Nonunion Wages Research Articles

Union and nonunion wages at the firm level: A combined institutional and econometric analysis

This paper presents an analysis of union-nonunion wage differences at the intrafirm level. At this level of analysis, modeling of the union effect can be informed by a historical overview of the organizational context of unionization, which is not as feasible at other levels of analysis. The findings suggest that a simultaneous equation (2-stage) model, in which union status is treated as an endogenous variable, is not appropriate in this case. Moreover, OLS estimations of the union effect on wages from a one-stage model in which union status is exogenous is found to be efficient and unbiased. The study suggests that combining institutional details of the organizational context with econometric analysis facilitates a better understanding of not only the magnitude of wage differences but also of how the differences may be interpreted in the context of industrial relations.

Analysis of Part-Time Pay in Canada

This paper analyses the difference between part-time and full-time wages in Canada using the 1981 Survey of Work History. Since part-time and full-time workers are distinguished by hours worked and since hours worked and wages are interdependent, selectivity bias occurs if ordinary least squares regression is used. A modification of Heckman's procedure, to account for the fact that part-time hours are doubly truncated, is used to correct this problem. The results indicate that, adjusting for differences in characteristics, the wage differential between part-time and full-time workers is 10 per cent, or one-third the unadjusted differential. Results vary somewhat by sex and marital status. Analyse de la remuneration du travail d temps partiel au Canada. Ce memoire analyse les differences entre les salaires pour le travail a temps plein et a temps partiel au Canada a partir des resultats de l'Enquete sur l'activite en 1981. Puisque les travailleurs a temps plein et A temps partiel sont definis par le nombre d'heures de travail, et puisque le nombre d'heures de travail et les niveaux de salaire sont interdependants, il y a biais de selectivite quand on utilise la methode des moindres carres ordinaires dans l'analyse de regression. L'auteur utilise une modification de la technique de Heckman (pour tenir compte du fait que le nombre d'heures de travail a temps partiel est doublement tronque) pour corriger le probleme. Les resultats montrent que, apres avoir tenu compte des differences dans les caracteristiques des personnes, on observe un differentiel de niveau de salaire de 10 pourcent entre les travailleurs a temps plein et a temps partiel, soit le tiers du differentiel brut avant les ajustements pour tenir compte de caracteristiques differentes. Ces resultats varient quelque peu selon le sexe et selon la situation familiale. The trend towards part-time employment has generally escaped the attention and scrutiny of economists.' Part-time employment in Canada grew at an annual rate of 4.1 per cent between January 1972 and January 1984, compared 1 One exception is Nakamura and Nakamura (1983), who examine related labour supply issues for married females. Canadian Journal of Economics Revue canadienne d'Economique, xix, No. 4 November novembre 1986. Printed in Canada Imprim6 au Canada 0008-4085 / 86 / 798-807 $1.50 ?0 Canadian Economics Association This content downloaded from 207.46.13.159 on Sat, 22 Oct 2016 04:29:38 UTC All use subject to http://about.jstor.org/terms Analysis of part-time pay in Canada 799 with a growth rate of only 2.4 per cent for full-time employment. As a result 15.4 per cent of jobs were part-time as of January 1984 compared with 13 per cent in January 1972.2 The growth of part-time employment raises a number of issues. In particular, Labour Canada (1983) argues that the hourly wage differential between full-time and part-time workers reached 26.3 per cent in 1981. It is not clear, however, that this gross wage differential between full-time and part-time workers is a useful figure. A number of accepted, measurable characteristics that determine wage differentials among workers may confound this comparison unless full-time and part-time workers have identical characteristics. It would therefore be useful from a policy standpoint to eliminate these effects to identify part-time effects, and the gravity of the part-time pay problem, per se. This paper analyses the differences between part-time and full-time wages to try to distinguish part-time effects, whatever the source, from other established bases for differentials. In the first section a standard model for wage comparison among workers is considered. The source of selectivity bias is identified and a consistent estimation technique is described. The second section uses this technique to analyse the differences in part-time and full-time wages using microdata from the 1981 Survey of Work History used by Labour Canada (1983). The third section summarizes the results and provides suggestions for further research. A MODEL FOR WAGE COMPARISON WITH SELECTIVITY BIAS Consider a standard model used extensively for union and non-union wage comparisons (Lee, 1978; Duncan and Leigh, 1980; Robinson and Tomes, 1984; Simpson, 1985). Let Wf be a vector of observations on the natural logarithm of hourly wages paid to full-time workers and let X be a matrix of observations on measurable worker characteristics commonly used in such models, namely, educational attainment, age, sex, union status, public (vs. private) sector status, and region. Let wp and X be the corresponding observations for part-time workers. Let h* be the maximum hours of work permitted for classification as a part-time worker. Then we specify Wf Xff3f ? If if h > h* (1)

The effects of davis-bacon on labor cost and union wages

Two issues have seriously hampered studies of the impact of the Davis-Bacon Act. The first is that one must make assumptions about what the distribution of wages would be in the absence of the statute. It is shown that cost estimates are quite sensitive to these assumptions. The second is that while Davis-Bacon determinations may increase nonunion wages, they are also likely to increase the bargaining power of unions leading to higher union wages. Simply estimating the impact on nonunion wages therefore underestimates the true effect. Union wages are both determined by and a determinant of Davis-Bacon wages. It is found that Davis-Bacon determinations exert a significant influence on the union’s ability to gain higher wages.

A Lack-of-Fit Test for Econometric Applications to Cross-Section Data

and Labor Relations Review 31 (Oct. 1977), 45-60. ,_ and Professional Earnings in Manufacturing, and Labor Relations Review 31 (Apr. 1978), 379-384. Freeman, Richard B., and James L. Medoff, Impact of the Percentage Organized on Union and Nonunion Wages, this REVIEW 63 (Nov. 1981), 561-572. Haworth, Charles T., and David W. Rasmussen, Human Capital and Inter-Industry in Manufacturing, this REVIEW 53 (Nov. 1971), 376-380. Haworth, Charles T., and Carol J. Reuther, Industrial Concentration and Inter-Industry this REVIEW 60 (Feb. 1978), 85-95. Hendricks, Wallace, Unionism, Oligopoly and Rigid Wages, this REVIEW 63 (May 1981), 198-205. Levinson, Harold M., Unionism, Concentration and Changes: Toward a Unified Theory, and Labor Relations Review 20 (Jan. 1967), 198-205. Masters, S. H., Wages and Plant Size: An Interindustry Analysis, this REVIEW 51 (Aug. 1969), 341-345. Mellow, Wesley, Employer Size and Wages, this REVIEW 64 (Aug. 1982), 495-501. Miller, Edward M., Large Firms Are Good For Their Workers: Manufacturing as a Function of Firm Size and Concentration, The Antitrust Bulletin (Spring 1981), 145-154. Pugel, Thomas A., Profitability, Concentration and the Interindustry Variation in Wages, this REVIEW 62 (May 1980), 248-253. Rapping, Leonard A., Monopoly Rents, Rates, and Union Effectiveness, Quarterly Review of Economics and Business 7 (Spring 1967), 31-47. Ross, Stephen A., and Michael L. Wachter, Wage Determination, Inflation, and the Structure, The American Economic Review 63 (Sept. 1973), 675-692. Segal, Martin, Relation between Union Impact and Market Structure, Quarterly Journal of Economics 78 (Feb. 1964), 96-114. Sparrow, Dorothy, Changing Market Structure: Impact on Union Gains, Relations 10 (May 1971), 160-167. Stafford, Frank P., and Labor Earnings: Comment, The American Economic Review 58 (Mar. 1968), 174-181. Weiss, Leonard W., and Labor Earnings, American Economic Review 56 (Mar. 1966), 96-117.

Collective Bargaining and Union Membership Effects on the Wages of Male Youths

The objective of this paper is to demonstrate that the nonunion wage differential consists of two effects. The first represents the differential between the wage of a nonunion worker in a collective bargaining unit and the wage paid to a comparable worker not covered by a bargaining agreement. This effect arises from the monopoly power of organized labor. The second is the wage differential between union and nonunion workers in collective bargaining units. This latter effect is attributed to economic benefits that unionism brings to its members. Empirical evidence is presented in support of both effects.

The Endogeneity of Union Status: An Empirical Test

An unsettled issue in the literature relating to the relative wage effect of unions is the appropriate treatment of union status in a wage determination model. In the context of a three-equation model determining union membership and union- and nonunion-sector wage rates, this paper presents an instrumental variables (IV) procedure for estimating the parameters of the wage equations and a test of the exogeneity of union status using the Hausman specification test. An advantage of our IV procedure in comparison to the widely used inverse Mill's ratio procedure is that our procedure is a distribution-free estimator, whereas the inverse Mill's ratio estimator hinges in the assumption that the error term of the choice equation is normally distributed. Using data for a sample of middle-aged white workers, we estimate the parameters of the union and nonunion wage equations with both procedures. On the key question of the endogeneity of union status, the Hausman test decisively rejects the null hypothesis of exo...

The effect of the extent of unionism on union and nonunion wages

This paper provides estimates, derived from micro wage equations, of the effects of unionism on the wages for both union and nonunion labor. These equations control not only for union status, but also include measures of the extent of unionism in product and labor markets. The results suggest,inter alia, that an increase in the extent of unionization in an industry has substantial positive effects on the wages of nonunion as well as union workers. Increases in the extent of union coverage within an occupation, however, have little or no effect on nonunion wages.

Measuring the Union Relative Wage Impact: A Methodological Note

Measuring the Union Relative Wage Impact: A Methodological Note

Unions and Monopoly Profits

Using cross-sectional data for U.S. manufacturing, the author identifies a negative effect of unions on the profits of highly concentrated industries and virtually no effect on the profits of unconcentrated industries. results for concentrated industries are explained in terms of the monopoly model which predicts a negative effect of unions on profits equivalent to the change in surplus. monopoly model also suggests that previous profit studies which omitted the union variable were likely to significantly underestimate the relationship between concentration and profits. This prediction is also supported by empirical evidence. M sANY studies have demonstrated the ability of unions to raise wages above the level of nonunion workers.' Higher union wages in turn may affect the level of prices, employment, capital intensity, productivity and profits. Recent studies by Clark (1982) and Freeman (1983) have found significant negative effects of unions on profit rates in the United States. Using line of business data from 1970 to 1980 for 900 firms, Clark found a negative effect of unions on the rate of return to capital. More specifically, the union effects were found to be significantly negative when market shares were low and insignificant when market shares were high. According to Clark, the absence of a union effect in the latter case can be explained by the ability of firms with market power to pass on higher union wages into higher prices (1982, p. 47). On the other hand, Freeman (1983), using data from the Survey of Manufactures from 1958 to 1976 and the Internal Revenue Service from 1965 to 1976 also found a negative effect of unions on profits. Contrary to Clark's results, however, the union profit effect was negative only in concentrated industries. point of contention appears to be the role of concentration in determining the union profit effect, rather than the overall negative impact of unions. results of Clark and Freeman are important because previous industrial organization research on profit rates generally ignored unions. For instance, of the forty-six profit studies surveyed by Weiss (1974), none included a union variable. More recently, a profit study in this Review by Ravenscraft (1983) using high quality, line of business data from the Federal Trade Commission, also ignored unionization. As will be demonstrated, the omission of the union variable leads to an understatement of the effect of industrial concentration on profits. This means that concentrated industries generate much greater profits than indicated by previous research. In order to measure the size of the understatement, a new concept, employer's surplus, is developed which illustrates the theoretical impact of a union wage increase on monopoly profits. empirical estimates of surplus in this paper indicate how monopoly profits are divided between firms and unions. Most of the data used in this study were obtained from James Medoff and Charles Brown.2 Unlike the previous two studies, each observation corresponds to a state by two digit SIC industry for manufacturing in 1972. Because of the large variations in unionization across states, this data set offers a useful test of the union profit effect. I. Employer's Surplus According to accepted theory, the profit maximizing monopolist will employ labor up to the point where the market wage equals the marginal revenue product, MRP.3 If for simplicity we assume that all other factors are variable, then the MRP curve represents the monopolist's long-run demand for labor. In the absence of unions, employment is determined by the intersection of the MRP curve and nonunion wage (Wn) as pictured in figure 1. If unions raise wages to Wa, employment will decrease from Ln to L, with the reducReceived for publication November 28, 1983. Revision accepted for publication July 6, 1984. *Eastern Washington University. I am very grateful to Dave Bunting, Lisa Brown, Bill Dickens, Claire Brown, and George Strauss for their valuable suggestions on this research. This paper is a revised version of chapter 3 from the author's Ph.D. thesis, The Union Impact on Profits, Productivity, and Prices, University of California, Berkeley. 1 See Parseley (1980) for a recent review of this literature. 2 I would like to thank Brown and Medoff for making these data available to me. 3 Marginal revenue product is equal to marginal revenue multiplied by marginal physical product. See Rees (1979).

Wage Concessions and Long-Term Union Wage Flexibility

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

Unionism and the Cyclical Behavior of the Labor Market in U.S. Manufacturing

T HE traditional view of market dynamics implies that when demand varies, intertemporal variation in quantities exchanged increases as prices become less flexible. This reasoning leads to the proposition that wage and price rigidities are important contributors to cyclical fluctuations in output. Fischer (1977a) and Gray (1978) based formal macro models on this principle. Although this view is common, it has little empirical support.' The coexistence of union and nonunion establishments engaged in similar activities contains potential for testing its merits. Economists have long maintained that in the short run, union wages are less flexible than nonunion wages (Dunlop (1950), Rees (1951)). This difference should produce larger fluctuations in union employment and hours. Empirical studies have generally supported the union wage rigidity hypothesis (Lewis (1963), Ashenfelter, Johnson, and Pencavel (1972), and Hendricks (1981)),2 but until recently, lack of data precluded analysis of hours and employment. Definitive answers to the important questions concerning unions' influence on cyclical behavior require yet unavailable information matching the behavior of firms and characteristics of workers, but data from modem surveys have allowed considerable progress. Nevertheless, it remains a challenge to determine how much of differences observed in the stability of labor utilization are attributable to differences in the stability of demand. Medoff (1979) and Raisian (1979) report that cyclical variation of employment and hours is indeed greater for union labor. But despite attempts to allay suspicion that their finding arises primarily from concentration of union members in cyclically sensitive industries, both studies leave room for doubt. Raisian estimated functions relating an individual's wage and weeks worked in a year to a proxy for excess demand (that year's unemployment rate) in the worker's industry. The technique is attractive, but Raisian's data included workers from the entire economy, and the industries were broad aggregates. Thus, differences in the union and nonunion groups' compositions may play a large role. Medoff, who confined his study to production workers in manufacturing and used data allowing finer partitions, investigated the importance of composition more thoroughly. But he did not estimate relationships between adjustments in employment or hours and a measure of demand. Furthermore, his focus was principally on the composition of manhours adjustments rather than their size. In this paper I combine the strongest features of the Medoff and Raisian studies in further examination of the influence of unionism on cyclical fluctuations. Using Current Population Surveys (U.S. Department of Commerce (1978)) from May of 1973-75, my analysis covers production workers in manufacturing during a period of rising inflation and unemployment. The heart of the analysis is a measure of residual employment that quantifies, by three-digit industry and year, shortrun excess demand for labor. I construct this variable from employment time series and use it to estimate union-nonunion differences in the cyclical responses of unemployment, hourly wage rates, and hours worked. The results are consistent with the view that increasing rigidity in wages amplifies cyclical fluctuations in the utilization of labor. The wage regressions add further to the literature's already strong support for the union wage rigidity hypothesis. The employment status and hours regressions imply that the sensitivities of employment Received for publication August 12, 1981. Revision accepted for publication February 11, 1983. * Federal Reserve Bank of Dallas. This paper is based on my Ph.D. dissertation, which was completed at UCLA with financial assistance from the Rand Corporation and the Department of Labor. Comments by referees and by participants of labor workshops at UCLA and the University of Chicago, as well as the computation assistance of Brian McKee, are gratefully acknowledged. I am responsible for any remaining errors. The views expressed should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. ' One study is Gordon (1982), who concludes (page 41) that, macroeconomic instability in the United States has been aggravated by the unusually sluggish behavior of nominal wages in the postwar era. 2See also Johnson (1975), Parsley (1980), and Moore and Raisian (1980).

Relative Earnings and Individual Union Membership in the United Kingdom

Considerable attention has been focused in recent years on the empirical analysis of the effect of trade unions on the structure of earnings. Such empirical investigation usually entails measurement of the union/non-union differential in wages or earnings. At the level of the individual this involves comparison of the earnings of union members with estimates of what their earnings would be were they not union members, or, equivalently, examination of differences in earnings between individuals comparable with regard to all other relevant characteristics who differ in their union membership alone. In the United Kingdom all previous attempts at estimation of this differential have used aggregate data at either the industry or occupation level.1 The conventional methodology involves regression of the logarithm of the average wage on either the proportion of workers who are union members or the proportion covered by a collective agreement, together with a vector of industry characteristics that are deemed to determine the non-union wage. However, several problems are immediately apparent with this methodology. First, the model ignores the possibility of variation in the differential across industries, which has potentially serious consequences. Second, the vector of other characteristics customarily used is somewhat limited and raises doubts concerning the adequacy of the standardization for what might loosely be termed labour quality. Third, only a sub-sample of industries is ever used owing to lack of data. Those industries excluded are generally smaller (in terms of employment) that those included. If the differential varies with the size of the industry a further bias will be induced. All of these problems are either removed or lessened by the use of individual-level data. (For an analysis of their impact at the industry level see Geroski and Stewart, 1981).2 As a result, it is now widely accepted that the appropriate way to measure such differentials is to use micro-data sets at the level of the individual worker. Until recently suitable data have not been available for the United Kingdom and hence such analysis was not possible. This paper presents the first estimates for the United Kingdom based on individual-level data. If the value of the union/non-union differential were the same for all workers in the unionized sector, analysis at the industry level and the individual level would produce similar results. However, the Marshallian laws of derived demand suggest that this will not be the case. Despite this clear prediction of variation in the differential, there has been little systematic investigation of the variation. This paper also presents such an analysis. Since variation in the differential across industries results in aggregation bias in industry-level studies, such an analysis is of considerable relevance to the evaluation of the evidence from such studies, as well as being of interest in its own right. The paper is laid out as follows. Section I presents a method of estimating the union/non-union differential at the individual level while Section II

Union Effects on White-Collar Compensation

This paper uses two new data sources, each of which combines information on worker and establishment characteristics with detailed information on the components of employee compensation, to examine union/nonunion pay differentials for white-collar workers. Estimates reveal that nonunion wages and total compensation are more responsive than union pay levels to worker productivity differences, such as education and work experience. Also, large firms pay 10 to 15 percent more to their white-collar employees than small firms in the nonunion sector but only 5 percent or less in the union sector. Overall, the white-collar union wage differential appears to be 3.5 to 4.0 percent, rising to 7.1 percent when fringe benefits are included in the dependent variable. Significant spillovers to nonunion white-collar workers, which appear to erode the measured union/nonunion pay differentials, are also found.

The Direction of Wage Spillovers in Manufacturing

This study develops a model of wage behavior for both union and nonunion workers in the U.S. manufacturing sector and tests that model with separate union and nonunion wage-change series covering the period 1960 to 1978. The empirical results support the traditional view that union wage behavior influences or spills over into nonunion wage changes but not vice versa. These results are of particular interest because they contrast sharply with an earlier study by Flanagan that reported an opposite spillover effect. Flanagan's results are shown to be quite sensitive to the choice of model specification and data period.

The Impact of the Percentage Organized on Union and Nonunion Wages

T HE impact of unions on wages is likely to depend on the extent to which they organize workers in the relevant product market.1 As the organization in a market increases, the opportunity for substituting nonunion for union products will be reduced, lowering the elasticity of demand for organized workers and the potential loss of employment for a given wage increase. As a result, the wages of union workers are likely to be higher, all else the same, the greater the percentage organized. The wages of nonunion workers may also be influenced by the extent of organization, though the direction of the effect is not clear. On the one hand, union wage gains due to greater coverage may induce increases in nonunion wages because of the threat of organization and/or because of shifts in demand favoring nonunion producers brought about by the increased relative cost of union labor. On the other hand, the supply of labor to nonunion firms may increase as a result of reduced employment in the union sector, which would most likely depress nonunion wages. Whether the threat plus demand effect or the supply effect dominates is an empirical issue. The impact of the percentage organized on the union wage differential (the difference between the natural logarithms of union and of nonunion wages) depends on the relative magnitudes of the likely positive impact on union wages and the positive or negative impact on nonunion wages. This paper seeks to disentangle the relation between the percentage of workers organized in a product market and the wages received by union workers and by nonunion workers. In contrast to most of the literature on the union wage effect, which either relates some average of wages in an industry to the percentage organized or which relates the wages of individuals to their membership in a union, our analysis examines the impact of the percentage organized on the compensation of union labor and nonunion labor taken separately.2 By relating the wages of unionized workers to the percentage covered by collective bargaining in the relevant product market, we estimate directly the extent to which unionized workers in highly organized markets receive higher wages than unionized workers in less organized settings. By relating nonunion wages to the percentage covered, we provide direct estimates of the extent to which, as a result of threat, demand, and supply effects, nonunion workers in highly organized markets receive higher or lower wages than nonunion workers in less organized industries or areas. Two sets of data are used in the study: information on individuals from the 1973, 1974, and 1975 May Current Population Surveys (CPS), which contain data on usual weekly earnings, usual weekly hours, union membership status, and key personal characteristics; and information on establishments from the Bureau of Labor Statistics' 1968, 1970, and 1972 Expenditures for Employee Compensation Surveys (EEC), which contain data on the components of compensation, labor hours, collective bargaining coverage, and some relevant establishment characteristics. The availability of both individual and establishReceived for publication April 24, 1980. Revision accepted for publication May 27, 1981. * Harvard University. We have benefited from the comments of K. Abraham, C. Brown, H. G. Lewis, and L. Summers. We are most grateful to G. Bialecki, J. Fay, C. Ichniowski, L. Nelson, M. Van Denburgh, L. Wilson, and J. Zax for research assistance. The study has been supported by the National Science Foundation (Grant APR 77-16279) and the National Bureau of Economic Research (under its program for research on labor economics). Any opinions expressed are not necessarily shared by the individuals who have aided us, NSF, or NBER. I Throughout our theoretical discussion we refer to a product market, which is the appropriate unit of observation for an analysis of the relationship between percentage organized and wages. However, in the empirical work we focus on either a 3-digit Standard Industrial Classification or Census industry (in the manufacturing analysis) or a Current Population Survey state group (in the construction analysis). Unfortunately, the data used do not permit a closer correspondence between the theoretical and empirical parts of our study. 2 For an early attempt to disentangle this relation, using average wages in an industry and percentage organized, see Rosen (1969). For more recent related analyses, see (in alphabetical order) Donsimoni (1978), Hendricks (1975), Kahn (1978), and Lee (1978). For a trenchant treatment of the analysis, see Lewis (1980).

Union—nonunion wage differentials over the business cycle: A bilateral monopoly model

The primary purposes of this paper have been to provide a theoretical explanation of the declining ratio of union to nonunion wages during economic expansion and to identify the bargaining ranges associated with changing labor demand conditions and also associated with variation in the degree of union power relative to management.

Unionism, Oligopoly and Rigid Wages

T HE proposition that imperfections in product and labor markets lead to wage rigidity has been stressed by many authors in their analysis of wage inflation.' The most commonly held view is that wage differentials which result from these imperfections behave countercyclically. That is, periods of rapid inflation and/or low unemployment are believed to be associated with reduction of the wage premium attributed to both unionization and oligopolistic structure. On the labor market side it is argued that wage rigidity is primarily due to lags introduced by collective bargaining.7 In periods of low demand union wage levels are maintained through long term agreements. On the upswing these same long term agreements do not allow the union wage to react as quickly as the nonunion wage to increases in demand. Cross-sectional estimates of economy-wide union/nonunion differentials are often used to support this hypothesis.3 On the product market side it is often argued that concentrated industries have the ability to raise prices in periods of economic slack. This market power is a permissive factor which may allow workers in these industries to demand a share of the excess profits.4 Of course, the work force must have some method of demanding this share. It is usually assumed that union power is relatively great in these concentrated industries. Thus, this argument is really conditioned on imperfections in both the labor and product market, and is therefore much closer to an interaction hypothesis than a pure oligopolistic structure hypothesis. Proponents of this argument further hypothesize that concentrated industries do not increase prices as fast as competitive industries in an economic upturn. Wage differentials between concentrated and unconcentrated industries are therefore expected to narrow in periods of rapidly increasing prices. With one exception,5 the support for this hypothesis comes from studies of wage changes in concentrated versus unconcentrated industries.6 This paper is a reexamination of the wage rigidity hypotheses. The impacts of unionization and concentration on average wage levels are first estimated for a series of cross-sectional observations in manufacturing between 1947 and 1976. The differences in these cross-sectional impacts across time are then analyzed using rates of inflation and unemployment levels as explanatory variables.

The determination of union and non-union wage rates

If, in a partially unionised economy, union workers force up their absolute wage rate, how does this affect the wage paid in the non-union sector? This paper suggests a simple answer. First, in a small open economy a rise in the union wage will raise the non-union wage. Secondly, in a closed economy — or one with some monopoly power in world trade — a rise in the union wage seems likely to depress the non-union wage.

Threat and morale effects in the theory of wages

This paper constructs a simple general equilibrium model in which ‘threat’ and ‘morale’ effects influence the determination of union and non-union wage rates. A widely taught and well-known conclusion of conventional theory, namely that a rise in the union wage will also raise non-union wages, is shown to be incorrect: the model predicts exactly the opposite. A new version of the morale effect is also suggested.

Wage Determination in the Union and Nonunion Sectors: A Sample Selectivity Approach

This paper re-examines the question, recently raised in this journal by Bloch and Kuskin, of whether wages are determined differently in the union and nonunion sectors. Whereas Bloch and Kuskin employed ordinary least squares to estimate separate wage equations for the two sectors, this study uses a methodology proposed by Heckman and by Lee to correct for the possibility that wage differences may determine the union status of workers as well as vice versa. The authors find that union status is strongly related to the predicted union-nonunion wage differential, but their evidence nevertheless reinforces Bloch and Kuskin's empirical finding that the union earnings function is less sensitive than the nonunion earnings function to changes in nearly every observable attribute of workers, such as education and experience. The authors also conclude that previous studies using separately estimated union and nonunion wage equations may have understated the success of unions in raising the relative wages of their members.