by John Davidson has given this theory, and according to him, the wages are determined on the basis of a bargaining capacity of workers or their unions and employers. If the trade union is stronger, then the wages will be high, and if the employer is powerful, the wages tend to be low.
Earlier theories of wages have been rendered invalid or atleast inadequate, as a result of collective bargaining by trade unions. Collective bargaining provides an example of what is sometimes called bi-lateral monopoly, the trade union being the monopolist supplier and the employer’s association, the monopolist buyer of a particular kind of labour. Level of wages in an industry depends on the bargaining strength of the trade union concerned.
The power of a trade union depends on the size of its membership, the size of its fighting fund and the extent of the dislocation to the national economy it can cause by a strike. In times of full employment, the union will be in a strong position, in a depression they will be weaker.
