A union operating in an otherwise competitive market can raise the
wages of people who continue to be employed but only by reducing the
number of people employed. The competitive equilibrium is at the
wage is and employment is If a monopoly union enters this
market and sets a wage of a new equilibrium will be established at
The supply curve has become At the new wage employment
will be and there will be workers who would like to work but
whom the industry will not hire.
The wage can be achieved without generating a pool of unemployed
persons. To do so, the union must restrict entry into the occupation and
thus shift the supply curve to the left to Employment will again be
An alternative way to achieve the higher wage is to shift the supply curve
to the left, thereby securing the higher wage without creating
unemployment among the union’s membership. The union may do this
by restricting entry into the occupation by methods such as lengthening
the required period of apprenticeship and reducing openings for trainees.
The union could also shift the supply curve to the left by persuading the
government to impose restrictive licensing or certification requirements
on people who wish to work in certain occupations. The union might
even lobby the government to implement restrictive immigration policies
in an attempt to reduce the supply of labour to specific industries.
By restricting entry into the occupation or industry, unions can drive the wage above the
competitive level. As a result, the level of employment in the unionized industry will fall.Raising wages by restricting entry is not limited to labour unions. It
occurs, for example, with many professional groups, including doctors,
architects, engineers, and lawyers. By limiting enrollments in professional
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