Log in

PKSG Working Paper Series

Working Paper PKWP1615

Trades unions, real wages and full employment

August 2016

Mark Hayes

A core proposition of Keynes’s General Theory is that money wages do not determine real wages or employment at the aggregate level in a closed economy. What then is the macroeconomic role of trades unions in the determination of real wages and employment? What are the mechanisms through which bargaining power takes effect? The paper argues that trades unions play important roles in countering employer monopsony as well as in determining the non-wage terms and conditions of employment and the incidence of risk between capital and labour. In the former role, it is the money wage that is relevant, while the latter role is a factor in the determination of aggregate real income and profit, yet the aggregate real wage itself and the wage share are residuals. Trades unions have the potential to support the promotion of full employment with price stability as part of a policy of demand management through the adoption of co-ordinated wage bargaining institutions.

Keywords: Collective bargaining, wage co-ordination, income distribution

JEL classification: E23: Macroeconomics: Production E25: Aggregate Factor Income Distribution J30: Wages, Compensation, and Labor Costs: General J51: Trade Unions: Objectives, Structure, and Effects J52: Dispute Resolution: Strikes, Arbitration, and Mediation; Collective Bargaining

Download: Working Paper PKWP1615