F583 - Trade Unions

Why Monopsonistic Supply leads to greater use and need of Trade Unions.

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Monopsonistic supply

What is Monopsonistic supply?

 

  • Monopsonistic supply (MS) is where there is only one supplier of goods.

 

  • In the UK Education and Healthcare are two examples of MS eventhough there are private education institutions and healthcare companies like Bupa

 

  • The lack of competition in these sectors means that the government can push down the Real Wage of the employess
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Trade Unions

Trade Unions are organisations set up to protect the rights of their workers.

In the UK we have very little participation in Trade Unions, a trend that has been steadily decreasing since Thatchers reforms in the 1980s.

In 2009 there were only 450,000 working days lost in the UK to industrial Action (strikes) compared to nearly 30 million in 1978. Today, union membership stands at around 7 million; almost less than half of what it was 30-40 years ago.

Contrary to popular belief Trade unions can be very beneficial and perform roles, here are a few:

  • They can negotiate for higher wages or better working conditions, as they have greater bargaining power.
  • They provide a communication channel between the employer and employee so workers and bosses can air concerns in confidence.
  • Offer financial and legal advice, they will also offer top legal protection to workers who are unlawfully expelled accused, etc.
  • They Lobby the government in order to change policy or amend laws.
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Trade Unions affect on Mononopsonists

The affect that Trade Unions can have on Monopsonists can be shown a graph.

It's important that you understand the concept the MRP and Perfectly competitive labour markets.

The graph is a simple MRP and Labour supply curve. However there is an extra curve that represents the monopsonist company, in this case the UK Government.

QL (M) - Quantity of labour supplied under monopsonist conditions and RW (M) - Real Wage under monopsonist conditions shows a monopsonist firm/industry with little or no unionised workforce.

QL (TU) - Quantity of labour supplied, under monopsonist conditions BUT with Trade Union support and RW (TU) - Real wage under monopsonist conditions BUT with Trade Union support shows a monopsonist firm/industry with full Trade Union support.

The QL (PC) and RW (PC) is what the Real Wage and Quantity of Labour supplied would be if the Labour market was perfectly competitive, however that would be highly unlikely and that situation probably unachievable as workers aren't homogeneous, there is asymmetric information and they are able to change their wages through Trade Unions!

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Monopsonistic model

(http://img854.imageshack.us/img854/1710/tudiagram.jpg)

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