The Bargaining Theory of Wages:
The bargaining theory of wages takes note of persuade of trade unions on wages via collective bargaining. According to this theory, the level of wages in an industry based on the bargaining strength of trade union concerned. The strength of a trade union based on many things such as the size of its membership, the size of its “fighting fund”, and its capability to cause displacement in the industry and the economy via strike. Throughout periods of full employment and good trade, trade unions will be in a strong position and during depression marked by bad trade and mass unemployment; trade unions will be in the weak position.
A trade union might increase wages by limiting the supply of labor. For illustration, it might insist that merely members of a trade union must be employed. This is termed as closed shop policy. It might threaten that it will go on strike when a minimum wage is not paid.
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