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Chapter One


1.1 Background of the study

In every market there is some commercial activity where by goods and services are bought and sold. And the labor market is no exception; here the buyers are employers and the sellers are workers.  The circumstances under which employers utilize labor services constitute a market. In labor markets, individuals may be employed to perform a specific task for certain periods of time. More commonly, the word job implies some type of ongoing relationship between the employer and the employee.

The wage issue features high on the agenda of collective bargaining sessions as a major priority problem. It is also directly or indirectly reflected in practices such as workforce downsizings, wage reductions and outsourcing by firms to firms, regions or countries where wages are lower. It should be noted, however, that the wage issue deserves due consideration if employers want to develop a highly qualified workforce and where firms aim to improve the performance of their employees as well as to promote their commitment to the workplace. A fair and balanced wage structure is also necessary for enhancing the morale of workers, to create a favorable organizational culture as well as to establish harmonious relations with labor unions. The establishment of a sound compensation management system is a vital human resource management function which contributes to effective managerial practices and to the satisfaction of needs of all interested parties concerned. It is also a driving force in the achievement of competitive economic advantage in international trade.


Our world is changing. This change is forcing all systems and societies. The driving force of this change is the human factor. First of all, the change of the human being is of interest. The process of development in the change of human beings forms also the dynamics of social change. Associations, unions, political parties must be the motivating force of the change. But they face difficulties in this process. This process may make organizations and individuals confront each other as opponents.


Organizations and individuals who are working in those organizations also represent the labor market. Labor market involves an analysis of the demand for and supply of labor. Ehrenberg (2003: 424) provides a good definition of labor market, “on the demand side there are employers whose decisions about the hiring of labor are influenced by conditions in product, capital and labor markets. On the supply side of the labor market are workers and potential workers whose decisions about where to work prevail.” Most people have been pursuing the goal to earn money in terms of engaging in some sort of work. Accordingly, workers’ skills can also be considered as assets, since skills can be rented out to employers for a price. It is important to denote how much labor is employed and at what price. The role of labor unions come into play by changing the labor supply conditions and the environment of the labor market. As noted by Segal (1964: 96), “people view unions as the major means by which working persons can improve their economic status within the concept of equity.” Unionization and human resource management are combined with the policies advocated by consultants for employers. Union practices, concepts of equity, as well as wage rates, all have an influence on nonunion employers. Ehrenberg (2003: 425) proposes that unions do not unilaterally determine wages; collective agreement is bilateral. For that reason, it is important to investigate the special nature of union wages and employment policies.


However, union power has been changing. According to Sloane and Whitney (2004: 12), in the face of the management enmity, on the other hand, unionism has shown absolutely no strong tendency to retreat. However, it is true that owing primarily to the inroads of changing technology and the resulting employment decline, as well as to changing market demands affecting manufacturing, organized labor has lost some of its membership in recent years, both in absolute and in relative terms. And, despite some arguments that the fast-growing white-collar sector will soon become more hospitable to collective bargaining, it is equally true that union penetration in this area thus far has fallen considerably short of its potential. As the nature of the labor force changes everywhere, whatever one can speculate about the problems awaiting unionism, collective bargaining and labor unions are here to stay.


If one side feels uncertain about the others key objectives, it may feel impelled to probe the relationship. If management’s suspicions were not put to test by the unions response at the bargaining table, the employer might be tempted to push the issue to an impasse. Thus anything that creates uncertainty about bargaining positions increases the probability of interruption at the negotiation stage. In collective bargaining, the potential costs of an impasse can be substantial for both parties.


The aim of the collective bargaining process focuses on the likely division of costs and benefits between management and employees; using certain criteria will enable a union to win a concession from the management during collective bargaining. In my thesis I will try to define and clarify the effect of the collective bargaining criteria in wage determination.

 1.2 Problem statement

Once a relationship has begun, it would be difficult for workers or management to agree on precise formulas that will determine wage payments indefinitely into the future. There may be understandings that future wage determinants will be fair by establishing uniform wage policies. Management can limit its vulnerability to exploitation by refusing to haggle, but this creates uncertainty. What could be more objective and fairer in the eyes of workers and management might be wage decisions made by other employers or movements in the CPI (Consumer Price Index).

The fairness criterion may not only be determined by wage determination criteria but should also explain the preferences for flexibility in employment and working hours rather than for merely wage adjustments to cyclical movements in demand. The criteria traditionally employed by wage determination authorities can be grouped into three broad categories: (i) to maintain worker’s real income, (ii) the employers’ capacity to pay; (iii) wages or incomes elsewhere in the economy and the increase in the national output.

In order to throw light on effective wage determination in achieving its objectives, its consequences must be examined more closely by wage determination authorities. Wages actually paid, affect productivity and costs of production which are in their true sense reflected in changes of prices and in the distribution of income. This set of changes has of course implications for the standard of living of wage earners.


Firms are central to many theories of the labor market. The value of the production has great relevance for public policy and denotes how inflation affects firm’s profitability and employment. This affects the relative importance of firms and workers in wage determination.

 1.3Objective of the Study

Wage determination is the most significant outcome of collective bargaining in unionized firms. The consequences of wage adjustments must be examined closely by the authorities concerned as well by workers and employers, taking account of the specific objectives of interested parties and the national economy. The research presented in this thesis will investigate to what extent labor unions and employers consider certain objective bargaining criteria  in wage determination. The generally held assumption is that the wage outcome is mostly a result of the parties’ bargaining power rather than national and objective criteria like the inflation rate, labor productivity, comparative wages, and so on. Disclosing the link between such criteria and the realized wage outcomes in Turkey constitutes the main significance of the proposed study. The set of changes brought about by collective bargaining has implications for the standard of living of wage earners, the welfare of the firm and the economy in general.

1.3 Organization of the study

The study is composed of four chapters in addition to the “Introduction” that gives a brief explanation of the research question.  The second chapter is the literature review followed by the research methodology, discussion of results and finally conclusion and recommendations.


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