5: The Role of Trade Unions and Collective Bargaining

Trade Unions. Two words that can generate polar opposite responses depending on who you’re talking to, with the capacity to elicit every extreme emotional reaction under the sun, akin to blue cheese or Coldplay. In high school economics class, you are taught from very early on that trade unions serve to distort the free market by pushing for wages that are over and above what the interaction of demand for and supply of labour would reasonably sustain. This would then have knock-on effects on operating costs for competitive businesses, who in classic damsel in distress mode would have no other option but to raise prices for consumers, fuelling inflation and hurting the most vulnerable members of society. So yes, in neoclassical economics, trade unions effectively arm wrestle Adam Smith’s apocryphal invisible hand to the detriment of social welfare, much like minimum wages, taxes and, presumably, the entire welfare state. On the flipside, all of this scaremongering somewhat dissipates once we consider decidedly non-competitive forms of markets, notably when there are only a handful of employers for a particular type of job or skillset (so-called monopsonists or oligopsonists – economists really are awful at naming things). In this case, trade unions swoop in like a superhero to protect workers and potentially clear up the market distortions caused by non-competitive practices within labour markets – fighting fire with fire. In a nutshell, for economists, trade unions can be both good and bad, depending on the situation, which is perhaps the most on-brand economics conclusion you could possibly get given our famed indecision.