Question

Q5 Explain the following statement: “Unions are both a consequence and a cause of internal labor markets.” Why might the presence of internal labor markets in a firm encourage unionization?

Answer 1

Unions are meant to take care of the needs of employees across firms.

While doing that, most firms might feel that they are being exploited by the employees as the unions gives them too much privilege.

Through internal trade markets, workers enjoy benefits such as job security and they get protection from arbitrary management decisions.

Labor markets provide incentives to workers for their new skills and their hard work.

This leads to the formation of labor markets.

Internal labor markets encourage unionizations for the following reasons.

Unions guarantee workers a greater sense of job security through collective bargaining unlike the labor markets. Unionization assures workers of high benefits and wages through negotiation skills, giving the unions advantage over individuals.

Unionization provides workers with a complaint channel.