Unionization and productivity in commercial banking

This paper examines the net effect of unions on productivity in the commercial banking industry. The focus of the study is on three methodological issues. First, an attempt is made to determine whether individual unions have a differential impact on banking productivity. The influence of unions on output per man-hour was initially estimated by including a union dummy variable in a Cobb-Douglas formulation of bank production. Separate binary variables were then entered into alternative specifications of the model to test the heterogeneity hypothesis. This hypothesis postulates differential productivity effects among the individual unions operating in the commercial banking sector. Second, the sample banks were paired on a case-by-case basis to assure the homogeneity of the two groupings: i.e., union and nonunion. Sample homogeneity is necessary because of the assumptions of identical production functions and output prices between the groups. Third, a complete covariance model was specified in order to estimate the impact of unionization on each parameter of the production function. In general, the unionized banks were less productive than their nonunion peers. It should be noted, however, that the standard errors were large in all the specifications. Moreover, the labor relations problems associated with one union had a large impact on the sector results.