Unions, Wages, and the Common Interest

Abstract

Three models have dominated recent research on the relationship between labor unions, wage behavior, and national economic performance: a simple linear model, a parabolic model, and a political model. This article argues that an unemployment-mediated linear model is theoretically preferable. In a context of low unemployment, encompassing labor movements can be expected to restrain wage demands, whereas localized unions have much less incentive to do so. In a context of high unemployment, localized unions should exhibit wage moderation, and the pressure on encompassing unions to restrain wage demands is further accentuated. These four models are assessed as predictors of wage changes, inflation, and misery index levels for 15 industrialized nations over the periods 1960-1973, 1974-1979, and 1980-1990. The linear models outperform the parabolic and political models in each of the latter two time periods. For the mid-to late 1970s the simple linear model performs best, but for the 1980s the unemployment-mediated linear model proves superior. None of the models has any explanatory utility for the pre-oil shock period.