ourse outcome Mapped: To evaluate the matters relating to industrial

disputes and trade unions in India.

Meaning of Trade Union:

A Trade Union has been defined as a continuous association of workers formed for the
purpose of maintaining and improving their conditions of employment.

Their aim is not merely to fight against the wage-cuts but also to fight for higher wages. A
temporary organisation or a mere strike committee cannot be considered a trade union. It
must be a continuous association.

Functions of Trade Unions:

Trade unions perform, broadly speaking, two types, of functions:

(i) Fraternal or mutual-help functions; and

(ii) Militant or fighting functions.

The fraternal functions include organisation of indoor and outdoor games, dramatic clubs,
arranging of lectures, running of schools, hospitals, etc. All these are intended to promote the
general welfare of the working classes through their own efforts.

The militant functions of the unions refer to the struggle that they make against the employers
for getting higher wages or for getting their grievances redressed. Strike is the weapon that
they wield. This is a weapon of last resort. Sometimes the employers take up a very
unreasonable and uncompromising attitude. No alternative is then left to the workers except
to fight for their rights. Thus a strike becomes inevitable.

Trade Unions and Wages:

The question of wages has been, and still is, the main concern of trade unions. Labour leaders
always believe that trade unions, by improving the bargaining power of labour, can raise
wages. On the other hand, the classical economists argued that wages could be raised only at
the expense of profits, and a fall in profits, by reducing industrial activity, would reduce
demand for labour. Thus either wages must be reduced or unemployment must be faced.
Trade unions, according to this view, cannot raise wages permanently. It is also pointed out
that wages are determined by marginal productivity and the unions can have no influence in
the matter. This however, is not the whole truth.

Trade unions can raise wages in the following ways:

(i) They can ensure that labour is paid the full value of its marginal productivity. Under
perfect competition, no doubt, wages tend to equal the marginal productivity of labour. But
competition, in real world, is not perfect. Hence wages do not come up to the marginal
productivity level due to the weak bargaining power of labour. By improving the bargaining
power of labour, the trade unions can raise wages up to the marginal productivity level.

(ii) Trade unions can improve the marginal productivity of labour itself in several ways:

(a) They force the employer to use more up-to-date appliances and organisation,

(b) They improve the efficiency of labour itself. This they do by fostering habits of sobriety,
thrift and honesty 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
labourers by restricting its supply.

(iii) Restricting Labour 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 labour to work, and so on. The
aim clearly is to raise wages by reducing supply of labour 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 Ho wages. If
these wages are not paid, reduction in the supply of labour 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 labour 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.”

But it must be added that trade unions can succeed in raising ways if they are all-inclusive
and if it is difficult for employers to import ‘black-legs’.

In the long run, however, if the employers are forced to pay too high wages, there is a danger
that they may adopt labour-saving devices and the demand for labour may fall, thus bringing
down wages.

(iv) Raising Standard Wage Rates:

Instead of putting restrictions on the supply of labour, modern trade unions fight for the
raising of standard wage-rates. This is a very common method of raising wages adopted by
the unions today. Once certain standard wage rates are accepted by a representative body of
the industry, individual firms quickly fall in line.
(v) The trade unions can raise wages, because a large part of this rise can come about by
squeezing the rent-element in the other factors of production and monopoly gains in other
incomes.

(vi) It may also be argued that the raising of wages by the unions will not necessarily
discourage investment. Today the bulk of investment comes not from individuals but from
big corporations which usually maintain the level of investment but reduce dividend to
shareholders when their income fails. Trade unions can raise wages if they are all-inclusive
and if it is difficult for employers to import ‘black-legs’.

Consequences of Trade Union Action:

We may note certain implications of wage fixation by trade unions: By imposing a high wage
on the employers, a trade union pay prevent undue expansion of an industry when the only
attraction to the new firms was the prevalence of a low wage. But it may also cause
unemployment by insisting on a wage which is beyond the capacity of the industry to bear.
Some employers will be forced out and others will contract output. In both cases, some
labour will be discharged.

The movement of the discharged labour into other industries will depress wages there.
Restrictions on admission to a union are unfair and smack of monopoly, and monopoly of
wage levels is as bad as monopoly of price levels. If a trade union can wrest monopoly profits
from a monopolist, it is all right. The proper function of a trade union is to stop or prevent
exploitation, and when it goes beyond it, it is bad.

Lectures 2.1 & 2.2.ppt

References:

1) Bhagoliwal, T. N, Economics of Labour and Industrial Relations, Sahitya Bhawan.

Available at:
https://books.google.co.in/books/about/Economics_of_Labour_and_Industrial_Relat.html?
id=RlkONQAACAAJ

2) Singh, J.K, Labour Economics: Principles, Problems and Practices, Deep & Deep
Publications. Available at: https://books.google.co.in/books/about/Labour_Economics.html?
id=adU4PQAACAAJ&redir_esc=y
3) Pant, S.C., Indian Labour Problems, Chaitanya Publishing House. Available at:
https://books.google.co.in/books/about/Indian_Labour_Problems.html?id=2XI-
AAAAIAAJ&redir_esc=y

4) Reynolds L. G., Labour Economics and Labour Relations, Prentice-Hall. Available at:
https://www.amazon.in/Labour-Economics-Relations-Lloyd-Reynolds/dp/0135177065

5) Monappa Arun, Industrial Relations, Tata McGraw- Hill Education. Available at:
https://books.google.co.in/books/about/Industrial_Relations.html?id=6CjGNXs8U_4C

Web Links:

https://www.economicsdiscussion.net/classical-theory-of-employment/classical-theory-on-
wage-and-employment-with-diagram-macro-economics/14599

Video Links:

https://www.youtube.com/watch?v=_MgiDD6pZoI&t=26s