A labor union is an organization of workers who have banded together to achieve common goals. The primary activity of the union is to bargain with the employer on behalf of union members and negotiate labor contracts. The most common purpose of associations or unions is maintaining or improving the conditions of employment, which may include the negotiation of wages, work rules, complaint procedures, promotions, benefits, workplace safety, and policies.
In order to achieve these goals unions engage in collective bargaining: the process of negotiation between a company's management and a labor union. When collective bargaining fails, union members may go on strike, refusing to work until a firm addresses the workers' grievances.
Union Impacts on Equilibrium
Fundamentally, unions seek higher wages for its member workers (though, here "wages" encompases all types of compensation, not just cash paid to the workers by the employer).
The effect of unions on the labor market equilibrium can be analyzed like any other price increase. If employers (those who demand labor) have an inelastic demand for labor, the increase in wages (the price of labor) will not translate into a drop in employment (quantity of labor supplied). If, however, their demand is elastic, employers will simply respond to union demands for higher wages by hiring fewer workers.
However, the reality of unions is more complex. As an organized body, unions are also active in the political realm. They can lobby for legislation that will affect the market not only for labor, but also for the goods they produce. For example, unions may advocate for trade restrictions to protect the markets in which they work from foreign competition. By preventing domestic firms from having to compete with unrestricted foreign firms, they can ensure that consumers do not have lower cost alternatives which would drive employers who pay a higher union wage out of business.
Union Members Strike
One tool that unions may use to raise wages is to go on strike.