The Foundations of Finance – Trade Unions

Trade unions are industry-specific organisations which seek to collectively represent and protect the interests of its workers. Consequently, this unification of employees creates leverage when negotiating with employers to enhance various aspects of their work including: higher wages; more benefits such as health insurance; sensible working hours; a defence against unfair dismissal; the safeguarding of pension rights; and any other condition that improves the working environment.

These unions are known to be most prevalent in industries found in sectors such as construction, mining, transportation, education and medicine.

A 2017 statistical bulletin released by the Department of Business, Energy and Industrial Strategy found that around 6.2 million employees in the UK were trade union members, which is an increase of 19,000 from the previous year. Nevertheless, in comparison to the proportion of employees from the work force that were union members in 2016, the updated results showed the lowest rate of trade union membership recorded since 1995.

How did they come about?

In the eighteenth century, workers enjoyed far less privileges as they do now: workplaces saw men, women and children being forced to endure unruly hours of work, with extremely low wages in the name of low costs and high profit.

The government, elected by 3 per cent of the population – namely the land-owning gentry, which included factory owners – were against any form of retaliation by the workers to suit their needs. The Combination Act of 1799 was passed under William Pitt the Younger, and prohibited any collective bargaining by British workers.

The rise of trade unions finally gave workers in Britain a voice from the gritty factories in which they worked

Expectedly, this saw widespread protest amongst the proletariat. The hostility grew and manifested itself into the 1820 rising, which saw 60,000 Scottish workers go on general strike, and even the Luddite movement, which saw English textile workers go one step further and destroy weaving machinery as a militant response to the Combination Laws.

When the government finally came to terms with the “unforeseen” upheaval, the Act was repealed in 1824 during the height of the industrial revolution. The rise of trade unions finally gave workers in Britain a voice from the gritty factories in which they worked.

What are their impacts in modern economy?

Fast forward to today’s world, economists agree that the activity of trade unions can distort market forces, which include the demand and supply of goods and services.

Therefore, when such unions are successful in bargaining for a higher wage, this may cause companies – especially those in highly competitive markets with multiple businesses competing for the same customers – to make redundancies in order to cater for these higher wages, in pursuit of maintaining profit margins.

If businesses decide to keep its workers and increase their wages, this would create “inefficiency”, and competitors would be at an advantage. They would have lower costs of production, particularly when labour fills the highest proportion of such costs, meaning they will produce the same good at a lower cost, giving them room to lower prices and therefore drawing in more customers who are incentivised by the lowest price for the same quality goods.

However, some economists advocate the efficiency wage theory, developed by Carl Shapiro and Joseph E. Stiglitz. This theory states that if a company pays a worker higher than average wage in the market, this will encourage the individual to become more productive, and therefore lower the cost per unit of whatever good is produced. Thus, the consequence of “inefficiency” is debatable.

What role do Trade Unions play in the current economy?

Recently, the University and College Union (UCU) has campaigned against and threatened industrial action over distasteful working conditions, insecure wages and the gender pay gap. Negotiations failed after the Universities and Colleges Employers Association’s (UCEA) pay offer was rejected.

As a result, a ballot has been opened to UCU members on 30 August (closing on 19 October). Voters have been advised to choose “yes”, in favour of strike action, which will affect 147 universities, including Warwick. Another year of lecture-less weeks may be upon us.

Speaking to The Tab, Sally Hunt, general secretary of the UCU, said: “Staff working in our universities have had enough of seeing their wages held down.

“The employers’ below-inflation pay offer does nothing to address years of decline in the value of pay in higher education and leaves us with no alternative but to ballot for industrial action.

“Universities need to make investment in staff a top priority and that means a decent pay offer and concrete commitments to tackle the gender pay gap and insecure employment.”