The labor movement was instituted primarily for the protection of the common interests shared by workers. For instance, in the United States, unions were developed primarily to ensure that workers received better wages, safe working conditions, and reasonable working hours. The primary target was the workers in the industrial sector. In spite of the initial intention of the unions, individuals in the contemporary society have different perceptions about the primary purpose of labor unions. One of the common stereotypes is that the average income of union members is higher than that of the non-union members. This presumption could give rise to the idea that unions are responsible for the rise of wage gaps, consequently leading to income inequalities. However, due to some unobservable factors, unions act as equalizers in terms of ensuring the reduction of the wage gap among the working class people.
It is essential to take note of the idea that the fundamental objective of trade unions is to maintain the terms and conditions under which workers provide their services. They do this through collective bargaining with the employers in different industries. Their bargaining strength is enhanced by the percentage of the workers that the unions represent, which is a provision that might lead to a high union wage premium (Hagedorn, Paras, Greenwich, & Hagopian, 2016). People normally assume that the mechanism unions use to develop their wage premiums is through their impact on the wages of covered workers through collective bargaining. However, it is essential to take note of the idea that the wage differentials between the union and non-union workers can occur through other methods.
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One of the ways through which the wage differentials can emerge is based on the provision that union-induced wage increases limit the entry of workers in the union sector. The occurrence might result in job cuts, which might increase the labor supply in the non-union sector. For this reason, the non-union sector is likely to reduce the wages relative to the wages given to the union workers. On the other hand, some employers would not wish for their workers to be unionized, which is a factor that might compel them to increase the wages they provide to their employees (Farber, 2003). This threat factor can also compress the wage differential between the union and non-union workers. The two examples provide compelling reasons that support the idea that unionization is not solely responsible for the income inequality among workers in different sectors, which is an indication that unionization acts as an equalizer in terms of the differences in wage gaps.
The foundation of the wage policies implemented by unions is guided by the need to pay fair wages for work done. In this case, the wages should not depend on the attributes of an individual worker but the job done (Hagedorn, Paras, Greenwich, & Hagopian, 2016). The standardization policy that also factors in the aspect of discrimination based on the race, disabilities, and the gender of a particular worker is vital for compressing the wage differentials among employees. However, regardless of the fact that unions might be guided by this principle, it is applicable to different types of workers as well as the degree of coordination during the collective bargaining process. The wage standardization principle can be appealing to workers that have low underlying potential for higher wages since they will be gaining more through unionization.
Even though unions have a potential causal effect on the wages of the unionized and non-unionized sectors, it would be difficult to isolate the causal effect on wages due to the counterfactual elements provided. In the absence of unions, it will be difficult to determine whether income inequalities will be present. Theoretically, Ehrenberg and Smith (2016) posit that the equilibrium effects of unions are likely to reduce or increase the aggregate income of workers in a particular economy. In this case, the presence of unions in a particular economy can alter the general level of wage distribution. For this reason, it would not be possible to estimate the wage differentials in an economy in the absence of unions (Ehrenberg & Smith, 2016). This difficulty can be a factor to consider when arguing that unions act as an endogenous factor with respect to the income workers receive.
In conclusion, it is essential to restate that unions act as equalizers in terms of ensuring the reduction of the wage gap among the working class people. A considerable number of economists and analysis contend that the presence of unions in an economy is one of the primary factors that lead to income inequalities. Even though the arguments they present might be related validate this analogy, other factors should be considered before arriving at this conclusion. The counterarguments presented include the aspect of unionization threats, whereby non-unionized employers increase their wages to avoid unionization. Conversely, wage increases induced by union might limit worker entry into the union sector, thereby increasing the labor supply for the non-unionized sectors. The non-unionized sectors might therefore lower their wages thereby creating the income inequality. However, it is important to point out that unions play a significant role in determining the wage gaps in an economy since they present an equilibrium framework upon which the causal element of income inequalities can be based.
References
Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy . Routledge.
Farber, H. (2003). Nonunion Wage Rates and the Threat of Unionization. Industrial And Labor Relations Review , 58 , 335-352. doi: 10.3386/w9705
Hagedorn, J., Paras, C. A., Greenwich, H., & Hagopian, A. (2016). The role of labor unions in creating working conditions that promote public health. American journal of public health , 106 (6), 989-995.
