Does consensus bargaining control labor costs in Japan? Evidence from the “bubble economy” and its aftermath

Japan’s system of labor negotiations provides an opportunity to see whether consensus bargaining restrains labor costs. The recent volatility of the Japanese economy affords a unique chance to observe how consensus-based labor settlements adjusted to sudden, sharp changes in market conditions. It is also possible to evaluate the role of bonus payments in amending labor settlements. With observations for 1986–1995,1 use measures of productivity gains to calculate the capacity for increasing worker pay and then analyze whether pay increases exceeded that capacity. I report the extent to which changes in labor earnings were scheduled or resulted from adjustments in bonus pay. During the boom years of the late 1980s, employers inflated bonuses so that workers’ pay increased more than had been scheduled, but not enough to exceed the capacity for growth. But during the sluggish years of the early 1990s, pay agreements were excessive. Employers cut workers’ bonuses to keep earnings growth in check. Thus, bonus pay provided a “degree of freedom” allowing employers to adjust labor costs following sudden upswings and downturns in the economy. I am grateful to Professor Hideo Kawada and Mr. Kenichi Matsuki, both of Senshu University, for their assistance in gathering the earnings data for this study. Thanks are also due to Craig MacPhee, Roger Riefler, and Hendrik Van den Berg for thoughtful comments and suggestions. I am responsible for any remaining shortcomings.     

Bonuszahlungen an Geschäftsführungen: Wodurch werden Gerechtigkeitsurteile von Erwerbstätigen beeinflusst?

Managerial compensation in large companies is subject to many critical concerns; this holds particularly for bonus payments. Empirical evidence shows that nearly three quarter of the German population perceive managers’ incomes as unfairly high. Based on an own survey, we examine what drives fairness perceptions of bonus payments for managers: When do employees assess bonus payments for managers within their own company as unfairly high? Under which conditions do they accept high bonus payments? The analyses show that acceptance decreases with the estimated amount of bonus paid. It increases, however, if aspects of procedural and distributive justice are taken into account.     

The american labor movement and employee ownership: Objections to and uses of employee stock ownership plans

This paper analyzes the evolution of American unions’ attitudes and policies concerning employee ownership that coincided with the rapid growth of employee stock-ownership plans during the 1980s. From an initial position of opposing employee ownership and viewing it as a threat, many major unions have come to accept, and in some cases to promote, stock ownership for their members. Among the factors driving this change of view have been economic necessity, evidence that many of the labor movement’s traditional concerns about employee ownership are largely unfounded, and the growing realization among unions that employee ownership is a potentially useful strategic asset.     

Stock investors’ preference for short-term vs. long-term bonuses

Bonuses in the finance sector may be based on too short time intervals for environmental and social factors to be taken into account in investment decisions. We report two experiments to investigate whether investors prefer short-term to long-term bonuses. In Experiment 1 employing 27 undergraduates, preferences were measured for four short-term certain bonuses, evenly distributed across a time interval, and one certain long-term bonus at the end of the time interval. A majority chose the short-term bonuses, and in order for the long-term bonus to be equally preferred it had to be about 40% higher than the four added short-term bonuses. Experiment 2 employing another 36 undergraduates introduced outcome uncertainty that more accurately reflects the choices stock investors face. The participants again choose between a long-term bonus and four distributed short-term bonuses. It was shown that uncertainty made more participants prefer the long-term bonus to the added short-term bonuses than when the outcome was certain. A smaller increase of the long-term bonus of about 20% was now required to make it equally attractive as the four added short-term bonuses.     

Bonuses,unions, and labor productivity in South Korea

Using a set of time-series (1972–1989) and cross-sectional data on eight two-digit Korean manufacturing industries, we examine the variability of South Korea’s employee bonus system and the effect of the employee bonus on productivity. A test of the variability of the bonus showed that the bonus rate (ratio of the bonus to the wage) was positively influenced by industrial output, so the bonus is not merely a disguised wage. An augmented Cobb-Douglas production function estimation shows that the bonus has a positive and significant productivity effect. Capital-intensive and laborintensive industries did not have significantly different productivity effects due to the bonus. Lastly, Korean unions reduced labor productivity and negatively affected the productivity effect of the bonus. Also, compared with the previous period, the productivity effect of the bonus has become negative since the1987 Great Labor Offensive.     

The involvement of canadian unions in political activities: An exploratory analysis

A conceptual framework is presented that depicts the political activities of public employee unions. The framework explicitly recognizes that access to elected officials affects unions’ ability to achieve political influence. Data covering 95 local unions in 26 major Canadian municipalities are used to test the framework. The results generally support the framework and suggest several observations about the effectiveness of union political activities. We are grateful to Susan Schwochau for helpful comments on an earlier draft of this paper.     

The composition of public sector compensation: The effects of unionization and bureaucratic size

This paper examines the effect of the political power of public sector unions on the composition of public sector compensation. Public employee unions provide a relatively low-cost vehicle for organizing workers’ political activity in support of the rent-seeking behavior of local politicians. The unions also provide a conduit for employees to capture part of these rents as payment for political services. Since the public has little interest in paying for the political activities of public workers, these payments are most likely to be made through fringe benefits so as to minimize public scrutiny. The authors would like to thank an anonymous referee for helpful suggestions. Any errors remain those of the authors.     

ESOPS: Financial performance and federal tax incentives

Previous research has suggested a relationship between the establishment of employee stock ownership plans (ESOPs) and post-adoption improvements in financial performance — presumably as a result of the alignment of employee and stockholder interests. I examine the role of tax incentives on the financial performance of ESOP firms. The results indicate that ESOPs formed prior to the availability of tax incentives provided by the Tax Reform Act of 1986 have experienced significantly greater improvement in financial performance than ESOPs established after passage of the Act. The results are consistent with my hypothesis and suggest that even though ESOPs can be utilized to reduce a firm's federal income tax liability, ESOPs may be more useful to management to reduce agency costs throughout the firm. This paper is based on my Ph.D. dissertation completed at the University of Alabama. I sincerely appreciate the efforts of my dissertation chairman, Lawrence W. Foster, and committee members, M.M. Petty, Clyde J. Scott, Michael T. Dugan, and Bruce E. Barrett.     

Reward the lucky? An experimental investigation of the impact of agency and luck on bonuses

We examine the impact of agency and luck on bonuses in a two player, two stage controlled laboratory experiment. In the first stage, Player A makes an investment decision on behalf of Player B. In the second stage, Player B makes a dictator allocation for each possible outcome from the investment. We compare dictator giving (bonuses) across outcomes and with a control treatment in which the stage 1 outcomes are determined randomly. We do not find that luck is rewarded with higher bonuses. However, we do find a general tendency to respond to agency with reduced bonuses and, in particular, a significant tendency to reduce bonuses to agents who are unlucky. Additionally, we find that those who are more risk tolerant are less likely to give no bonus under agency but not in the control.     

Manufacturing employees and technological change

Understanding why some workers resist technological change while others accept and facilitate it may be crucial for the survival of manufacturing firms. This study analyzes managers’ perceptions of employees’ reactions to technological changes at 206 Canadian manufacturing plants that made technological changes in their production operations between 1980 and 1988. The results indicate that the presence of a union and a technology clause in the contract significantly increase managers’ perceptions of employee resistance to technological changes. To avoid worker resistance to such changes, the results suggest that management should provide workers with an effective participation in the decision-making process and, if feasible, choose technology that will increase workers’ skill requirements.     

Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans

In light of the recent concerns regarding the solvency of Social Security’s Old-Age, Survivors and Disability Insurance (OASDI), private pensions may play an increasingly important role in retirement welfare of US retirees. However, the private pension landscape has evolved in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit pension plans to cash balance plans, which results in lower pension benefits for many workers. In this study, I investigated how characteristics of the firm’s workforce influenced whether the firm converted their traditional pension plan to a cash balance plan and how these characteristics related to the firm’s pension plan policy more generally. Using the Longitudinal Employer-Household Data and pension plan data from the Department of Labor/Internal Revenue Service and the Pension Benefit Guaranty Corporation, I found little evidence of workforce age distribution effects on the likelihood of DB plan conversion to a cash balance plan in the 1990s. More generally, I consistently found positive associations between firms with older and more female workforces and defined contribution plans during the same time.     

Is What’s Good for the Business,Good for the Family: A Financial Assessment

Small business prosperity doesn’t necessarily translate into family prosperity. This study utilizes the first and second waves of the National Family Business Survey to explore the influence of changes in key business financial measures on objective and subjective measures of family success. Increases in the available cash in the business from higher gross sales or net profits brings more cash into the household, while increases in the market value of the business increases the amount of money spent on other household assets. A more subjective assessment suggests that positive changes in the business financial measures create a more positive perception of the business’ success; however, these positive changes have no influence on a more positive perception of the family’s success.     

Public employee unions: A study in the economics of power

This paper examines how public employee unions influence the allocation of public sector jobs. The empirical results indicate that vote maximizing public officials’ employment decisions are influenced by the political clout of highly-unionized employees. The political clout of public-sector unions influences the functional distribution of public-sector jobs by increasing demand for the relatively more organized functions. These results suggest that consideration should be given to the growth of public sector collective bargaining in the allocation of public sector resources. The author wishes to acknowledge the helpful suggestions of Bernard Lentz.     

Labor Supply Decisions of Disabled Male Workers

We use unique survey data, collected by the Workers’ Compensation Board of Ontario, to estimate the labor supply response of disabled male workers to benefit payouts and their post-injury wage. Our data enable us to fill gaps in the existing literature by estimating the hours as well as the return-to-work response for younger as well as older workers, based on objective rather than subjective self-reporting of disability status. Our results suggest a strong positive incentive effect from higher wages a and that lump-sum benefit payouts that are not reduced if earnings increased generally do not have adverse incentives on the return-to-work and hours decision, except for an income effect over the longer life cycle of younger men. We also discuss the policy implications of our estimates.

Pensions and the uses of ignorance by unions and firms

Pensions are contingent claims contracts that are often fashioned by collective bargaining under conditions of asymmetric information and market power. Pensions are not an employer’s or a union’s optimal contract; they represent compromise. Employers use pensions to minimize labor costs and to adjust to market changes. Pensions help unions improve and protect their members’ work lives and help unions to survive as institutions. When workers’ estimations of their pensions differ from their employers’ estimations a moral hazard can exist. Less mobile workers and those with less influence subsidize the pension benefits of other workers or reduce an employer’s costs. Econometric results based on data from the President’s Commission on Pension Policy show that certain workers, namely women, overvalue their plans, which provides an opportunity to lower labor costs and redistribute benefits. Unions have a contradictory effect on information. The author thanks participants in the Cornell University Collective Bargaining workshop and the Harvard Labor Economics workshop. I especially thank James Medoff for his comments.     

The use of information technology in a strike

Conclusion Exhausted by almost eight months of striking, the CEP members urged their union officers to take a radical proposal to the Herald: forget the seniority clause, which the company had maintained was the main stumbling block. Many union members believed that the Herald and Conrad Black didn’t care about seniority and had picked it as an issue in full confidence that it was the one item no union would drop. But since nothing else was working, despite evidence the Herald was suffering severe circulation and corporate-image losses, it was time to call the employer’s bluff. The company seemed to be taken by surprice at the CEP’s abandoning of the cherished principle when union and compeny representatives met in front of an official of the Alberta government. But within a few days, Gaynor was saying publicly there were other issues in the way, not just seniority. Despite the innovative use of electronic communications during the strike, there was no hope of obtaining a settlement if the Herald wasn’t forced to negotiate with the union. The provincial government, however, failed to enforce provisions of its weak labor laws that required “bargaining in good faith.”     

Household Assets and Food Security: Evidence from the Survey of Program Dynamics

This study uses the Survey of Program Dynamics data to examine the independent role of household assets in food security. It further examines whether assets provide a buffer for low-income households to food insecurity in the face of income losses. Results of the Two-Part Model analyses show that household assets have a significant association with food security in both the full sample and the low-income sample. In the presence of household assets, income’s effect on food security decreases. In addition, the significant interaction terms of income loss and household assets indicate that assets provide resources to smooth food consumption. The findings of this study suggest a consideration of asset building strategies in asset related provisions of current food assistance policy.     

Payments and social ties

Monetary payments fall into three categories: gift, entitlement, and compensation. Each one corresponds to a significantly different set of social relations and systems of meanings. People making payments use a number of earmarking techniques to distinguish those categories of social relations and meanings from each other, impose substantial controls over the proper uses of money received within each category, and attach great importance to the distinctions involved, thus creating partly separate currencies even when the medium involved is legal tender. In the United States, bureaucratization, commercialization, and monetization significantly altered the scope, form, and content of monetary gifts, entitlements, and compensation, but did not reduce the importance of such earmarking and control. Investigation of (1) bonuses in commercial firms and (2) sexual payments illustrate the significance of these principles. In keeping with the bridge this paper makes between past and present work, I have adapted a substantial section of the text from various parts ofThe Social Meaning of Money (1994). I am grateful to audiences that have responded to different versions of the paper at the session “Lumping and Splitting,” 1995 Annual Meetings of the Eastern Sociological Association, the Department of Sociology, University of Pennsylvania, and the University of Miami Law School, and to Eviatar Zerubavel for his encouragement to prepare this version.     

Employee privacy and the “theory of the firm”

Bruce Kobayashi and Larry Ribstein apply the “theory of the firm” to worker privacy with specific application to the employer’s ability to monitor employee performance and behavior. They take the theory to drive toward a much reduced role for law in favor of regulation by contract. This essay unpacks their theory. It faults the theory for its failure to come to grips with the possibility of monopsony in the labor market, its failure to appreciate the “public goods” nature of privacy policies and the related assumption that the employer’s ability to adopt and apply privacyinvasive policies is invariably a product of a consensual armslength bargain. This essay is revised and expanded from the author’s Introduction to the 2003 Supplement to Matthew Finkin, Privacy in Employment Law (2d ed. 2003) 2003 Supplement.     

Voice asymmetries in ERISA litigation

ERISA’s equitable remedies limit employees’ access to the courts. The law fails to protect workers with short tenure and low wages, for example female workers, because trial costs often exceed damages. In single-employer plans, unions improve access, but in multiemployer plans they do not. The reason is that in single-employer plans unions bargain at arm’s length with plan sponsors while in multiemployer plans they do not. Plaintiffs’ win rates are approximately 50 percent in singleemployer union ERISA cases but are significantly below 50 percent in nonunion and multiemployer cases. The author thanks Ann Bartel, John Delaney, James Kuhn, an anonymous referee, Victor Goldberg, Eli Noam, Donna Sockell, Kim Ditty, and David Lewin.