Question

Even in the absence of collective bargaining, workers do have bargaining power that allows them to receive wages higher than their reservation wage. Each worker’s bargaining power depends both on the nature of the job and the economy-wide labor market conditions (taking into consideration the conditions of COVID 19 Quaratine).

1.) Suppose that for a given labor market condition, specific worker bargaining power throughout the economy increases. Identify at least 3 types of jobs whose bargaining power increased (because of COVID 19) and discuss what effect would this have on the real wage of your identified jobs in the short run? in the medium run?

Answer 1

Bargaining Power is the power of workers that allows them to receive wages higher than their reservation wage. They can bargain with their employer to pay them a higher wage.

With the outbreak of the COVID-19, there is shortage of labourers in the market due to lockdown and Quarantine. This has increased the bargaining power of the workers throughout the economy. But the three main types of jobs whose bargaining powers have increased are -

• Health workers such as Doctors, Nurses etc.
• Workers employed in Grocery Stores and Medical Stores.
• Workers engaged in cleaning tasks like- collecting garbages, brooming the streets and cleaning the public places.

Due to increase in the bargaining power in the Short-run their real wages may increase if they want, by putting pressure on the employer. But in the medium run, with increase in their income demand will increase which will lead to increase in price and hence with this rise in inflation rate their real wage will again come down to lower level because they can buy only smaller amounts of goods and services when prices increase.