Question

In: Economics

Explain and illustrate how unions may increase efficiencies in monopsonistic markets.

Explain and illustrate how unions may increase efficiencies in monopsonistic markets.

Solutions

Expert Solution

Labour unions are roganisation of workers to represent them collectively to the employers. they represent workers for issues of pay off and working condition and bargain for higher wages with the possibility of going on strike to target higher wages. These unions also co-ordinate with firms to implement new and better working practises. it is belief that trade unions generally reduce efficiency as they bargain for higher wages and  Lobour unions can lead to increased to efficiencies as they can push wages above equilibriumwage artes and cause unemployment . in a monopsony market the labor unions can counter balance the monopsony effect and cause efficiencies. In a monopsony market the employer can offe wages and even in a competitive labor market the employers can offer lower wages , which will discourage labors an reduce their productivity . this will als rduce their real income and demand and consumption will be low and so there will be low production an there will be overall inefficiency as firms will not be able to take benefits from economies of scale. the resources will not be efficiently utilised. The lower lwages will demotivate workers and cause unemployment.

The labour unions can bargain for higher wages which will counter balance the unfair wages. The unions will also bargain and demand for newer technology and better practices. they will also ask for better and halthier working conditon and this will increase productivity and output and lead to efficiency. These unions also bring employers and workers closer and establish better understanding and representation of interest and it also creates an ownership in workeers for companyn and comapny feels responsible for the intertest of the workers. The unions also represent workers issues in various tribunals. unions incrase job security and thus increase productivity of workers. the higher wages bargained by unions motivate workers for more participation and increase employment.

The increased wages and income will increase spending in the economy and increase consumption and demand and push the economic growth


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