Labor Markets and Collective Bargaining

The definition of "labor market" is the market in which workers compete for jobs and employers compete for workers. In labor market, wages, benefits and responsibilities of workers are bought and sold. The differentiating factor of labor market from the other markets is the fact that supply and demand rule is not applicable. In the old days, workers (slaves) were bought and sold just like products and therefore, labor market and product market showed major similarities. Since the rise of human rights, the slave issue has been solved and wages (and benefits) are used to compensate the hourly work of the worker. In spite of the rise of worker rights, there are still inequalities of strength between employees and the companies. If the definition of "labor market" is thought over, one can easily see the problem in the labor market. The companies are stronger; they can determine the rules of labor.

Trade Union official Mick O'Reilly on stage at May...

Trade Union mural, Islington

English: Members of the Service Employees Internat...

Since the companies are stronger and a single employee is defenseless against the whole company, new factors must be brought into the equation to balance the strength difference. The new factors are unions and collective bargaining. With unions, workers can unite and act stronger for demands. The employers, on the other hand, unite to form their own unions. In this picture, there is still inequality favoring the employers. The workers united; however, they still do not have the necessary tool or strength to negotiate their demands. Therefore, the ability to strike is given to the workers as a tool, while the employers are equipped with the lock-out option. With the unions and the new tools, the environment for collective bargaining is set.

With collective bargaining, the workers are stronger; workers form unions and unions make demands from the employers for the workers.