Question

in what industries do labor unions play a significant role? how do labor unions affect unemployment?

Answer 1

The labor unions play a significant role mostly in the industries in which there is low wage rate,inequality in the wages,lack of some benefits related to the welfare of the workers, lack of ethics in the work places etc. With the help of the unionized labor, the labor unions are be able to improve the work place conditions,wage structures, recruit of new people in the industries,etc.

Labor unions are so powerful in fulfilling their demand, that may create unemployment in the market; i.e. supply of labors will be lower than the demand for labors. The labor unions’ main concern is about raising the wage rate and they may turn the labor market into a monopoly market where the labor unions are the only supplier of labors. By using their monopoly power, they refuse to supply the labors unless the wage rate is raised. When the demand for minimum wages is greater than the wage rate that the employers are willing to pay, it will create lower supply of labors or voluntary unemployment. When the wage rate rises, the demand for labor will decline that will create unemployment in the labor market.

The unemployment is not good for an economy.Sometimes the increase in labor productivity may reduce the unemployment rate.The labor unions may raise the labors’ productivity by motivating them, developing skills etc. If the labors become more productive, the marginal productivity of labor will rise and that will raise the wage rate as the equilibrium wage rate is determined where marginal productivity of labor equals the wage rate. As the marginal productivity of labor rises,the demand for labor which is determined by the marginal productivity of labor will also rise. This will cause a higher equilibrium wage rate and higher demand for labor that will reduce the unemployment.So the increase in labor productivity will not only raise the wage rate but will also decrease the unemployment.