Role of trade unions in wage determination

In many markets the demand and supply of labour are affected by the actions of the trade unions
and the government. Such interventions produce ‘imperfections in the labour market’.

Role of trade unions

A trade union or labour union is an organization of workers who have banded together to achieve
common goals in key areas such as wages, hours, and working conditions. The trade union, through
its leadership, bargains with the employer on behalf of union members and negotiates labour
contracts with employers. This may include the negotiation of wages, work rules, complaint
procedures, rules governing hiring, firing and promotion of workers, benefits, workplace safety and
policies.

Affect of Trade unions on Labour Market

Looking at this graph, At the equilibrium wage, the quantity of labour employed is L. A strong trade
union can force up wages to Wu. Number of jobs offered by employers falls to Lu. At this wage the
number of people who would like to work is higher (Lc). This will lead to a shortfall between who can
actually want to work and those who can actually work.