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.     

The economic status of union workers in the United States

Although American labor unions evolved out of poverty, today’s typical union worker is relatively affluent. Current Population Survey data show that average annual household earnings in 2002 for full-time union workers were nearly $79,000, nearly double the median of all households (including ones with non-workers), and more than for nonunion worker households. While relatively few union workers are truly “poor,” a larger proportion (over one-third for members of teachers’ unions) comes from households with over $100,000 in annual income. A puzzle: why do union members tend to support liberal policies and politicians far more than their relative affluence would predict? Perhaps it partly reflects rent-seeking behavior.     

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.     

Understanding the workweek of foreign born workers in the United States

I analyze the length of the workweek of foreign-born workers in the US I concentrate on workers supplying long hours of work—50 or more weekly hours and document that immigrants are less likely than natives to work long hours. Surprisingly, these differences are greatest among highly educated and salary paid workers, and persists even after conditioning for demographic characteristics. I explain these differences with two within occupation characteristics. First, relative to natives, immigrants are less likely to supply long work weeks if they work in occupations where the immigrant-native earnings differential is big. Second, immigrants are also less likely to supply long work weeks when they work in occupations with a wide dispersion of earnings. This second result is important, because the occupation dispersion of earnings has been used to characterize changes of the worker’s earnings over the worker life cycle (Bell and Freeman, Labour Economics: 8(2), 2001a; Working Time in Comparative Perspective, 2001b; Kuhn and Lozano, Journal of Labor Economics:26(2), 311–344, 2008), and a good measure of the incentives to supply long hours of work.     

Training,Technological Changes,and Displacement

By matching industry/occupation data on training to displaced worker data from the Current Population Surveys, this paper analyzes why many older workers were displaced by technological changes in the 1990s, and why these workers incurred large earnings losses. When technological changes depreciate the existing stock of firm-specific human capital, older workers who receive higher wages from the sharing arrangement of the returns to investment in firm-specific human capital are dismissed as firms find it unprofitable to retain them. These displaced workers have higher predisplacement wages with steeper wage–tenure profiles, and hence incur larger earnings losses after displacement than other displaced workers.

Induced inefficiency as a response to the union threat

Milkman and Mitchell (1995) extend Rosen’s (1969) threat-effect hypothesis to suggest that the threat of unionization can induce inefficient underutilization of labor by nonunion firms. If firms follow this strategy, the apparent paradox of competitive coexistence in the face of higher union wages reflects induced nonunion firm inefficiency rather than superior union firm efficiency. Furthermore, this strategy decreases demand for nonunion workers in a partially unionized industry. A generalized cost function analysis of data from sawmills in the Pacific Northwest yields evidence that nonunion firms use this strategy.     

Women’s Earnings Before and After Marital Dissolution: Evidence from Longitudinal Earnings Records Matched to Survey Data

This paper investigates the change in women’s earnings following marital dissolution from a longitudinal approach. Using unique data that matches the Survey of Income and Program Participation (SIPP) with Social Security longitudinal earnings records, we examine marital dissolution events occurring between 1985 and 2003. Results show significant increases in women’s labor market involvement and earnings following marital dissolutions over the past two decades. We find greater labor force involvement prior to the dissolution event among more recent divorcees; however, among those already in the labor force, the pattern of change in earnings associated with divorce has changed little over the examined period. Human capital and family characteristics were associated with the change in earnings after marital dissolution.     

Holding the Pencil or Buying Paint: Parental Childcare Versus Children’s Need for Extra Income. The Case of Belgium,Denmark and Spain

This article addresses the influence of child characteristics on couples’ decision-making regarding employment and parental childcare. Through simultaneous equation modeling we are able to separate earnings from care motives in this decision-making process. An empirical exercise on Belgian data illustrates how the earnings motive counteracts the care motive and causes a rise in the probability of a full-time job following an increase of the number of children. However, replication on Danish and Spanish data also suggests that a country’s incentive framework provides important limits to couples’ decision-making.     

Parties with Policy Preferences and Uncertainty over Voter Behavior

The equilibrium redistributive policy proposals of two parties with policy preferences are studied. Each party’s ideal policy coincides with that of citizens having a particular income level, and the party’s utility function reflects its attitude to the trade-off between the choice of preferred policy and the likelihood of victory. When parties face uncertainty about citizens’ abstention from voting, divergent equilibrium proposals are derived which are more moderate than their contrasting ideal policies. Political equilibria under different prior beliefs on abstention are then compared. It is shown that a lower likelihood of abstention in a particular income group induces both parties to make proposals catering to that group, in equilibrium.An erratum to this article can be found at     

Union membership,economic rents,and migration behavior

This study represents an extension of the human capital paradigm as it relates to an individual’s decision to migrate. It differs from previous studies by incorporating union membership, a labor market variable, into the model. In effect, the National Labor Relations Act of 1935 granted a monopoly bargaining position to unions. The theoretical implication of a union’s monopoly bargaining position is that union wage levels will increase relative to nonunion wages. The increase of relative wages results in union membership granting a property right that possesses positive net present value and hence reduces an employed union member’s probability of migrating. Additionally, the supra-competitive remuneration of union members results in a surplus of labor supplied to union firms. Employers respond by using quality screening to hire workers from the larger labor pool. As a result, unemployed union members will on average possess higher levels of human capital, which will increase their probability of migrating above that of their unemployed nonunion cohorts.     

Unions and private wage supplements

Private wage supplements are an important part of total compensation. A model of workers’ supplement expenditures is developed which shows that, although the expenditure determinants sometimes differ between broad industry/occupation subsamples, earnings, price effects of preferential tax treatment and economies of group purchase, unionization, the product market power of the firm, and worker age are usually significant determinants of supplement expenditures. The firm’s goal of reducing turnover costs as well as demographic, locational, and industry variables also systematically affect supplement expenditures. Supplements usually increase progressively with wages, indicating that often made proportionality assumptions are invalid. This work is based on a portion of my doctoral dissertation “An Economic Analysis of the Determinants of Private Wage Supplements.” An anonymous referee made many useful suggestions and criticisms. The Center for the Study of American Business at Washington University provided some of the computer funding. The remaining errors are my responsibility.     

Insurance Arrangements Among Married Couples: Analysis of Benefit Substitution and Compensating Differentials

Data from the Medical Expenditure Panel Survey indicate that for couples in which both spouses are employed, 36% of privately insured couples are characterized by an arrangement in which the husband and wife are enrolled in separate plans. This paper empirically investigates several aspects of spouses’ decisions to enroll in separate insurance plans. Results indicate that each spouse’s probability of being offered employer-provided insurance is related to the probability that his or her partner is also offered employer-provided insurance. Furthermore, married couples appear to pay for various insurance arrangements through lower wage earnings.     

Financial Leverage and Shareholder’s Required Returns: Evidence from South Africa Corporate Sector

Recent financial crisis which saw an increase in risk premium and shareholder’s required return around the world has been in part attributed to firms excessive debt leverage. This paper tests the impact of debt leverage on shareholder’s required return in South Africa. The paper specifies dynamic panel models and uses difference generalized method of moment (GMM) estimation technique. The results show that long term debt is positively related to shareholder’s required return. Similarly, total debt is positively related to shareholder’s required return. The results are robust to alternative model specification namely system GMM. Based on the findings, the study suggests that debt leverage is an important risk factor to be priced in equity valuation. The findings also suggest that the dynamic nature of firms’ capital structure decision should not be neglected. The paper contributes to capital structure research by testing Modigliani and Miller proposition two on listed firms in South Africa. Besides, it uses better estimation technique that controls for unobservable firm-specific effects and endogenous problem. In addition, two measures of leverage are used as independent variable compared to a single measure commonly found in the literature.     

The working spouse penalty/premium and married women’s labor supply

Using data drawn from the Current Population Surveys, this paper provides a consistent explanation for why the presence of a working wife reduces the husband’s wage among managers, but increases the husband’s wage among non-managers. It is not husband’s occupation per se but rather the distribution of husbands’ wage levels that underlies the working spouse penalty or premium. Positive correlations in earnings between married couples that arise from assortative mating make the cross-wage effects of the husbands’ wages on the wives’ hours of work first positive, then negative in cross-sectional data. The phenomenon of a working spouse penalty/premium is simply the flip side of this relationship.

Strategic behavior and the impact of unions on wage incentive plans

This paper analyzes optimal wage incentive plans in situations in which firms make capital investments and employees supply work effort. An efficient contract will take workers’ response into account in its design, leading to a competitive contract that takes the form of a lump sum penalty and full marginal rewards to workers, or equivalently, a base wage and a piece rate above a quota. A union optimizing worker welfare will alter this lump sum amount rather than attempt to control worker effort or the marginal rewards for additional output. The greater utilization of piece rate systems in capital-intensive industries is correctly predicted by the analysis.     

The Effects of Traditional Family and Gender Ideology on Earnings: Race and Gender Differences

Despite increasing gains in labor market opportunities, women and racial minorities earn less than their white male counterparts. Using data from the National Longitudinal Survey of Youth, this study explores racial and gender variation in how family and gender ideology shape this wage gap. The findings reveal that traditional role attitudes reduce earnings for African American men, African American women, and white women. However, white women experience the largest threat to wages as a result of conventional gender ideology. Further, the number of children and the timing of childbearing are detrimental to black and white women’s earnings, while neither of these factors hampers men’s earnings.C. André Christie-Mizell, Department of Sociology, University of Akron, 258 Olin Hall, Akron, OH 44325-1905, USA; e-mail: mizell@uakron.edu.     

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.     

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.     

Works Councils and Firm Productivity in France

This paper utilizes establishment-level data to explore the impact of works councils on firm productivity in France. A variety of empirical techniques is employed, including fixed effects and regression discontinuity designs, to identify this impact. We estimate the works council effect on productivity in union and nonunion settings, and investigate the extent to which alternative forms of worker voice and information sharing might substitute for the works council’s impact in production. We find no evidence of a positive impact of works councils on firm productivity in any of our results, and some limited evidence of a negative effect in some of the findings. There is no indication that estimated impacts on productivity vary with union status. However, a notable finding is that worker voice and information-sharing human resource practices are prevalent in French firms regardless of works council status, and are found to have positive and statistically significant effects on firm productivity.