An Introduction to Collective Bargaining and Industrial Relations

Q1. In a capitalist economic system like we are having in the modern society, the purpose of any enterprise is to maximize profits. This calls for minimization of production costs while maximizing production in a market guaranteed environment. However, labor unions have their principle duty of ensuring sustainable improvement of the working condition for its member. This implies that unions seek not only wage increments but also employment growth or sustainability. Therefore, the elasticity of demand for labor factors in influencing the bargaining power of a union (Katz. et al, 2008).

According to the principles of business management, an increase in wage rates increases the operational labor cost in the institution. This means that employees in the particular category will be using more of other inputs in the company. Still, with increased wages, the gross costs of production are bound to rise (Katz. et al, 2008). This demands for increases commodity prices, an element which results into reduced market andor production. Based on this reasoning, an employer will be forced to reduce the number of employees to match the companys wage capacity.

In a profit driven environment, higher labor cost share leads to increased wage elasticity of demand. This is however exceptional in businesses were substituting other factors of production to increased wages rather than increased product prices. This effect has two major implications in union bargaining power. First, unions can only realize large wages in an inelastic labor market. Secondly, unions will always act to reduce the wage elasticity demand of member services (Katz. et al, 2008). All these mean that the elasticity of demand for labor influences the bargaining power of a union.

Q2. Going on strike for wage increment is a basic right of employees in an organization. Nevertheless, the most fundamental consideration in executing a successful employee strikes is assessment of the companys profit potential to sustain wage increase. Increased wages tend to increase production costs, increase the market price of products and thus compromise product output (Katz. et al, 2008). However, the impact of such effects of wage increments can be effectively substituted by other factors of production.

If an employee strike does not increase the cost of other inputs such as raw materials and transport in the company, then the strike will be successful. Motivated employees have a higher production output, giving the company a competitive advantage. By increased productivity, the profit margins of the company are bound to hike thus compensating for the increased labor wage costs (Katz. et al, 2008).

Another factor is the market demand of the products. Production is tailored towards profits through marketing of products. Therefore, a companys customer base pool is quite crucial as it gives it a competitive advantage over others companies. With a guaranteed product market demand, wage increments are easily executed (Katz. et al, 2008). On the other hand, is the market competition is high, wage strikes might not be successful as it compromises the sustainability of the organization.

Also increased wages have the potential of increasing product prices. This means reduced market demand for products. Therefore, if a strike increases product prices, it leads to long run negative market effects on the products thus risking employment capability of the company (Katz. et al, 2008).  Lastly, companies with strong public reputation have a greater potential to successful strikes as employers will act in interests to protect their reputation.

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