How can labour unions raise the wages and improve the working conditions of their members?
Unions gain market power by obtaining a legal monopoly on the provision of labor services to a particular firm or industry. Using this monopoly, they compel firms to provide wages, benefits and working conditions that are above the competitive wage. For example, if non-union plumbers earn $15 per hour in Alabama, a union might bargain with a large construction firm to set the wage at $25 per hour for that firm’s plumber. Such an agreement is however, valuable to the union only if the firm’s success to alternative labour supplies can be restricted. Hence, under a typical collective bargaining agreement, firms agree not to hire non-union plumbers, not to contract out plumbing services, and not to subcontract to non-union firms. Each of these provisions helps prevent erosion of the union’s monopoly lock on the supply of plumbers of the firm. In some industries, like steel and autos, unions will even try to unionise the entire industry so that firm A’s unionised workers need not compete wi
