A model of monopoly and “efficient” unions with endogenous union coverage: Positive and normative implications

We present a model of a rent-maximizing union that organizes to increase its coverage of an industry and analyze monopoly and “efficient” unions in this setting. Our model is unique in that we allow for a competitive industry with free entry and find union and nonunion firms coexisting with product market equilibrium. This is achieved by incorporating the insight that firms are heterogeneous in productive characteristics. An important implication of our model is that an “efficient” union that covers a nontrivial share of the market is not efficient and may in fact be less efficient than a monopoly union.     

Explaining movements of the labor share in the Korean economy: factor substitution,markups and bargaining power

This paper emphasizes the role of market power, in both product and labor markets, in determining the labor share of income in the Korean economy. It presents an efficient bargaining model incorporating imperfect competition in product markets. This model shows how capital-labor substitution due to capital-augmenting technological progress or other factors, and changes in markups and the bargaining power of workers affect the labor share. Empirical analyses show that there is little support for explanations based on capital-labor substitution. Furthermore, a structural vector autoregression (VAR) model is proposed that can identify the effects of changes in markups and the bargaining power on the labor share. The VAR model applied to the period since the early 1980s demonstrates that both changes are influential, and especially for the manufacturing sector, long-run movements of the labor share are explained almost equally by variations in the markup and bargaining power.     

The role of relationships in labor markets for the popular arts and its impact on product quality

While utilizing social networks is common in labor markets and may benefit both firms and laborers, social networks are argued to be unusually important in the popular arts. Prior work in economics on the role of relationships in labor markets has generally focused on the benefits and not the costs. This paper takes a different approach by focusing on both costs and benefits, by examining a specific market where relationships are particularly important. This paper argues that in addition to reducing diversity and creating inherent inequalities, excessive reliance on networks can lead to higher agency costs and lower product quality.     

LABOR'S SHARE,THE FIRM'S MARKET POWER,AND TOTAL FACTOR PRODUCTIVITY

We investigate the relationship between labor's share, firm's market power, and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time‐varying estimates of market power and the elasticity. Evidence on the market power of firms (which we find to be rising since 2000) gives a deeper understanding of movements in labor's share and the labor wedge. The generated values of the elasticity yield revised estimates of total factor productivity growth which is informative about the extent of the downward bias inherent in traditional estimates which use labor's share as a proxy for the elasticity. (JEL O47, C32, E25)     

Does the early bird always get the worm? market institutions and the timing of employment decisions

Unravelling of appointment dates can be observed in some entry-level labor markets but not in others. A comparison of different markets shows how the costs of breaking contracts and being rematched can affect the timing of appointments and market behavior. If contracts can be terminated at any time by workers and if rematching costs are relatively small compared to the benefits from changing matches, early appointments in an entry-level labor market confers no benefit on firms. Firms then have no incentives to make early offers. However, if the costs offset the benefits from changing employment, firms that cannot compete with their principal competitors may prefer to make offers before some critical information becomes available rather than wait for the time when employment can actually start. Such a labor market may experience early appointments. But if the most desirable firms do not issue early offers, other firms may be rejected in any early period. Therefore, the most desirable firms can work together to halt unravelling. I am indebted to Esquire Donna Gerson and Koh Song Hui who extended help in writing this paper. My special thanks should be given to Alvin Roth for his suggestions and comments.     

Uneven Development in North Carolina? Job Quality Differences Between Local and Nonlocal Firms1

Abstract Do outside firms come to North Carolina or, more generally, to the rural South to take advantage of the low-wage unorganized local relations of production? Do they disrupt local labor market arrangements? We use data from a survey of North Carolina employees to examine labor market and job quality differences between local and outside firms and also the organization of regional labor markets. Results, based on multiple regression models, suggest that outside firms provide higher quality jobs, mediated by organizational resources and internal firm relations of production. Urban Piedmont labor markets provide better jobs than rural labor markets, regardless of the establishment's ownership locale. Generally, uneven development predictions are supported by additive models, but challenged by additional analyses of interactions. These analyses suggest that outside firms may be undermining local relations of production in rural North Carolina. Results of this research present rural policymakers with a challenge for future economic development strategies.     

UNEMPLOYMENT AND FINANCIAL CONSTRAINTS FACED BY SMALL FIRMS

A distinguishing feature of small firms is that most small business owners work for themselves and only employ relatives and friends. We examine conditions under which this labor market practice is an economic outcome and consider the link between this outcome and unemployment. The model is motivated by empirical evidence that suggests that small firms are subject to financial constraints that are supported by information asymmetries. I show that, in a constrained equilibrium, sole proprietorship and unemployment arise from an information imperfection in the credit market that makes infeasible the consummation of mutually beneficial contracts in the labor market.     

Demografischer Wandel,Alterung und Arbeitsmarkt in Deutschland

Debates about the consequences of demographic change for the labor market relate to two distinct levels; both will be addressed in this chapter. First, demographic ageing changes the composition of the workforce. Theories about how labor markets work lead to the conclusion that demographic changes do not affect immediately supply and demand of labor and the structure of the workforce. Rather, consequences of demographic changes are moderated by labor market institutions.Second, demographic ageing has consequences for the organization of work. Permanent topics of sociological research are consequences of ageing workforces in the firm for productivity and innovation, consequences of ageing workforces for human resource policies of firms, extent of and coping with the problem of limited durations to perform strenuous work tasks, and consequences of ageing workforces for industrial relations. One central finding is that firms meet various challenges in their external and internal environments, among them being ageing workforces only one. Moreover, as strategic actors, different firms can choose different strategies even in similar environments. Consequences of demographic changes for work organization on enterprise level are, therefore, far from deterministic.     

The effect of strikes on shareholder returns

Relationships between labor disputes and shareholder wealth are examined through analysis of 91 strikes between 1951 and 1973. Stock market reactions to strikes of different durations are analyzed through a market model methodology. Different market adjustments are found for short, intermediate, and long duration strikes. Shareholder returns prior to strikes are below market returns for firms in the short strike category, approximately equal to the market returns for firms in the short strike category, approximately equal to the market for firms in the intermediate strike duration category, and above the market for firms in the long strike category. After strikes, shareholder returns decline for firms in the short and long strike duration categories.     

Globalizing Firms and Small Communities: The Apparel Industry's Changing Connection to Rural Labor Markets*

Abstract This paper explores changing relationships between apparel firms and rural labor markets in Wisconsin over the last decade. Mainstream explanations of recent changes in the apparel industry suggest that rural communities will lose tedious or physically demanding, low‐skilled apparel manufacturing jobs but will gain more information‐intensive and desirable “apparel service” employment. Through case studies of apparel firms located in two Wisconsin communities, the paper argues that current changes in the industry not only affect communities unevenly but, even in regions where apparel service firms have provided significant numbers of new jobs, these jobs are less well paid, more casually structured, and less secure than manufacturing employment has been. The paper argues that current concepts of the economic embeddedness of firms in communities need to be refined to permit consideration of the kinds of leverage and voice that community organizations have in confronting new forms of corporate capital. The two case studies demonstrate that corporate embeddedness and its labor market outcomes are linked to changes in the global market in which firms compete.     

Fair Trade Flowers: Global Certification,Environmental Sustainability,and Labor Standards

This article analyzes the organization of the fair trade flower industry, integration of Ecuadorian enterprises into these networks, and power of certification to address key environmental and social concerns on participating estates. Pursuing a social regulatory approach, I locate fair trade within the field of new institutions that establish and enforce production criteria in international markets. My research finds that while firm owners and managers support fair trade's environmental and social goals, these commitments are delimited by mainstream market expectations related to production efficiency and product quality. In environmental arenas, certification helps ensure that conditions exceed legal mandates and industry norms. In social arenas, certification helps ensure that labor standards exceed legal and industry expectations and funds important programs benefiting workers and their families. Where unions are absent, fair trade's greatest impact may be in the establishment of workers' committees that can build collective capacity. Although these new labor organizations face numerous challenges, they may strengthen the social regulation of global flower networks, making firms accountable to their workers as well as to nongovernmental organizations, retailers, and consumers.     

BACK-LOADED WAGES AND ON-THE-JOB TRAINING IN A FRICTIONAL LABOR MARKET

This paper analyzes the coexistence of on-the-job (general) training and on-the-job search in a frictional labor market where firms post skill-dependent labor contracts to preemptively back-load compensation after training. The back-loaded compensation scheme discourages trained workers' efficient job-to-job transition, as if they accumulated relationship-specific capital, which induces overintensified training among more productive firms. The quantitative analysis predicts that the market equilibrium, relative to the efficiency benchmark, gets more skilled workers (training inefficiency) and less output (allocation inefficiency). It further demonstrates that efficiency loss is moderate due to positive externality and can be improved, as search friction is mitigated. (JEL J24, J31, J64)     

Promotion to Partner in Professional Service Firms

A shift away from up-or-out, theconventional promotion system in professional servicefirms, has been explained as part of a wider set ofchanges in internal labor market arrangements andmanagement methods. This is investigated empirically in a sample oflarge partnerships in one profession. Up-or-out was usedby less than one-third of the sample of firms but iscommon among the largest firms. Internal reforms to the professional firm do not fully explainits rarity; up-or-out appears to be adaptable to newforms of management and internal labor market policies.This raises a number of questions about the utility of theoretical explanations of how professionalservice firms work or are changing.     

LABOR QUEUES AND INVOLUNTARY UNEMPLOYMENT

This paper outlines a job search model which emphasizes the placing of applications by job searchers and the firm's use of a queue of applicants as an inventory of labor. The paper analyzes the consequences of the assumption that firms hold queues of applicants both for the decisions of a single firm and for a market composed of several such firms. The aggregate results suggest that considering such labor market queuing helps explain wage rigidity and involuntary unemployment.     

IMPERFECT COMPETITION and BUSINESS CYCLES: AN EMPIRICAL INVESTIGATION

Does imperfect competition increase the magnitude of business cycles? If so, the variability of an industry's employment and output should be positively related to the market power of firms in that industry. This paper demonstrates that the opposite is true: U.S. manufacturing industries with high price-cost margins display less employment variability than do low-markup industries. These high-markup industries display less price variability as well. Highly concentrated industries, however, do display more employment variability. To some degree, markups may reflect labor hoarding rather than market power; this may account for part, but not all, of the negative correlation between markups and variability.     

Temporary Help Firms as Entrepreneurial Actors

Competing explanations of growth in the temporary help supply (THS) industry stress its role in meeting the needs and desires of workers vs. those of employers. Until now, less attention has been paid the growth agenda of the THS industry itself. Yet evidence from a study of THS firms in Wisconsin suggests that their entrepreneurial efforts may be an important, overlooked factor driving the industry's expansion. This paper examines the growth and geographic dispersal of Wisconsin's THS firms through a theoretical framework of entrepreneurial action. Data from in-depth interviews with their owners and managers reveal strenuous efforts to create new markets for THS services. THS firms' highly proactive stance is reflected in their decisions about where to locate, efforts to become part of local social networks, and innovative approaches to product development and marketing. Previous studies have implied that THS firms opportunistically and reactively respond to changes in labor supply or demand factors. This study finds THS firms actively promoting their own growth, intervening in labor markets to forge a role for themselves as employment intermediaries and gatekeepers to permanent jobs.     

The desire for impact

This paper explores the meaning and implications of the desire by workers for impact. We find that this impact motive can make a firm in a competitive labor market face an upward-sloping supply curve of labor, lead workers with the same characteristics but at different firms to earn different wages, may alleviate the hold-up problem in firm-specific investment, can make it profitable for an employer to give workers autonomy in effort or task choice, and can propagate shocks to unemployment.     

A DISEQUILIBRIUM MODEL OF A HIRING-HALL LABOR MARKET

This paper analyzes a labor market in which workers possess incomplete information about their exchange opportunities. Within this environment workers allocate time to the acquisition of job-related information. Rules are specified determining where workers will seek employment and how firms will vary wages in response to workers' choices. Assuming a change in workers' notional labor supply, the paper then analyzes the dynamics of labor market disequilibrium. Two principal conclusions emerge: (1) Workers' time costs of acquiring information rise during disequilibrium. (2) In general the final wage differs from the wage that would prevail if a Walrasian auctioneer guided the labor market's adjustment.     

ALTERNATIVES FOR RESTRUCTURING THE RAILROADS: END-TO-END OR PARALLEL MERGERS?

The U.S. railroad industry has seen considerable merger activity over the past two decades and more mergers are expected in the near future, but little is presently known about the relative social benefits of alternative merger configurations. Using traffic data for origin-destination pairs affected by recent mergers, this paper examines the impact of end-to-end and parallel mergers on increases in the market share of merged firms. To the extent that increases in market share reflect social benefits in the form of improved service and lower costs, end-to-end mergers are found to outperform parallel mergers.     

The minimum wage and productivity differentials

A firm’s ability to adjust its production process to economize on low-skilled labor when faced with a minimum wage increase will differ greatly depending on industry or occupation. For example, more capital-intensive means of cleaning hotel rooms or serving customers at restaurants may not be readily available without degrading service quality. In such situations, the productivity of labor is essentially capped, and firms have few options when the minimum wage increases. This simple observation has implications for studies that rely on microdata to examine the effects of minimum wage increases. If firms only increase prices in response to a minimum wage increase, employment effects are likely small. If the goal of the minimum wage is to redistribute income from firms and consumers to workers, minimum-wage increases targeted at industries and occupations where such rigidities result in an inelastic demand for labor may achieve the desired goal at a lower cost than across-the-board increases. However, such a scheme causes an inefficient allocation of labor and would be subjected to substantial political pressures that may lead to anomalous results. Additionally, it is unreasonable to conclude that policy makers have the necessary information to skillfully set the minimum wage. I thank Brian E. Chezum and Jeff Waddoups for helpful comments. All mistakes, of course, are my own.