A main goal of workers and unions is to achieve wage growth that outstrips increasing costs of living. We call this ‘real’ wage growth and it is necessary for improving living standards.
In the short-to-medium term, workers can achieve real wage growth by increasing the productivity of their labour, or by negotiating a larger share of GDP through collective bargaining. In the long-term, an economy can only sustainably achieve high real hourly wages if it also achieves high levels of productivity.
Trade unions can influence both the labour share and the productivity channels, to the benefit of workers. On one hand, unions increase the bargaining power of labour thereby enabling workers to negotiate a larger slice of the pie. At the same time, coordinated wage bargaining can impede cost competition strategies and encourage productivity enhancing measures, and in so doing push the economy towards a high wage and high productivity equilibrium.