How does this happen? To begin with the trade union must be able to control the supply of labour to have the ability to enforce the higher wage rate. If it does not control the supply of labour then workers can offer themselves to the firm for work at less than £W1 and this wage rate is undermined. One way for the trade unions to control supply is to have a closed shop – where only union members can be employed. Once a higher wage rate has been enforced the firm has two options: it could take a drop in profits to pay for the increased wage bill, or it could attempt to pass the increased wage costs on to the consumer in the form of higher prices. Both of these are likely to lead to lower demand for labour. Furthermore if increased wages are passed on in higher prices to the consumer the whole process may be self-defeating, because although money wages have gone up, the resulting increase in prices might leave real wages unchanged or even lower. If increased wages are accompanied by increases in productivity there will be no inflationary impact.