Cambridge International as and a level Economics Ebook

210
Cambridge International A Level Economics

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claim is shown in 
Figure 8.18
. At the equilibrium wage, 
the quantity of labour employed is 
L
. If a strong trade 
union can force up wages to say 
W
u
, which is above the 
equilibrium, the number of workers who are off ered jobs 
by employers falls to 
L
u
. At this wage the number of people 
who would like to work is higher. Th
is is shown by 
L
c
. 
Consequently, there is a shortfall between those who 
want to work and those who can actually work, due to the 
infl uence of the trade union. Th
is is shown in 
Figure 8.18 
as the diff erence between 
L
c
and 
L
u
.
In practice, it is really quite diffi
cult to prove whether 
or not this theory actually applies in labour markets. 
A much-quoted example is that of actors and actresses 
in the UK and USA, where there are very strong unions 
that restrict the numbers able to work in fi lms, television 
and theatres. Th
e wages of their members are supposedly 
supported in this way. Other examples are likely to be 
in labour markets where a trade union has a monopoly 
over workers with a particular type of skill. Increasingly 
such practices have been made illegal, so restricting their 
powers to act in this way.
Trade unions that try to behave in this way are 
playing a dangerous game with employers. Th
e fear is 
that because of high labour costs and restrictive practices, 
employers will go out of business or transfer production 
to countries where wage levels are lower. Th
is threat has 
been particularly severe for UK car manufacturers – 
production has been switched to other EU countries, 
such as Spain, the Czech Republic, Poland and Slovakia, 
where labour costs can be as little as one-fi ft h of those in 
the UK. Consequently, trade unions have very little real 
infl uence over the wages paid to their members in these 
circumstances.
W
u
W
Quantity of labour
0
W
age
Demand
L
L
c
Supply
L
u
Shortfall
Figure 8.18 
The eff ect of a strong trade union in a 
competitive labour market
Th
e labour market has seen explicit government 
intervention through the introduction of national 
minimum wages. In the UK, aft er considerable 
deliberation, the government’s Low Pay Commission 
recommended a national minimum wage from early 1999 
for all workers above the age of 21. Th
e main aim of a 
minimum wage such as this is to reduce poverty and the 
exploitation of workers who have little or no bargaining 
power with their employers. In the UK, many women 
employed in shops, small businesses and low-skill jobs, 
such as home working and cleaning, were being paid very 
low wages and, in the eyes of the government, were being 
exploited. Th
e introduction of the minimum wage was of