The Ross-Dunlop debate and union wage concessions: A median voter analysis

The Ross-Dunlop debate concerns the extent to which unions take into account the trade-off between wages and employment in formulating their wage demands. This paper develops a median voter model of union behavior that offers a new approach to resolving the Ross-Dunlop debate. The model shows that when the binding constraint on the median union member in the seniority distribution is the threat of layoff, the union will behave as a “Dunlop-type” union; when the binding constraint is the cost of striking, the union will behave as a “Ross-type” union. The model is then applied to the related issue of union wage concessions. Two questions are examined: Under what conditions will a union agree to wage concessions? How large a cut in wages will be accepted?     

Some empirical observations of relevance to the analysis of union wage determination

Six important empirical characteristics of the union sector need to be incorporated into future research on wage determination. These are 1) the extent of unionization, 2) the statistical correlates of unionization, 3) divergent trends in union and nonunion earnings, 4) union/nonunion wage differentials, 5) the determinants of union and nonunion wage change, and 6) wage imitation. Examination of these characteristics suggests the following about union wage determination. Union wages have advanced relative to nonunion since the mid 1950s, despite relative shrinkage of the union sector. Union wage changes show less sensitivity to business-cycle pressures than nonunion. Limited spheres of wage imitation surround certain major union negotiations. These observations can be fitted into recent analyses of wage determination under long-term employer employee relationships, and have relevance for anti-inflation policy. Research for this paper was undertaken while the author was a Senior Fellow at the Brookings Institution and was supported by a grant from the Alfred P. Sloan Foundation. Views expressed should not be attributed to the Brookings Institution, its staff or trustees.     

Unions,seniority, and public choice

This paper examines the implications of granting a seniority-based system to a union whose behavior is determined by a median voter rule. It is shown that the union will negotiate a sequence of wages that will contract union employment in each period. The model then is extended to include an active role for the firm. It is shown that when the firm has the opportunity to resist unionization, the union will not allow union employment to fall below some lower bound. This lower bound is then a steady-state equilibrium.     

Unions and wages in Nevada’s hotel-casino industry

A significant union presence in the Las Vegas hotelcasino industry juxtaposed to the near absence of union representation in the Reno area provides a unique setting to study union wage effects in the industry. Results of the analysis using state wage survey data indicate that after controlling for unobserved heterogeneity in the two locations median wages in occupations in Las Vegas with substantial union coverage are 24 percent higher than wages in identical occupations in Reno.     

WHY DO WORKERS JOIN UNIONS? THE IMPORTANCE OF RENT SEEKING

Union status models ignore the fact that rent-seeking prospective members have an incentive to bid up entry costs so that higher union wage gains make union jobs more costly to obtain. The standard presumption that higher union wages cause firms to substitute toward higher quality workers is shown to be incorrect under most plausible assumptions; the observed positive correlation between wage gains and the propensity to join a union underestimates the size of the true supply response. The union/nonunion wage differential reveals more about the social cost of unions than the gain to an individual worker from union membership.     

LABOR MARKET STRUCTURE AND UNION WAGE LEVELS

This paper uses disaggregated data taken from union collective bargaining agreements to test several hypotheses on the impact of labor market structure on the wage levels of union members in U. S. manufacturing. The structure of collective bargaining, specifically the bargaining unit, is shown to play an important role in the determination of wage levels although this role is in some cases different than has generally been believed.     

Union wages, rents, and skills in health care labor markets

We examine the effect of unions on the earnings of health care workers, with emphasis on the measurement and sources of union wage premiums. Using data constructed from the 1973 though 1994 Current Population Surveys, standard union premium estimates are found to be substantially lower among workers in health care than in other sectors of the economy, and to be smaller among higher skill than among lower skill occupational groups. Longitudinal analysis of workers switching union status, which controls for worker-specific skills, indicates a small impact of unions on earnings within both high and low skilled health care occupations. Evidence is found for small, but significant, union threat effects in health care labor markets. It has been argued that recent legal changes in bargaining unit determination should enhance union organizing and bargaining power. Although we cannot rule this out, such effects are not readily apparent in our data. The authors appreciate the assistance of David Macpherson, who helped develop the CPS data files used in the paper.     

Technology,international competitiveness,and union behavior

Union opposition to a free trade agreement with Mexico affirms the conventional wisdom that international trade damages the union movement. This study uses data from the March and May CPS for 1984 to 1987 to investigate this issue for production workers. The results indicate that union wages are not influenced by greater trade at medium union densities. However, at low union densities, greater imports (exports) reduce (increase) wages with the opposite pattern occurring at high union densities. The union wage pattern is consistent with product market considerations playing a strong role at low union densities and end game considerations playing a strong role at high union densities. In general, nonunion wages are not significantly impacted by greater trade. After controlling for imports and exports, nonunion wages are much greater in internationally competitive industries while union wages are not significantly greater in competitive industries. Nonunion wages appear to be more influenced by efficiency wage considerations. Thus, a Mexican free trade agreement will have little influence on union wages and should increase nonunion wages. I thank Wally Hendricks, Larry Kahn, Dan Rickman, and Doug Dalenberg for their very useful comments. All remaining errors are my own.     

Collective bargaining and the determinants of teachers’ salaries

Using a national sample of public high schools, we find that bargaining spillovers play an important role in teachers’ labor markets. The spillover variable consistently indicates a larger bargaining effect than does the collective bargaining coverage dummy. We estimate that a 10 percent increase in the state density of teachers’ unions increases the highest teacher salaries by 2.6 percent and the lowest by 0.2 percent. Consistent with prior research, teacher union density was most strongly associated with highest salaries and had a nonsignificant positive association with lowest salaries. Teachers’ unions also affect the structural determinants of teachers’ salaries, offering some additional evidence supporting a median voter model. The proportion of unionized teachers with higher levels of education and experience (i.e., the highest paid) is positively related to highest salaries. Finally, our results confirm the importance of demand factors in teacher wage determination. The authors thank Shawn Windsor for his excellent research assistance and an anonymous referee for helpful comments on a previous draft of this paper. The Inter-University Consortium for Political and Social Research provided the primary data set used in this paper. The U.S. Department of Education, National Center for Education Statistics compiled the original data set. We gratefully acknoledge the assistance of Eric Hanushek and Lori Taylor who also provided data used herein. This research was funded in part by a grant from the McGill Faculty of Management Research Committee.     

Union wage premiums in an instrumental variables framework

A number of studies have used simultaneous-equations models, and the Inverse-Mills Ratio procedure in particular, to calculate union wage premiums. No study, however, has attempted to build up and extend results using an innovative instrumental variables (IV) model recently developed by Duncan and Leigh. This article fills this void by not only using the IV model to update Duncan and Leigh’s estimates, but also computes union wage premiums for as many as 24 different groups of workers (as opposed to only five by Duncan and Leigh). IV estimates are also compared with results computed from the more traditional IMR and single-equation OLS models.     

SELF-INTEREST REDISTRIBUTION AND THE NATIONAL FOOTBALL LEAGUE PLAYERS ASSOCIATION

The NFL Players Associations decision to seek increased collective determination of player compensation through a salary schedule in 1982 is explained in this study as being motivated by self-interest redistribution. Probit and multiple regression analysis are used to test whether the redistribution is consistent with median voter self-interest redistribution. The results indicate substantial redistribution in favor of the median voter with respect to experience. The Players Association's actions, which have been criticized as being against the players' interests, appear consistent with the interests of a majority of the players.     

UNCERTAINTY AND STICKY-DOWNWARD BUT UPWARD-MOBILE WAGES

The usual search models of unemployment hold that firms do not offer wage cuts to employees in time of slack demand because the employees have alternatives open to them at wages higher than the reduced wage that would be required to maintain full employment. This paper extends these models by considering employees as choosing in conditions of uncertainty and showing that refusal to accept a wage cut is often rational in the absence of a higher alternative wage. Additional implications are derived for union behavior and simultaneous inflation and unemployment.     

Recent trends in the union wage premium

Estimates of union-nonunion wage differentials are updated by examining a wide variety of subgroups in the general population. Variations in union wage premiums are tracked over a 15-year period, allowing inter-temporal comparisons that are not usually available. One important finding is that union wage premiums have been generally rising since 1972–1973. It also appears that females and nonwhites no longer gain the huge payoffs from unionism that evidence has suggested. The impact of race and education on union wage premiums is weighed, and there is an examination of how levels of education, association with blue-collar or white-collar occupations, and employment in specific industries affect union premiums. The author thanks Professor Jack Skeels for invaluable comments and Northern Illinois University for financial support.     

Unemployment,union density,and wages

We investigate, both theoretically and empirically, whether long-run industry unemployment rates modify the wage impact of union density on the earnings of members. Our theory suggests that the density effect increases as unemployment increases. Our empirical estimates use wage equations exclusive and inclusive of unemployment and of the interactive effect of unemployment and density in influencing wages. Based on a 1985 sample of manufacturing production workers, our findings indicate that the wage effect of union density for union workers as usually measured is only 41 percent as large as the effect when unemployment is in the model.     

Empirics of the median voter: democracy, redistribution and the role of the middle class

This paper improves the empirical investigation on the effectiveness of the median voter theorem. Using high quality data, it is possible to directly observe individual net cash transfers in several countries and to investigate the effects of taxes and transfers on different social classes and in aggregate. This allows testing of both the “redistribution hypothesis” (more inequality leads to more redistribution in aggregate) and the “median voter hypothesis” (the middle class plays a special role in policy making). Results suggest acceptance of the former and reject on, or at least questioning, of the latter. Not only the gains from redistribution are negligible for the middle class, but also the link between income and redistribution is also lower for it than for any other class of income. Moreover, the strength of the median voter seems to fall over time. Finally, the amount of redistribution targeted to the middle class is lower in more asymmetric societies, a result that contrasts strongly with the median voter theorem.     

The twenty-percent majority: Pro-union bias in prevailing rate determinations

Each individual wage rate set by Davis-Bacon or by any similar state or local prevailing wage determination petrifies the outcome of competing views of how construction work should be staffed and paid on public works projects. Although presented with great precision (to tenths of a cent for both wages and fringe benefits), the level of wages themselves are of surprisingly little consequence: Those set at union levels soon rise, being automatically updated to new contracts and conditions; the rest fast become obsolete in any rising market, because surveys to update them are rare. But in addition to setting wage levels, determinations also delineate which jobs get to have rates set for them, and perhaps most critically, whether those delineated are identified as union or notunion. Whatever pattern is found may remain in effect for years or even decades, influencing which journeymen and laborers own what job tasks and who may perform what. Also, if a particular job happens to be set as union, it may bring with it dozens or even hundreds of related special job categories, grades of sub-groups, fine distinctions of fringe benefits, and complex divisions of geographic applicability based on local union jurisdictional areas. This study uses determinations recently made in Pennsylvania as an example to examine the mechanics of the wage-setting process. I find that, in addition to the endemic problems one might expect associated with a complex and partly judgmental process, every step of finding and setting prevailing rates includes overwhelming deference on the part of government towards union views and methods. It shows why unions representing less than 20 percent of the private construction work force consistently set the parameters controlling most of public construction. It ends with some suggestions on how better surveys and determinations could be made.     

Union wage premiums by gender and race: Evidence from PSID 1980–1992

We find that the overall union wage premium is relatively stable (ranging from 22.3 to 28.4 percent), but there seems to be a convergence of union wage premiums across different demographic groups between 1980 and 1992. Nonwhite men (whose premium ranges from 23.5 to 36.2 percent) show the largest gain, followed by white women (17.1 to 30.5 percent), white men (19 to 26.4 percent), and nonwhite women (10 to 20 percent). One explanation for this convergence of union wage premiums might be the “equalization hypothesis” associated with unions. This converging trend could have important implications for the future of unions. If union membership can explain a portion of the gender/racial wage gap, and if women/nonwhites can obtain, through union membership significant wage premia, increased female/nonwhite union participation in highly unionized sectors that offer high union wage gains could, in time, greatly decrease the gender/racial wage differential. This study was supported in part by National Science Foundation funds [OSR-9350540]. An earlier version of this paper was presented at the Southern Economic Association conference in New Orleans in 1995. We thank Emilia Lulcheva and Michael Lauze for their able research assistance and William Warren for his valuable editorial comments on an earlier draft of this paper. The usual caveat applies.     

Union density effects in the supermarket industry

Unions provide higher than competitive wages for members, but their effect on non-union wages is not clear. We investigate the effect of union density on supermarket wages from 1986 to 1993, a period of declining real wages and declining union membership. Full-information maximum likelihood techniques are used to estimate log wage equations for both the union and nonunion sectors. Decomposition techniques then separate the union wage premium into the relative effects of densities and union membership. We find a significant, positive effect of union density for both union and nonunion employees. This effect explains approximately one-third of the union-nonunion wage differential. This research was conducted while Johansson was a graduate research assistant at the University of Minnesota.     

Income inequality,redistribution and the position of the decisive voter

A large literature explaining patterns of redistribution makes use of the median voter theorem. Using a novel approach, this contribution shows that in OECD countries the decisive voter, determined by the earner who sees her preferred tax rate being implemented, on average sits around the 50^th percentile in the income distribution, although significant within and between country differences exist. Under the assumption of a lognormal distribution of gross income, we derive the required tax rate to align the observed gross and net Gini coefficients in OECD countries. This estimated tax rate is compared to the tax rate preferred by the median income earner, which gives a new index capturing a nation’s deviation from the median voter position, measured as the difference between the estimated percentile position of the decisive voter and the 50^th percentile position of the median voter. We provide a comparative overview of this index over time and between countries. We also locate the positions of alternative versions of the decisive voter, among which following the ‘one dollar, one vote’ rule, in a Lorenz curve diagram.     

Heterogeneity and union membership determination

This paper formalizes theoretical and empirical analyses of the determination of union membership. It is argued that an important (and usually ignored) consideration affecting the union status of workers is the externalities between (potential) union members: The gain a worker derives from unionization is affected by the characteristics of the workers who already belong to the union, and the gain union members derive from admitting an additional worker to membership depends on that worker’s characteristics. Thus, two conditions must hold if a worker is to join a union: (1) unionization should increase his wage, and (2) union members must benefit from adding him. The main implication of this analysis is that in a given industry/occupation a union is more likely to form among workers withlower rents. To test this proposition, I present an empirical analysis using data from the May 1979 Current Population Survey (CPS) Public Use Sample. A procedure for measuring worker’s rent is discussed and certain relationships between rent and union membership are identified. I am most indebted to Finis Welch for many valuable comments and suggestions throughout the preparation of this study. I have also benefited from comments made by Mark Killingsworth, Kevin Murphy, Mark Plant, the editor of this journal, and an anonymous referee. The generous availability of the computer facilities at Unicon Research Corporation is appreciated.