Trade Unions and Real Wages (Chain of Analysis)

Here is an example of a chain of analysis on how a fall in trade union membership might affect real wages and employment in the labour market.

Evaluate the possible effects on the UK labour market of a decrease in trade union membershi

Chain of reasoning Point 1

One effect of falling trade union membership is that the reduced collective bargaining power of workers may lead to lower real wages 

This is because trade unions lobby on behalf of their members with employers for better real pay and conditions. 

If unions are less powerful, an employer with monopsony power might be able to take people on by offering reduced terms. 

They may pay workers a going wage rate less than would be the case if wages were set in competitive labour markets 

This is shown in my monopsony diagram where profit maximising employment level is E2 & MRPL = W2 but the wage on offer is only W3 

Wage W3 is below the value of marginal revenue product  of labour and suggests workers without trade union protection might be exploited