Bargaining Power of Unions
During the early to mid 1900s, many workers were extremely dissatisfied with their working conditions and income, so they formed labor unions and pushed employers and business owners to change their employment policies. As a result, workers saw a significant increase in wage and improvement in benefits during the time period. Within the last few decades, however, this trend has not persisted and the wage disparity between upper level executives and lower level workers has in fact been increasing. Some economists attribute this stagnation in employee income to the decline of unionization and consequent decrease in unions’ bargaining power. The article below further explores the possible correlation between the erosion of unionization and the lack of improvement in labor terms and conditions.
The relationship between an employer and employee is very much a sort of trade or bargain, so it is reasonable to examine a job market as a network of bargaining games. The options for the employer are all of the people applying for a job, and the options for the employee are all of the companies that are giving job offers. In this scenario, a company will often have far more job applicants, outside options, than an individual will have job offers, so an employer will usually hold much more bargaining power and thus hold the ability to dictate the working terms and conditions as well. By unionizing, workers decrease the number of outside options available to an employer, allowing them to increase their own bargaining power and to demand more of their employer.