Wage Concessions and Long-Term Union Wage Flexibility

Abstract

BY MANY INDICATIONS , the behavior of average union wages in the early 1980s contrasts sharply with their behavior over most of the postwar period. During the 1970s the basic mechanisms of union wage determination were in many ways solidified: the average duration of labor agreements continued to increase as the reach of multiyear contracts was extended, and there was a substantial expansion in the number of formal cost-of-living adjustment (COLA) provisions; many large unions adhered to a policy of negotiating an annual improvement factor plus COLA despite the fact that the productivity trends that formed the original justification for the annual improvement factor had greatly deteriorated; and while there has always been considerable dispersion in the results of individual negotiations, wage dispersion within the union sector appeared to increase as labor agreements that included COLA clauses ultimately yielded higher pay increases than those that did not. In addition, average union wage increases consistently exceeded average nonunion wage increases during the 1970s, raising the union-nonunion wage differential to a historic high by the early 1980s. All was not well within the union sector, however. The power of labor unions rests on their ability to sustain barriers to entry. Over the years different unions have sought to restrict nonunion competition in various ways, such as rationing access to training for some skills through apprenticeship programs, organizing all the producers of a particular