Meaning of Trade Union:

A Trade Union has been defined as a continuous association of workers formed for the purpose of maintaining and improving their conditions of employment.

Their aim is not merely to fight against the wage-cuts but also to fight for higher wages. A temporary organisation or a mere strike committee cannot be considered a trade union. It must be a continuous association.

Functions of Trade Unions:

Trade unions perform, broadly speaking, two types, of functions:

(i) Fraternal or mutual-help functions; and


(ii) Militant or fighting functions.

The fraternal functions include organisation of indoor and outdoor games, dramatic clubs, arranging of lectures, running of schools, hospitals, etc. All these are intended to promote the general welfare of the working classes through their own efforts.

The militant functions of the unions refer to the struggle that they make against the employers for getting higher wages or for getting their grievances redressed. Strike is the weapon that they wield. This is a weapon of last resort. Sometimes the employers take up a very unreasonable and uncompromising attitude. No alternative is then left to the workers except to fight for their rights. Thus a strike becomes inevitable.

Trade Unions and Wages:


The question of wages has been, and still is, the main concern of trade unions. Labour leaders always believe that trade unions, by improving the bargaining power of labour, can raise wages. On the other hand, the classical economists argued that wages could be raised only at the expense of profits, and a fall in profits, by reducing industrial activity, would reduce demand for labour. Thus either wages must be reduced or unemployment must be faced. Trade unions, according to this view, cannot raise wages permanently. It is also pointed out that wages are determined by marginal productivity and the unions can have no influence in the matter. This however, is not the whole truth.

Trade unions can raise wages in the following ways:

(i) They can ensure that labour is paid the full value of its marginal productivity. Under perfect competition, no doubt, wages tend to equal the marginal productivity of labour. But competition, in real world, is not perfect. Hence wages do not come up to the marginal productivity level due to the weak bargaining power of labour. By improving the bargaining power of labour, the trade unions can raise wages up to the marginal productivity level.

(ii) Trade unions can improve the marginal productivity of labour itself in several ways:


(a) They force the employer to use more up-to-date appliances and organisation,

(b) They improve the efficiency of labour itself. This they do by fostering habits of sobriety, thrift and honesty and by helping the younger generation to acquire better education and training,

(c) Trade unions may also increase the marginal productivity of a particular group of labourers by restricting its supply.

(iii) Restricting Labour Supply:

The trade unions usually adopt a number of restrictive devices, e.g., forcing the government to pass immigration laws, pressing for the reduction of working hours, long apprenticeships, restricting entry to the union and not permitting non-union labour to work, and so on. The aim clearly is to raise wages by reducing supply of labour when demand for it remains the same. When men workers get higher wages and are able to support the family, women workers may withdraw or the workers may work short-time, preferring leisure Ho wages. If these wages are not paid, reduction in the supply of labour may raise the equilibrium wage rate.

There are special circumstances in which a particular set of workers can raise their wages by withdrawing their supply:

(a) When the demand for that group of labour is inelastic,

(b) The wages of the said group form a small proportion of the total cost of production of the commodity concerned, and

(c) The other factors of production are “squeezable.”


But it must be added that trade unions can succeed in raising ways if they are all-inclusive and if it is difficult for employers to import ‘black-legs’.

In the long run, however, if the employers are forced to pay too high wages, there is a danger that they may adopt labour-saving devices and the demand for labour may fall, thus bringing down wages.

(iv) Raising Standard Wage Rates:

Instead of putting restrictions on the supply of labour, modern trade unions fight for the raising of standard wage-rates. This is a very common method of raising wages adopted by the unions today. Once certain standard wage rates are accepted by a representative body of the industry, individual firms quickly fall in line.


(v) The trade unions can raise wages, because a large part of this rise can come about by squeezing the rent-element in the other factors of production and monopoly gains in other incomes.

(vi) It may also be argued that the raising of wages by the unions will not necessarily discourage investment. Today the bulk of investment comes not from individuals but from big corporations which usually maintain the level of investment but reduce dividend to shareholders when their income fails. Trade unions can raise wages if they are all-inclusive and if it is difficult for employers to import ‘black-legs’.

Consequences of Trade Union Action:

We may note certain implications of wage fixation by trade unions: By imposing a high wage on the employers, a trade union pay prevent undue expansion of an industry when the only attraction to the new firms was the prevalence of a low wage. But it may also cause unemployment by insisting on a wage which is beyond the capacity of the industry to bear. Some employers will be forced out and others will contract output. In both cases, some labour will be discharged.

The movement of the discharged labour into other industries will depress wages there. Restrictions on admission to a union are unfair and smack of monopoly, and monopoly of wage levels is as bad as monopoly of price levels. If a trade union can wrest monopoly profits from a monopolist, it is all right. The proper function of a trade union is to stop or prevent exploitation, and when it goes beyond it, it is bad.