4.1.6.5 The influence of trade unions in determining wages and levels of employment Quiz: AQA Economics, Unit 1

The 20 questions

1. Trade unions can influence wages mainly by:

   • Negotiating with employers or threatening collective action to raise pay
   • Setting the national minimum wage by law
   • Controlling the supply of goods in the product market, which lets unions limit output so that firms sell fewer units at higher prices
   • Reducing the MRP of labour through productivity deals, which lower the value that each worker adds to the firm's output in each period

2. Which factor increases the ability of a trade union to raise wages?

   • A high elasticity of demand for the product made by workers
   • High union membership and a low elasticity of demand for the labour concerned
   • Easy substitution of workers by machines, since employers can then replace striking staff with equipment that needs no labour at all
   • A large pool of unemployed workers willing to replace strikers

3. The likely effect of a successful union wage rise in a perfectly competitive labour market is:

   • Employment is unchanged, since the wage rise is paid by government and so the employer's demand for labour does not change in any
   • Employment rises, because the MRP of labour falls with higher wages, which makes each additional worker cheaper to hire for the firm
   • Employment rises, since higher wages attract more firms into the market
   • Employment falls, since the wage now exceeds the MRP of marginal workers

4. In a monopsony labour market, a trade union can:

   • Reduce the wage below the monopsony level and cut employment
   • Raise both the wage and employment towards the competitive level
   • Make the monopsonist hire workers above their MRP permanently
   • Have no effect on employment under any circumstances

5. A union negotiates a wage above the competitive level in a perfectly competitive market where firms are price takers. What is the likely outcome?

   • A surplus of labour arises, creating unemployment
   • Employment rises as firms raise prices to cover wages
   • No unemployment, since firms absorb the wage rise
   • A shortage of labour arises, so firms hire more workers

6. Which factor affects the ability of trade unions to influence wages in different labour markets?

   • The elasticity of demand for labour in the industry concerned
   • The colour of the union's logo and the design of its branding
   • The number of unions in the country as a whole, which sets how many bargaining groups each employer faces
   • The age of the union's oldest member, since older unions have more experience of bargaining and so can always secure higher pay

7. A union's labour has a highly elastic demand. Its ability to raise wages is:

   • Limited, since a wage rise leads to large falls in employment
   • Strong, since employers cannot replace workers
   • Unlimited, since firms pass on all costs to consumers
   • Irrelevant, since elasticity does not affect wage negotiations

8. Why might a union's wage gain be partly offset in the long run?

   • Unions always reduce productivity to zero, so that every wage gain is lost through a fall in output in each period of production
   • Consumers always buy more when wages rise
   • Employers may substitute capital for labour or reduce hiring, so employment and profit adjust
   • Firms refuse to pay any wage above the minimum wage

9. A union's members work in an occupation with few substitutes, and the product has inelastic demand. The union's bargaining power is:

   • Irrelevant, since product demand does not matter to wages and bargaining power is decided only by the size of the union's membership
   • Equal to the national minimum wage
   • Relatively strong, since employers have limited options to replace labour
   • Relatively weak, since no substitutes exist for labour

10. Which strategy is most likely to strengthen a union's bargaining position?

    • Reducing membership to limit the number of negotiations
    • Agreeing to lower wages to attract new employers
    • Avoiding any contact with the employer
    • Securing high membership coverage across the industry

11. Employers in a monopsony pay wage W1 and hire L1. A union negotiates a higher wage W2, below MRP, and employment rises. This shows:

    • Monopsony power is irrelevant when a union is present
    • The union can offset monopsony power, raising employment towards the competitive level
    • Unions always cut employment whatever the wage
    • The monopsonist's power is increased by union bargaining

12. Evaluate the view that trade unions always benefit workers as a whole.

    • Unions never affect pay for workers outside the union
    • Unions raise pay for members but may reduce employment for others, so the overall effect depends on the market and coverage
    • Unions always benefit all workers equally, including the unemployed
    • Unions only affect product prices, not workers' wages

13. Which is an effect of trade union bargaining on wages in a competitive labour market?

    • Wages fall for all workers
    • Wages rise above the market-clearing level for union members, possibly creating unemployment
    • Wages are set equal to average product
    • Employment is unaffected in every case

14. A union's membership falls by half and its bargaining power drops. What is the most likely effect?

    • A permanent rise in MRP for all workers
    • A weaker ability to raise wages, as fewer workers can credibly withhold labour
    • A stronger ability to raise wages, since fewer workers compete for the same jobs
    • No change, since membership has no effect on bargaining

15. In a labour market with many unemployed workers, what most limits trade union influence on wages?

    • Unions have most power when many workers are unemployed
    • Unemployed workers are the union's main source of bargaining strength
    • Employers cannot replace striking workers under any circumstances
    • Employers can replace striking workers with unemployed workers, reducing the union's bargaining power

16. Introducing a trade union into a previously perfectly competitive labour market is likely to:

    • Raise the wage for members above the competitive level and reduce the number employed
    • Leave both the wage and employment unchanged
    • Increase employment while reducing the wage for all workers
    • Lower the wage for members below the competitive level and increase employment

17. Industrial action by a union is best described as:

    • An employer's decision to close a plant to reduce wages
    • A government action to fix wages across all industries
    • Individual workers negotiating pay privately with their employers, each on their own terms
    • Collective withdrawal of labour, such as a strike, used to press for better terms

18. If a union in a monopsony labour market secures the competitive wage, employment will:

    • Stay the same because monopsony power is unaffected
    • Rise above the competitive level permanently
    • Fall to zero because the monopsonist cannot pay that wage
    • Rise towards the competitive level, since the wage now equals MRP at that employment

19. Why might trade unions' effect on wages be harder to measure than it seems?

    • Union members have no effect on wages because the government sets them, so there is nothing to measure in the labour market at all
    • Union effects vary by industry, bargaining power and economic conditions, and other factors also change wages
    • Unions always have exactly the same effect in every market
    • Union effects are the same as the effects of a minimum wage, so economists can measure both with one simple test in every labour market

20. Which is a constraint on trade union power?

    • Guaranteed employment for all union members
    • Unlimited membership in every industry, which means that unions face no restriction on how many workers can join at any time
    • Legal immunity from any form of wage negotiation, so that unions can bargain freely with employers without any legal limits at all
    • Competition from non-union workers and the threat of employers moving production abroad

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