Trade Unions Are an Integral Part of Labor Markets - Essay Example

Unions Unions Introduction Trade unions have been notable economic and political players in industrialized countries characterized by high production. Trade unions are an integral part of labor markets and impact the way it operates in a society. Due to its association with labor markets, scholars have studied the relevance of trade unions within the economic sphere. However, changes in recent demography and other worldwide trends have attracted great interest from academics belonging to diverse fields. Wolfgang Streeck (2005) examines the sociological dimension to trade unions by focusing his paper on the correlation between labor markets and trade unions. It discusses the working of trade unions and how it is affected by external factors in the industrial macro environment such as politics, supply and demand forces, and so on. The economic sphere of trade unionism is explored well by Colin Crouch (1982) who has adopted a rational-choice approach to understanding trade union activities. Under the rational approach, the author has tried to analyze the choices made by unions and their members as sensible individuals with little significance from sociological concepts of perception and attitude unless they refer to the rationality in union members. Crouch (1982) has mainly explored the different choices and trade-offs that union workers face, which is the main part of their activities. Another article, written by Andrew Oswald (1985), has explained the theoretical framework upon which the economics of trade unions are based. The author explores the literary trends which focused on varying concepts of labor union economics as the subject drew more and more attention from western scholars. This paper seeks to examine and analyze the infrastructure of trade unions along with its sociology and economics by means of theoretical foundations. Theoretical Background Unions have been analyzed extensively, particularly as they operate in economic environment. Efforts started during the 1980s where increasing amount of attention was being given in order to understand labor markets and the behavior of unions. Since economics, as a discipline, is a social science, it derives its theories from human behavior in the external environment. Economic theory is shaped by the behavior of central actors and the forces of supply and demand. Labor markets operate in the same macro environment, which is why they are also subject to the same external forces. The way union workers respond to the economic changes and other environmental cues is critical to understanding the economical working of labor markets and most importantly, trade unions. One of the most basic assumptions is that of a perfectly competitive market which in this case will be applied to the labor market. Although the model does have some weaknesses, it is used for simplicity purposes. As a general rule, labors own their own human capital as free individuals and that the delivery of their services depends upon their presence at the place of work. Efforts to explain trade unions through the micro-economic theory have resulted in a meticulous analysis of union behavior and labor markets. Previous notions considered a leftwards movement in the supply curve as increasing the wage rates and subsequently reducing employment. Two of the variables that trade unions may most care about include wage rate and employment, although this is just an assumption (Oswald, 1985). When a utility function is created, the equation can be proceeded through by taking the labor demand curve as given or by understanding the union as a bargaining party over the contract terms. The equilibrium position is a point of tangency where both the firm and the union are in agreement about the payment and employment. The competitive rate, Oswald (1986) explains is a major preference of trade unions working to maximize the wage bill. While some scholars stress on a quasi concave utility function, other emphasize the concave nature of the utility function. A dichotomy of theoretical models dominates the written economics of union behavior, consisting of the monopoly model and the bargain model (Oswald, 1985). A monopolistic theory assumes a closed union which has control over either the wage rate or an individual’s entry into the given professional sector. Also, assuming that there are many firms to deal with, it is nearly impossible to come to a negotiated agreement with all of them. According to the creation function, at an optimum level, the union’s marginal benefit from the increasing the wage rate must be equated by the marginal costs of the services provided by the union members. The marginal benefit is a product of the gained utility and the total employed members (Oswald, 1985). The effect of other inputs on the production function is equivocal, similar to the impact of changes in the CPI (Consumer Price Index). Provided that any particular firm’s prices are directly related to the CPI, and variables like unemployment benefit, income tax, and real wage is indexed, the nominal wage would be homogeneous (1 degree). However, the monopolistic model had inherent inefficiencies which the efficient bargain model does not have. Efficient bargains can be infinite in number and due to its mathematical arrangement, gain result in a benefit for the both the involved parties. The equilibrium is the intersection between the labor supply and demand graphs. The efficiency bargain theory also explains the concept of wage stickiness whereby wage is a variable that resists change. An upwards shift of the contract curve is followed a downward shift in the equity locus, which balances the overall impact, resulting in no change. Various scholars tend to look for a link between the microeconomic and macroeconomic concepts of inflexibility in the wage variable. Both theories of monopoly and efficient bargain involve their own set of assumptions and variable magnitudes. So to conclude the legitimacy of one model or another is not viable. The explanation of both theories for rigidity in the wage variable may not appeal to all theorists, a fact recognized by Olson (1985) in his paper. There are various other alternate models that Olson (1985) points out may explain the theoretical foundation behind the economics of trade unions but each has its own assumptions and variables. Crouch (1982) has analyzed and evaluated union activity and the behavior which drives trade unionism. However, Crouch provides a more rational approach to trade union activity and all of its economic aspects. As a general rule, the economic sphere is one where no one can avoid trade-offs and thus the actors involved are faced with various decisions and choices for which they must trade something off in return for an agreed benefit. Choice is identified to be an important union activity which members regularly face when bargaining or making negotiations. Rather than embarking upon a Marxist economic approach to explaining trade union activities, Crouch (1982) has used the rational choice to explain the union activities. So, under the approach, the choices that union members and workers take are guided by rationality. Crouch (1982) has also argued against the use of Marxist concepts in understanding trade unions due to a fundamental flaw in the Marxist theory which centers every source of commerce about variables such as capital and labor. Also, the Marxist theory lays too much stress on the working class and Crouch (1982) says that to limit the trade union activities to the working class is least productive as it does not take union choices and other activities into account. Subject concepts such as perception, attitude, values, etc are only significant if they refer to the state of rationality among the union members and their conducts. Crouch (1982) focuses the attention of his work mainly on the choice aspect of trade unions and how it is affected in the economic environment. Union workers, as part of the normal system, operate as players willing to cooperate and work with others however they follow their own set of rules and demands which is put forward during negotiations and other agreement setting cases. Crouch (1982) has also explained the significance of trade unions and their functionality within the economic environment. The role of collective action is discussed in detail and trade union is considered as an important composite which workers use to advance their demands and voice them. Wages and employment are key issues that have historically been forwarded by labor unions and Crouch (1982) explains how such unions are important in putting pressure by exerting action. The author’s discussion of class action, however, differs from that offered by the Marxist theory. It is important how trade unions respond to calls for action and changes in the environment that hurts their interests. Collective action occupies a prominent position in the functioning of labor unions. Since labor unions do not operate in isolation, they are exposed to market forces and particularly the supply and demand forces of the labor market. Changes in the external factors put their pressure on the trade unions to act accordingly. Self interest, is another important concept, which may however not stem from rationality in all of the cases. Generally, a successful negotiation implies a gain or benefit for all the involved individuals within the union. Labor Market and Trade Union The relationship between the two variables has been examined for decades, especially during recent years after the changes in world trends, demographics, psychographics, and so on. Streeck (2005) identifies that an important change is the increase in female participation in the workforce, especially in industrialized countries. This transformation from the homemaker to a career woman has changed the composition of the workforce. Equally important is the fact that changes in global trends such as immigration, globalization, and so on, have allowed human capital and labor to pour in from other countries for jobs. This influx of human capital has changed the structure of workplaces and also the composition of the workforce. Such factors guide the social aspect of labor markets and trade unions in a heterogeneous work environment. With the increased heterogeneity in workforce composition, the allocation of jobs and resources is a dilemma. Also, increased interest in equal opportunity and job allocation has generated a new wave of concerns that directly impact the labor market. The labor market has become increasingly varied and diversified employing people of different races, ethnicities, age, gender, and so on. These changes have inevitably impacted the labor markets in their relative positioning in the external environment. Although the labor market does not comprise of a real market however the economic theory attaches great importance to the market forces of supply and demand as they apply to the human capital provided to the firms by the labors. Prices are determined by the equilibrium between the supply and demand. Employability is an important social factor which is also determined by the underlying economic principles which state that wage rates and employment is determined by the marginal productivity of laborers and he marginal costs to the employing firms. Streeck (2005) claims that the stratification originating from labor markets, the job infrastructure in organizations, and other factors conflict with social justice, equality, political stability, etc. When examining the labor market, the economic perspective and social perspective differ from each other because economics only tends to look at the profit maximization and efficient aspect of markets where as sociology is mainly concerned with overall well being of the society. An economist may conclude the efficiency of a system based on a few invented variables whereas the sociologist is concerned with the social impacts of happening in the labor market and their possible implications. Since the initiation of trade unionism, unions have emerged as politically and economically active entities. However, over the years, Streeck (2005) tracks the decline of trade unionism from the days of liberalism till states were democratized. However, labor unions did remain prominent providers of human capital and labor to firms who were willing to negotiate a bargain. Early trade unions were seen as democratic institutions which encouraged less interference from the state however slowly and gradually, the unions adopted more capitalistic forms of working and ideology. References Crouch, C. (1982). Trade unions: the logic of collective action (1st ed.). London: Fontana. Oswald, A. (1985). The Economic Theory of Trade Unions: An Introductory Survey. The Scandinavian Journal of Economics, 160--193. Streeck, W. (2005). The Sociology of Labor Markets and Trade Unions. The Handbook Of Economic Sociology, 254--283. Read More