Trade Unions and Collective Bargaining

Trade unions are organisations of workers that negotiate with employers over wages, working conditions, and other terms of employment. Their role in the labour market has been one of the most debated topics in economics and politics — particularly in the UK, where union membership and influence have undergone dramatic change since the 1970s.

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What Is a Trade Union?

Key Definition: A trade union is an association of workers formed to protect and advance the interests of its members through collective bargaining with employers and, where necessary, industrial action.

Types of Trade Unions

Type	Description	Example
Craft union	Represents workers with a particular skill or trade	Musicians' Union
Industrial union	Represents all workers in a specific industry	National Union of Mineworkers (NUM)
General union	Represents workers across many industries and occupations	GMB, Unite the Union
White-collar/professional union	Represents professional and office workers	British Medical Association (BMA), National Education Union (NEU)

In practice, many modern unions are conglomerate unions — formed by mergers of different types. Unite (formed from Amicus and the T&GWU in 2007) is the UK's largest union with approximately 1.2 million members covering manufacturing, transport, health, construction, and public services.

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Trade Union Membership in the UK

Trade union membership in the UK has declined dramatically since its peak:

Year	Union Members (millions)	Density (% of workforce)
1979	13.2	55.8%
1990	9.9	38.1%
2000	7.3	29.4%
2010	6.5	26.6%
2023	6.3	22.3%

Source: BEIS Trade Union Statistics (various years)

Reasons for Declining Membership

1. Deindustrialisation — The shift from manufacturing (heavily unionised) to services (less unionised). UK manufacturing employment fell from 7 million in 1979 to under 2.7 million in 2023.
2. Anti-union legislation — The Conservative governments of 1979–1997 introduced a series of laws restricting union activity:
   • Employment Act 1980 — restricted secondary picketing
   • Employment Act 1982 — made unions liable for unlawful industrial action
   • Trade Union Act 1984 — required pre-strike ballots
   • Employment Act 1990 — banned the closed shop
   • Trade Union Act 2016 — required a 50% turnout threshold for strike ballots, and 40% support threshold in "important public services"
3. Growth of the service sector and gig economy — Small, dispersed workplaces (cafes, shops, delivery platforms) are harder to organise than large factories.
4. Increased labour market flexibility — Zero-hours contracts, agency work, and self-employment make unionisation difficult.
5. Individualisation — Younger workers may prefer individual negotiation or see unions as irrelevant.
6. Free-rider problem — Non-members benefit from union-negotiated pay and conditions without paying subscriptions, reducing the incentive to join.

Exam Tip: When discussing declining union membership, avoid simply listing reasons. Instead, evaluate which factors are most significant. The structural shift from manufacturing to services is arguably the most important long-run factor, while legislation was the key short-run trigger in the 1980s.

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How Trade Unions Raise Wages

Model 1: Union Restricts Labour Supply

If a union can control entry to an occupation (e.g., through closed shops, apprenticeship requirements, or professional licensing), it restricts the supply of labour, shifting the supply curve leftward. This raises the wage but reduces employment.

This was more common historically — the closed shop (where all workers in a firm had to be union members) was banned by the Employment Act 1990.

Model 2: Union Sets a Wage Above the Equilibrium

A union uses collective bargaining to negotiate a wage above the free-market equilibrium. The wage becomes a floor — the supply of labour becomes perfectly elastic at the union wage up to the point where it meets the original supply curve.

Result: The wage rises from W* to W_u, but employment falls from L* to L_u, and there is an excess supply of labour (more workers want to work at W_u than firms want to hire).

Model 3: Union Negotiates with a Monopsonist (Bilateral Monopoly)

When a union negotiates with a monopsony employer, the situation is a bilateral monopoly — a monopoly seller of labour (the union) facing a monopsony buyer (the employer).

Key Definition: A bilateral monopoly exists when a monopoly supplier (union) faces a monopsony buyer (employer). The outcome is theoretically indeterminate — it depends on the relative bargaining strength of each side.

In this case, the union can potentially raise wages without reducing employment — and may even increase employment — because the monopsonist was already restricting employment below the competitive level. The union wage effectively creates a horizontal segment in the firm's labour supply curve, making MCL = ACL = W_u up to a certain employment level.

This is one of the most important results in labour economics: a union can correct monopsony exploitation.

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The Impact of Trade Unions

Positive Effects