The Gender Pay Gap and Trade Unions Question

Q) Assess the view that increased female membership of trade unions would be the most effective way to raise women’s earnings

A) A trade union is a group of workers that negotiate agreements with employers on behalf of the member employees to work towards better real incomes, working conditions and other major issues. The trade unions use the instrument of collective bargaining to raise power against large institution and work towards the mutual aims of their members. The issue of low female earnings (relative to those of males) has always been an underlying one in the economy, despite the Sex Discrimination Act which was introduced in 1975 (triggered by the negotiations between the female sewing machinists at the Ford Factory in Dagenham and Barbara Castle). This difference, referred to as the ‘Gender Pay Gap’, has definitely decreased over time but has been predicted by some economists to only close 170 years from now. In this essay, I shall evaluate how successful the actions of a trade union may be in closing this gap faster, and if there are better options to deal with the issue.wage 1

The first point to consider is what a trade union is capable of, and if this will help towards raising female earnings. The union is expected to push towards higher wages in exchange for the fee paid by members. But, according to basic economic theory, with higher wages comes higher unemployment – and unemployed workers are unlikely to pay the membership fee. This is illustrated on my diagram to the left as the trade union setting a ‘minimum wage’ of W ‘ above equilibrium which would cost employers more money in wage costs. therefore, the rise in production costs means the employers are likely to cut some of their workers off, which creates an excess supply of workers (unemployment) equal to LdLs. This could also be done by limiting supply of the workforce, through methods such as demanding longer qualification courses or operating a closed shop agreement. Closed shop agreements are where employers can only employ union member workers – which enhances union power, but is hard to put into practice. Evidently, this wouldn’t be effective overall because it would lead to less women being employed, but the union must question if a boost in female earnings is worth this.

wage 2However, it is possible for the actions of a union to result in an increase of both wage and employment. We shall look at these effects on a firm operating in a perfectly competitive market, because this market structure is more applicable to the diverse female work force than a monopoly situation. Assuming the firm is a profit maximiser, it would naturally be operating at a wage level of w1 on the above graph, and it would be employing L1 number of female workers. Here, a trade union can use their collective bargaining power to reach a mutual agreement with the firm which can increase labour surplus for both parties by setting a wage within the bargaining area W1W3. For example, if the union proposes a wage of W2 for the female workers, the firm would benefit from a surplus per work of A while the trade union doesn’t even have to sacrifice the level of employment. Realistically, the employer is likely to ask for a higher productivity level from the workers in return, although behavioural economics does raise the idea that a higher age usually leads to a more motivated and productive work force anyway. The success of this agreement would be shown by how far through the AB distance the firm operates at, and this is dependent on how well the union pitches the agreement. So, this diagram demonstrates how a trade union can help raise wages for females without adding to the level of unemployment.

However, the extent to which a firm will listen to a trade union is much dependent on the union power. This is determined heavily by the political position of the country, and if the party in power is supportive of trade unions. So, a trade union bargaining for higher wages would have been more successful under a liberal Government than for example, Margaret Thatcher. This, and the actions and bargaining skills of the actual union decide how important they are to firms.

Alternatively, it could be suggested that other methods are better for raising female earnings than the influence of trade unions. For example, the government could firmly introduce legislation and campaigns to ‘close the information gap’ because this wage discrimination is a type of labour market failure. This could be done by forcing employers to publish payroll an identify a gender imbalance in wages, which puts the culprit employers at risk of large fines, or addressing the maternity leave issue by increasing paternity leave allowance. When males step in to cover the childcare, females can return to work, work more hours and earn more money. It also ensures workplace flexibility is an important issue for men too. These are solutions to the absolute gap between wages, but it may be more efficient to solve the problem prior to this career stage. For example, the education system could help by encouraging more female youths into more academic STEM subjects that would lead to higher paid jobs, or introducing them to alternative career paths beyond the stereotypical service and care occupations that contribute towards the gap. This type of training and education is more a nudge policy that doesn’t require policing costs like implementing legislation. This would push women into higher paid occupations and avoid the overrepresentation in lower paid sectors.

The alternative to this intervention – either by trade unions or the Government – is to let the market operate naturally and leave the market forces to work this would probably result in a very slow (if any) closing of the pay gap but would ensure the market was running freely. Although this may appeal to free-market economists, I believe that the issue of low female earnings is a moral one which simply cannot be left untouched. This falls under the category of market failure, and evidently has led to a net welfare loss for females which needs to be corrected. I think that female earnings should be increased by a combination of legislation (which has been proven to be inadequate alone) and the help of trade unions. This will work towards a more long term fix to this underlying economic and moral problem.

written by Rachel Stanley

pictures from EconomicsHelp

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