all of which lead to improved morale within the workforce. Unions also represent a wider range of interests than just the 'marginal worker', a principle adopted under non-union systems; the firm ultimately chooses a better mix of compensation and personal policies for employees. An example of this would be a firm catering for senior employees and offering better retirement packages whereas a non-unionised firm would look to cater the younger, more marketable employees rather than offer a fairer employment package.

In regards to the distribution of income, unions standard rate policy is set to reduce inequality among...
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