The most common demands for trade unions are for higher wages and better working conditions. However, pensions have become an increasingly important issue that many public-sector workers in particular have raised concerns over. While actions by trade unions have been less frequent and public in recent months, the Public and Commercial Services Union (PCS) has voted to strike.
The labour market works like any other market – there is a demand for and supply of labour. The intersection of the demand and supply of labour give the equilibrium wage rate and equilibrium number of workers. Trade unions may aim to push up the wage rate above this equilibrium and the impact on the number of workers employed will depend on the type of labour market. If we have a competitive labour market, then the increase in wage will create an excess supply of labour: that is, unemployment. This is often a choice a trade union has to make. However, if the market is a monopsony, then it is possible for a trade union to force up wages and yet there may not be any fall in the number of workers employed.
Pay is just one of the issues being raised by the PCS. Public-sector pay was frozen for two years for those earning above £21,000. According to the Cabinet Office, this was necessary to ‘protect jobs in the public sector and support high quality public services.’ A 5% pay rise has been requested to counter an alleged 7% fall in earnings since 2008. 61% of those who voted in the ballot were in favour of strike action. Other concerns include job losses and pensions.
One concern of the PCS will be the low turn-out. Only 28% of the union’s members voted in this ballot and this is likely to weaken the union’s bargaining position. The government has monopsony power in employing civil servants and this is one of the reasons why a powerful trade union is likely to emerge: it acts to reduce the power of the monopsonist employer. Negotiations will typically take place between the employer and the trade union and with such a low turn-out, the power is certainly with the government. However, with the threat of strike action to occur around the time of the Budget, this does present something of a concern for the government, especially with growth remaining weak and the loss of the AAA rating.
Two separate pay offers have been made to 1.6 million public-sector workers, but Unison has suggested that members of PCS should reject them. If headway is not made in negotiations between PCS and the government, then strike action could be just around the corner. The following articles consider this looming industrial action.
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Questions
- Use a diagram to illustrate a competitive market for labour and show how a trade union will aim to push up the wage rate. Show why a trade-off exists between the higher wage and the number of workers employed.
- Illustrate a diagram showing a monopsony and explain why the MC curve exceeds the AC curve. Why is it possible for a trade union to force up wages without creating a decline in the equilibrium number of workers employed?
- What other actions, besides striking, are available for trade union members? What are the costs and benefits of each relative to striking?
- Which factors, besides a low turn-out in the ballot, will reduce the trade union’s negotiating power?
- Public-sector pay was frozen for two years. If the government accepted the trade union’s pay demands, what would be the impact on the budget deficit? Could the higher pay help boost economic growth by creating a multiplier effect?
You can hardly have failed to miss the snow! From children sledging to cars skidding and from being snowed in from work to being snowed in at work. In the UK, it only happens once in a while and when it does, life practically comes to a standstill. Why is this not the case in countries such as Norway? Well, one way of looking at it as that they’re used to it and have tried and tested methods of dealing with it and the investment to match. As we suffer from these severe conditions only once in a while, any significant investment in improving our ability to deal with it could be considered a waste of money.
However, many businesses affected by the snowy conditions will certainly not see it this way. Transport links have been disrupted: roads closed; trains stopped; airports closed; tunnels blocked and sports fields unplayable. The worst affected city centres have been deserted and retailers have subsequently suffered. Even if shoppers had made it to the shops, they may have found many of them closed, as staff struggled to make it in to work across the country. Office workers were being advised to work from home where possible and off-duty medical staff that could make it in to work were covering for those that couldn’t. Even emergency services were said to be going out only to life threatening situations.
Small businesses are suffering from declining sales, as deliveries cannot be made. Farmers too are facing major problems. Thousands of livestock are being frozen to death and many animals are without food, as farmers simply can’t get to them, suffering from snow drifts that have been up to 4 feet deep across Scotland. These are the worst conditions that some areas in Scotland have experienced in 50 years and they’re expected to continue for some time. Cattle farmers in the UK are also facing wasting thousands of litres of milk, as lorries find they cannot access the farms. This could simply mean pouring all this milk down the drain.
Estimates suggest that this cold winter could cost the UK economy £14.5bn in total from lost business. Daily costs will be about £690 million – certainly something that we don’t need in the current climate – financial that is! The following articles look at some of the problems faced across the UK. Read them and then think about the questions below.
Hundreds stranded as Eurostar train breaks down in channel tunnel again Mail Online, Peter Allen (7/1/10)
UK snow freezes transport links and thousands of schools (including video) Guardian, Peter Walker and Steven Morris (6/1/10)
Snowed in, out of pocket. Store staff face a wage freeze Guardian, Caroline Davis and John Stevens (6/1/10)
Livestock being frozen to death in their thousands Scotsman, Frank Urquhart, Alastair Dalton and Mark Smith (7/1/10)
Heavy snow damages business for hospitality industry Big Hospitality, Becky Paskin (6/1/10)
UK’s snowy winter could cost the economy £14.5bn Metro Reporter (7/1/10)
Business leaders criticise school closures BBC News (7/1/10)
Snow puts business continuity plans to the test Computer Weekly, Warwick Ashford (7/1/10)
Freezing weather will cost Welsh economy £25m a day Western Mail, David James (7/1/10)
Snow brings chaos – and beautiful scenes Cotswold Journal (7/1/10)
Local firms count the cost as the big chill continues Belfast Telegraph (7/1/10)
Is snow actually good for the economy? BBC Magazine, Anthony Reuben (15/1/10)
Businesses affected by bad weather BBC News (8/1/10)
Questions
- How have businesses been affected by the snow? Is opportunity cost relevant here?
- How is a cost of £14.5bn calculated? (See the article from Metro Reporter.)
- What are the arguments (a) for and (b) against more investment in techniques and equipment to combat these type of conditions?
- Why are pay freezes a possibility for some staff? Illustrate and explain the likely effects of this policy.
- Some shops have seen record sales in this snowy weather, with their shelves completely empty. Which shops would you expect to be in these circumstances and why? (See news item, A new concept for you – Thermal elasticity of demand)
- Which sector of the economy do you think will be the worst affected and why? Which sector’s losses are likely to have the biggest consequences for the UK economy?
You may ask how on earth bins are related to the post. The simple answer is that these are two things that may not be collected. They say that one wedding brings on another, but it looks like that this also applies to strikes. The Winter of Discontent in 1978-9 saw widespread industrial action, where the country almost came to a stop. Is this really where we are now?
The postal strike has been widely publicised, but it’s not just your post that may not arrive. Bus drivers have been striking against First Bus in Greater Manchester and various other places following pay freezes. British Airways is to face the possibility of strike action over new contracts, working practices and pay freezes after talks broke down. The Spanish company Iberia had to cancel over 400 flights over two days due to protests, and in Leeds, rubbish hadn’t been collected for eight weeks.
So, what’s causing all of this discontent? Are we going to see more and more workers protesting over contracts, hours of work and notably pay?
One key thing about strikes is that they affect everyone, whether it’s walking past piles of bin bags; not receiving birthday cards; getting to work late; cancelling holidays or receiving fines for late payment, and even for not submitting your tax returns. These are all problems that people have been facing, not to mention the loss of income some businesses have seen, especially resulting from the postal strike. With the government looking to reduce public-sector debt by increasing taxes or spending cuts, including public-sector pay freezes and controls on banking bonuses, we could be in for another winter of discontent with further disruptions to come.
Articles
Questions
- What is the purpose of a strike and how effective are they likely to be? What are the costs?
- One of the reasons for strike action is pay freezes. What happens in an individual labour market when pay is frozen? What happens to the demand and supply of labour? Illustrate your answer with a diagram.
- Some news articles have referred to ‘picket lines’ forming. What are they?
- What is the difference between collective bargaining and individual bargaining? Which is more effective?
- Illustrate on a diagram the effect of a trade union entering an industry. How does it affect equilibrium wages and equilibrium employment? Is there any difference if the trade union faces a monopsonist employer of labour?
- Do you think the strike action is right? Why or why not? What are the things you have considered?
- Discuss whether we are heading towarads another ‘winter of discontent?’ Can it be stopped?