Countercyclical union wage premium? Evidence for the 1980s

Empirical results based on pooled male data from the Panel Survey of Income Dynamics indicate an overall union wage premium of about 11.92 percent for the 1980s. In response to fluctuations in local labor market conditions, proxied by the local unemployment rate, a much more flexible wage-setting process is found in the nonunion sector relative to the union sector. The long-term effect of unemployment on nonunion real wages suggests an approximate 0.6 percent decline for every one percentage point increase in unemployment, a statistically significant reduction, but the long-term effect of unemployment on real wages of union members is negligible. The union wage premium ranges between 11.6 to 12.3 percent for the sample years. Even though union wages are insensitive to short-run fluctuations in local labor market conditions, and are somewhat countercyclical in nature, widespread union wage concessions which occurred during the 1980s may now be exerting a downward pressure on union wages. We acknowledge financial support of National Science Foundation [OSR-9350540], the Ada Howe Kent Research Fund, and The Fogelman Academic Research Excellence Fund. We thank Barbara Ganley for valuable editorial comments and Noga Peled for her able research assistance. The usual caveat applies.     

Do unions always decrease wage dispersion? The case of Brazilian manufacturing

The literature on the impact of unions on wages has established that unionized workers earn a wage premium when compared to their nonunion counterparts and that the dispersion of wages within the union sector is lower than in the nonunion sector. I examine the validity of these findings in the context of a developing country labor market and show that unionism does create a positive wage differential but that wage dispersion is greater in the union sector. These findings are explained by the greater variance in the characteristics of unionized workers, the vulnerability of nonunion workers to market conditions, and the structure of wage bargaining.     

Health Insurance and Worker Retention in the Construction Industry

Using samples of blue collar construction workers from the 1996 and 2001 SIPP, a shared frailty survival model shows that controlling for wages, occupational and demographic factors, both portable union and nonportable nonunion employer-provided health insurance increase the probability of worker retention within the construction industry. Portable union health insurance increases the probability of worker-industry retention by 30 to 41% compared to 13 to 18% for nonunion employer-provided insurance. Our research suggests that by encouraging industry retention, health insurance preserves and encourages the accumulation of human capital in a turbulent industry with high firm-and-industry-labor turnover and also may reduce worker disabilities by immediately treating medical problems. Furthermore, in the union sector of construction where health insurance is portable across signatory contractors, the problem of job-lock inefficiencies is reduced.     

The level and growth of union/nonunion relative wage effects, 1967–1977

This paper pools cross-section data to obtain an estimate of the overall effects of unions on relative wages for the period 1967 through 1977. We found the average union wage premium for all workers to be roughly 24 percent, but that this premium varies substantially between subgroups of workers. Our analysis showed that real wage rates increased faster in the union sector than in the nonunion sector between 1967 through 1977. However, we found that this relative growth pattern in wages was caused by economic conditions rather than in any fundamental shift in the power of unions. We wish to thank James S. Cunningham, H. Gregg Lewis, and John Pencavel for helpful comments.     

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.     

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.     

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.     

THE CHANGING RESPONSIVENESS OF WAGES TO PRICE-LEVEL SHOCKS: EXPLICIT AND IMPLICIT INDEXATION

The article provides evidence for the U.S over the period 1961-84 that the responsiveness of nonunion wages to price-level shocks changes through time much as the degree of indexation in union contracts does, suggesting that there exists implicit as well as explicit indexation. When coupled with the result from previous research that indexation responds positively to inflation uncertainty, the findings indicate that greater inflation uncertainty may lead to reduced overall wage rigidity. In the context of a rational expectations model with long-term wage contracts, a decline in the effectiveness of an activist monetary policy could result.     

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.     

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.     

The threat of unionism and wage-coverage effects

This study finds that the union/nonunion wage differential decreases with local labor-market coverage. In general, SMSA coverage has a negligible impact on union wages, and nonunion wages increase significantly with coverage. This is consistent with strong threat effects operating at the local labor-market level. As with most other wage-coverage studies, however, union wages increase more quickly with industry coverage than do nonunion wages. These results support the argument that distinctly different economic processes underlie local labormarket and industry-coverage effects. Economies in the provision of union services imply that union threat effects will be most salient at the local labor-market level. Industry wage-coverage relationships are dominated by the positive effect of product-market coverage on union bargaining power. Estimated coverage effects vary by major industry groupings and are sensitive to changes in the specification of the wage equations. The author acknowledges the helpful comments of an anonymous referee and the competent research assistance of Harold Leong.     

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.     

Intensity of management resistance: understanding the decline of unionization in the private sector

IX. Conclusions Although Lipset and Katchanovski present many of the major societal and structural causes that have influenced the decline of private sector unions, they have unfortunately omitted a factor that can account for as much as 40 percent of the decline in private sector union membership, i.e., intensity of management opposition. The managerial incentives to stop unionization are formidable because unions raise wages and reduce profits. Economic reasons for American managers to stop unionization have grown as the wage between union and nonunion workers has widened over the past 40 years especially relative to EU nations. In addition, as managerial accountability to shareholders has risen and pay related to performance has grown, top executives have attempted to raise productivity through high-performance workplace practices or lowering real wages. Since many of these practices rely on top-level executives being able to make decisions on personnel quickly without challenges from employees or due process, they have fought unions more vigorously in order to maintain this discretion over workplace decisions. Although this behavior by management may result in a more efficient allocation of resources from both a micro-and macroeconomic perspective, the losses to society occur in terms of greater income inequality and less employee voice at the workplace and in the political arena.     

Union-nonunion wage differentials and the functional distribution of income: Some simulation results from a general equilibrium model

During the past two decades, a number of studies have established the ability of unions to obtain wages for their members that exceed the payment to similar but nonunionized workers. This article investigates empirically the impact that this wage differential has on the real incomes of union labor, nonunion labor, and capital. The analysis is accomplished by solving explicitly a numerically specified general equilibrium system with and without the union wage premium. Comparison of real factor incomes in each equilibrium yields the desired information. The findings indicate that union labor gains as a result of the differential, while nonunion labor and capital lose. This outcome is realized both in terms of real income levels and in a redistributive sense. I would like to thank Nick Carlozzi and Aris Protopapadakis for valuable comments and Mary Agnes McPeak for excellent research assistance. Remaining errors are my responsibility alone.     

Vertical spillovers,market concentration,union coverage,and wages

This paper outlines a model that tests for the presence of spillover effects of union coverage across industry boundaries on wages and union coverage in vertically related industries. There is some evidence of spillover effects from buying industries to the wages of nonunion workers and of such effects on the degree of union coverage from both buying and supplying industries. We are grateful to Dan Hamermesh and an anonymous referee for useful comments. Responsibility for errors is our own.     

Union wage differentials and the effects of industry and local union density: Evidence from the 1980s

This study finds that the real union-nonunion wage differential has declined only slightly since 1985, a period of falling unionism. The study also finds that, in contrast to earlier research, local (geographic) union density positively affects union and nonunion wages. This paper has benefited from discussions with Bill Even and Barry Hirsch. The research support of the School of Business Administration Research Committee is greatly appreciated.     

Union Worker Wage Effect in the Public Sector

This study examines union wage premiums in the public sector for the 1998–2004 period. Unlike previous studies, our approach estimates union wage premiums considering differences in the rewards to education, experience, and other personal characteristics for union and non-union workers. The approach provides a larger estimated wage gap than the traditional approach, and allows for simulations of union–nonunion wage gaps for different types of workers. Moreover, we use an Oaxaca decomposition to explain the larger union–nonunion wage gap in the private sector in comparison to that in the public sector. We find that between 50% and 60% of the difference in union wage premiums between the private and public sectors is due to differences in the way unionized workers are rewarded in the private and public sectors, while the remaining portion is due to differences in personal characteristics of private and public sector workers.

Unionism and employment conflict resolution: Rethinking collective voice and its consequences

IX. Conclusions and Overall Assessment The central proposition advanced by F&;M is that the collective voice/response face of unionism more than counterbalances the monopoly face of unionism. Following this reasoning, it may be concluded that union workers would remain unionized and nonunion workers would become unionized. But what if the collective voice/response face of unionism does not more than counterbalance (let alone “dominate”) the monopoly face of unionism? Suppose that, consistent with the evidence presented herein, the exercise of voice in the employment relationship leads to further deterioration of the employment relationship rather than to the effective redress of worker grievances? In this circumstance, existing unions would lose members, and unorganized workers would choose not to become union members. Supposition aside, there is no question that unionization continues to decline sharply. When F&;M's book first appeared, about one in five private sector workers belonged to a union; today, less than one in eight private sector workers belongs to a union. But while F&;M and, later, Freeman and Rogers (1999), attributed the decline in unionization to employer/management opposition and weak labor law, some of this decline can be attributed to worker resistance. Such resistance may stem, in turn and following F&;M, from recognition of the net negative consequences of unionism's monopoly face, but also, and contrary to F&;M, from recognition of the net negative consequences of unionism's collective voice/response face. If workers judged unions' voice response face, in particular, grievance procedures, to be effective in redressing worker grievances, more union workers would likely remain union members and more unorganized workers would join unions — even in the “face” of employer opposition. While there is little question that there are widely varying types of real-world employment relationships or that unions are best suited to protecting worker interests in certain of these (usually highly adversarial) relationships, the fact that workers as a whole decreasingly choose to become union members suggests that they do not perceive union voice to be effective in redressing deteriorated employment relationships or to be more effective in this respect than nonunion voice options. Such reasoning is consistent with the picture sketched in this paper — a different picture from that forwarded by F&;M — of unionism and grievance procedures as largely reactive, adversarial-oriented mechanisms for dealing with workplace conflict resolution, especially in a pluralist, mixed-motive type of employment relationship.     

A dynamic model of public sector employer response to unionization

We model the response of public sector employers to unionization using the response of public school boards to teacher unionization as an example. While it is generally believed that public sector employers pay unionized workers more than nonunion workers, there is less consensus about where the money comes from. We model two cases which are possible employer reactions to unionization: re-allocating resources among types of expenditures and modifying the way in which services are provided. The model contains a political equilibrium that determines the union’s preferences and an economic equilibrium that reflects labor market conditions. We compare the predictions of the two cases regarding the effect of unionization on wages, turnover, allocation of expenditures, and productivity. We interpret existing empirical research on public sector unionization in light of these predictions and make recommenda-tions for future empirical work.