LABOR ORGANIZATIONS AND WAGES

Unionism and Labor Union

Unionism refers to the policies and practices of labor unions, particularly those concerned with
protecting and furthering the rights of workers (Oxford Languages). A labor union is an
organization formed by workers in a particular trade, industry, or company to fight for employee
rights and protections. It is organized for the purpose of improving pay, benefits, and working
conditions. Officially known as a “labor organization,” and also called a “trade union” or a
“workers union,” a labor union selects representatives to negotiate with employers in a process
known as collective bargaining. When successful, the bargaining results in an agreement that
stipulates working conditions for a period of time.

Labor unions have a democratic structure, holding elections to choose officers who are
charged with making decisions that are beneficial to the members. Employees pay dues to the
union and, in return, the labor union acts as an advocate on the employees’ behalf. Labor
unions are often industry-specific

To form a union, a locally based group of employees obtains a charter from a national-level
labor organization. Nearly all unions are structured and work in similar ways. Law requires an
employer to actively bargain with a union in good faith; however, the employer is not required
to agree to any specific terms. Multiple negotiation rounds are conducted between the union’s
bargaining unit—a group of members whose duty is to assure that its members are properly
compensated and represented—and the employer.

Labor Unions are important because they allow workers to come together in a powerful,
collective voice to communicate to management their dissatisfaction and frustration. Better
terms and conditions are rewarded to the workers because trade unions negotiate for their
members through collective bargaining agreements and protect them from “unfair”
management practices. Unions fight for equal opportunities in the workplace. They can also
offer legal services and advice to workers experiencing problems at work.

Unfair Labor Practice

1. What is unfair labor practice (ULP)?

ULPs are offenses committed by the employer or labor organization which violate the
constitutional right of workers and employees to self-organization. ULP acts are inimical to the
legitimate interests of both labor and management, disrupt industrial peace and hinder the
promotion of healthy and stable labor-management relations. (Art. 248 of the Labor Code, as
amended)

2. What is the nature of ULP?

ULP is not only a violation of the civil rights of both labor and management, but also a criminal
offense against the State. Criminal ULP cases may be filed with the regular courts. No criminal
prosecution may be instituted, however, without a final judgment from the NLRC that an unfair
labor practice was committed.

3. What are some of the ULPs committed by an employer?

ULP by management are as follows:

a) Requiring as a condition of employment that a person or an employee shall not join a labor
organization or shall withdraw from one to which he belongs;

b) Contracting out services or functions being performed by union members when such will
interfere with, restrain, or coerce employees in the exercise of their right to self-organization;

c) Discrimination as regards to wages, hours of work, and other terms and conditions of
employment in order to encourage or discourage membership in any labor organization; and

d) Dismissal, discharge, prejudice or discrimination against an employee for having given or

being about to give testimony under the Labor Code. (Art. 248, 249 of the Labor Code, as
amended)

4. What are some ULPs committed by labor organizations?

A labor organization commits ULP by any of the following violations:

a) Restraint or coercion of employees in the exercise of their right to self-organization: However,

the labor organization shall have the right to prescribe its own rules with respect to the
acquisition or retention of membership; and

b) Causing or attempting to cause an employer to discriminate against an employee, including

discrimination against an employee with respect to whom membership in such organization has
been denied or terminating an employee on any ground other than the usual terms and
conditions under which membership or continuation of membership is made available to other
members.

5. What are ULPs committed by both employers and labor organizations?

ULPs by both management and labor organizations are as follows:

a) Interference, restraint, or coercion of employees in the exercise of their right to self-

organization;

b) Violation of a collective bargaining agreement, when circumstances warrant;

c) Initiating, dominating, assisting or otherwise interfering with the formation or administration of
any labor organization, including the giving of financial or other support to it or its organizers or
supporters;

d) Violation of the duty to bargain collectively; and

e) Payment by employer of negotiation or attorney’s fees and acceptance by the union or its
officers or agents as part of the settlement of any issue in collective bargaining or any other
dispute (Art. 248, 249 of the Labor Code, as amended).

Collecting Bargaining: Goals and Purposes

The term collective bargaining refers to the negotiation of employment terms between an
employer and a group of workers. Employees are normally represented by a labor union during
collective bargaining.

The terms negotiated during collective bargaining can include working conditions, salaries and
compensation, working hours, and benefits. The goal is to come up with a Collective
Bargaining Agreement (CBA) through a written legal contract. It is the result of extensive
negotiation process between the parties.

According to the International Labor Organization, collective bargaining is a fundamental right

for all employees.

After signing the CBA, an employer cannot change the agreement without a union
representative’s approval; however, CBAs eventually expire, at which time the labor union and
management must negotiate and sign a new agreement.

Wages

“A wage may be defined as the sum of money paid under contract by an employer to worker for
services rendered.” -Benham

“Wages is the payment to labour for its assistance to production.” -A.H. Hansen

‘Wage rate is the price paid for the use of labour.” -Mc Connell

“A wage is price, it is the price paid by the employer to the worker on account of labour
performed.” -J.R. Turner

Types of Wages

1. Nominal or money wages are the payments done to workers in money form and do not
take account of inflation rates and any other market conditions. For example, if a worker
 receives $15 per hour in exchange of the services or labor provided, then that is the
nominal wage.

2. Real wages are the type of wages that take inflation rates into consideration. These
wages determine the purchasing power the individual has and the amount of goods or
services the individual can purchase given the current market conditions. In other words,
it can also be defined as the actual amount of goods and services the employee can
purchase with the payments given after inflation has been considered.

Distinction between Real and Money Wages:

Adam Smith has distinguished the money wages and real wages on the following basis:
1. Relation with Price:
Keeping all other things constant, there exists inverse relation between real wages and price i.e.
with the increase in price level real wages tend to decline and vice-versa.

2. Money and Real Wages:

Ceterus paribus, an increase in money wages will lead to an increase in real wages. It is due to
the reason that with the increase in money wages, a labourer can purchase more goods and
services than before.

3. Basic Difference:
According to Adam Smith, money wages are paid in terms of the quantity of money whereas
real w ages are paid in terms of necessaries of life. Therefore money w ages are expressed in
terms of money and that of real wages in terms of goods and services.

Determinants of Wages

1. Supply and demand of labor

Paying higher wages if the labor supply is scarce; and lower wages when it is excessive.
Similarly, if there is great demand for labor expertise, wages rise; but if the demand for
manpower skill is minimal, the wages will be relatively low.

2. The organization’s ability to pay

Companies that have good sales and, therefore, high profits tend to pay higher wages than
those which running at a loss or earning low profits because of the high cost of production or
low sales. In the short run, the economic influence on the ability to pay is practically nil.

3. Prevailing market rate

This is also known as the ‘comparable wage’ or ‘going wage rate’. Compensation policies
generally tend to conform to the wage-rates payable by the industry and the community. This is
done for several reasons. First, competition demands that competitors adhere to the same
relative wage level. Second, various government laws and judicial decisions make the adoption
of uniform wage rates an attractive proposition.
Third, trade unions encourage this practice so that their members can have equal pay equal
work and geographical differences may be eliminated. Fourth, functionally related firms in the
same industry require essentially the same quality of employees, with the same skills and
experience. This results in a considerable uniformity in wage and salary rates.

4. Cost of living

The cost-of-living pay criterion is usually regarded as an automatic minimum equity pay
criterion. This criterion calls for pay adjustments based on increases or decreases in an
acceptable cost of living index. When the cost of living increases, workers and trade unions
demand adjusted wages to offset the erosion of real wages.

5. Trade union’s bargaining power

Trade unions do affect rate of wages. Generally, the stronger and more powerful the trade
union, the higher the wages. A trade union’s bargaining power is often measured in terms of its
membership, its financial strength and the nature of its leadership. A strike or a threat of a strike
is the most powerful weapon used by it. Sometimes trade unions force wages up faster than
increases in productivity would allow and become responsible for unemployment or higher
prices and inflation.

6. Productivity
Productivity is another criterion, and is measured in terms of output per man-hour. It is not due
to labour efforts alone. Technological improvements, better organisation and management, the
development of better methods of production by labour and management, greater ingenuity and
skill by labor are all responsible for the increase in productivity.

Productivity measures the contribution of all the resource factors-men, machines, methods,
materials and management.

7. Job requirements

Generally, the more difficult a job, the higher are the wages. Measures of job difficulty are
frequently used when the relative value of one job to another in an organization is to be
ascertained.

8. Managerial attitude

These have a decisive influence on the wage structure and wage level since judgment is
exercised in many areas of wage and salary administration—including whether the firm should
pay below average, or above average rates, what jobs factors should be used to reflect job
worth, the weight to be given for performance or length of service, and so forth, both the
structure and level of wages are bound to be affected accordingly.

Major Theories of Wages

1. Subsistence Theory of Wages:
The subsistence theory of wages, advanced by David Ricardo and other classical economists,
was based on the population theory of Thomas Malthus. It held that the market price of labour
would always tend toward the minimum required for subsistence. If the supply of labour
increased, wages would fall, eventually causing a decrease in the labour supply. If the wage
rose above the subsistence level, population would increase until the larger labour force would
again force wages down.

2. Surplus Value Theory

Surplus value is defined by Marx as the difference between the value that living labor creates in
production and value paid by the capitalist to the worker in the form of wages. “Surplus value is
nothing but the excess amount of labor the worker gives over, above the amount of materialized
labor that he receives in his own wages as the value of his labor power” (Marx, ibid., vol. 47, pp.
190–91). This means that the value of the product produced by labor is greater than the
actual price of labor as paid out in wages. The difference between the two (surplus value)
is confiscated by the capitalist (owner).

3. Wages Fund Theory:

This theory was developed by Adam Smith (1723-1790). His theory was based on the basic
assumption that workers are paid wages out of a pre-determined fund of wealth. This fund, he
called, wages fund created as a result of savings. According to Adam Smith, the demand for
labor and rate of wages depend on the size of the wages fund. Accordingly, if the wages fund is
large, wages would be high and vice versa.

4. Residual Claimant Theory:

This theory was propounded by Francis A. Walker (1840-1897). According to Walker, there are
four factors of production or business activity-- land, labor, capital, and entrepreneurship. He
views that once all other three factors are rewarded what remains left is paid as wages to
workers. Thus, according to this theory, worker is the residual claimant.

5. Marginal Productivity Theory of Wages:

A theory developed at the end of the 19th century by a number of writers, including John Bates
Clark and Philip Henry Wicksteed, who argued that a business firm would be willing to pay for
the factors of production only if he adds to the firm’s well-being or utility; that it is clearly
unprofitable to buy, for example, a man-hour of labor if it adds less to its buyer’s income than
what it costs.
6. The Bargaining Theory of Wages

The bargaining theory of wages holds that wages, hours, and working conditions are
determined by the relative bargaining strength of the parties to the agreement. Smith hinted at
such a theory when he noted that employers had greater bargaining strength than employees.
Employers were in a better position to unify their opposition to employee demands, and
employers were also able to withstand the loss of income for a longer period than could the
employees. This idea was developed to a considerable extent by John Davidson, who proposed
in The Bargain Theory of Wages (1898) that the determination of wages is an extremely
complicated process involving numerous influences that interact to establish the relative
bargaining strength of the parties.

7. Behavioral Theories of Wages

Based on research studies and action programmes conducted, some behavioral scientists have
also developed theories of wages. Their theories are based on elements like employee’s
acceptance to a wage level, the prevalent internal wage structure, employee’s consideration on
money or wages and salaries as motivators.

It has been found that wages are determined by such factors as size and prestige of the
company, strength of the union, the employer’s concern to maintain the workers, contribution by
different kinds of workers, etc.
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