Workers Bargain Research Articles

The Effects of Collective Bargaining Rights on Public Employee Compensation

Widespread public-sector unionism emerged only in the 1960s, as individual states opened the door to collective bargaining for state and municipal workers. In this study, the author exploits differences in timing of legislative reforms across states to construct estimates of the causal effects of public-sector collective bargaining rights on pay, benefits, and employment for teachers, firefighters, and police. Perhaps surprisingly, estimates that allow for state fixed effects and state-specific trends show little effect on teachers’ pay, benefits, or employment, despite significantly increasing union presence among teachers. For firefighters, the results show a substantial positive effect on wages. For police, the wage effect was more modest but the workweek was significantly shortened.

The Fight for the Four Freedoms: What Made FDR and the Greatest Generation Truly Great by Harvey J. Kaye (review)

Reviewed by: The Fight for the Four Freedoms: What Made FDR and the Greatest Generation Truly Great by Harvey J. Kaye Dean J. Kotlowski, Professor of History (bio) Harvey J. Kaye, The Fight for the Four Freedoms: What Made FDR and the Greatest Generation Truly Great (New York: Simon and Schuster, 2014), 292 Pages, ISBN. What did the United States fight for during World War II? In an episode of the television sitcom All in the Family, Mike Stivic poses the question to Archie Bunker, who replies that he fought because he was drafted. The characters were fictional, but Archie’s response contained a grain of truth for many veterans, as Norman Lear, the show’s creator, knew. Now, Lear has provided a back-cover endorsement of Harvey J. Kaye’s new book on the origins and the fate of Franklin D. Roosevelt’s Four Freedoms (Freedom of Speech and Religion, Freedom from Want and Fear) for which Americans purportedly fought in World War II—and then forgot about in the decades that followed. Kaye argues that FDR and the country were on the same page during the 1930s and 1940s. “Americans did not simply suffer and endure the Great Depression. They confronted it,” he asserts. “They did so by electing a man to the presidency who believed in America’s democratic purpose.”1 That was just the beginning. Roosevelt set out to “restore America to its own people” by getting government to work on behalf of average folks rather than corporate elites.2 His New Deal embarked on “a grand democratic experiment of renewal and transformation” by providing price supports for farmers, collective bargaining for workers, pensions for the aged, and public works jobs for the unemployed.3 Most Americans responded to their president’s words and deeds: “They would organize themselves—as workers, as consumers, as citizens—to demand their rights. And they would make America freer, more equal, and more democratic.”4 That impulse continued during World War II, especially after FDR enunciated the concept of the Four Freedoms in his 1941 State-of-the-Union Address. The president’s speech, according to Kaye, “gave voice to the widely held presumption, the boon to the lived experience of the New Deal, that the American experiment was unfinished.”5 Kaye has much to say, and he says it well. The Fight for the Four Freedoms makes a persuasive case that the New [End Page 808] Deal did not end with the passage of the Fair Labor Standards Act of 1938 and the subsequent attack of congressional conservatives on Roosevelt’s domestic agenda. Rather, during World War II, Roosevelt told Americans that Dr. New-Deal had merely shared his practice with Dr. Win-the-War. To prove the point, FDR pushed an “economic bill of rights,” albeit without success, as well as the G.I. Bill of Rights, which Congress enacted.6 Meanwhile, average Americans continued to join labor unions; civil rights organizations boosted their membership and clout; women entered the workforce; and the US government celebrated the country’s ethnic and racial diversity. Moreover, democracy in general and the Four Freedoms in particular became chic in mass culture. The words and imagery of the Four Freedoms figured in a Treasury Department war-bond drive, the title of a symphony by Robert Russell Bennett, a graphic-design contest organized by “the ten-thousand-member-strong Artists for Victory,” and, of course, Norman’s Rockwell’s famous drawings for the Saturday Evening Post.7 Yet, as Kaye deftly illustrates, corporate interests appropriated the concept of the Four Freedoms to advance their own ends. The United States Junior Chamber of Commerce added a fifth freedom—freedom of enterprise—to those voiced earlier by FDR. After the war, business leaders and their conservative backers sought to co-opt what had been a plea to end poverty and fear as well as to defend First-Amendment freedoms. For example, the president of the American Medical Association cited the Four Freedoms in attacking President Harry S. Truman’s proposal for national health insurance, arguing that if passed the measure would “subjugate American medicine.”8 Kaye notes how conservative organizers of the postwar Freedom Train...

The Union Threat

This paper develops a search theory of labor unions in which the possibility of unionization distorts the behavior of nonunion firms. In the model, unions arise endogenously through a majority election. As unionized workers bargain collectively with the firm, unionization compresses the wage distribution and lowers profits. To prevent their own unionization, nonunion firms distort the skill composition of their workforce by over-hiring high-skill workers, who vote against the union, and under-hiring low-skill workers, who vote in its favor. Because of decreasing returns to labor, this change in hiring lowers output while reducing the dispersion of wages. In the calibrated economy, removing the threat of unionization, by freezing the union status of firms, reduces unemployment and increases output and the variance of wages. Removing, in addition, all unions from the economy leads to a larger increase in wage inequality but does not further affect output and unemployment. These results suggest that the threat that unionization exerts on nonunion firms, more than the fact that some firms are actually unionized, is the main channel through which unions affect output and unemployment in the U.S. economy.

Social contacts and referrals in a labor market with on-the-job search

This paper develops a matching model of the labor market with heterogeneous firms, on-the-job search and family referrals. The overall effect of referrals on wages can be decomposed into three distinct components. First, if referrals are used to help unemployed partners find jobs, then recommended workers are disproportionately concentrated in the left tail of the earnings distribution. This is a negative concentration effect of referrals, which emerges because workers accept (forward to the partner) job offers from more (less) productive employers. Second, if referrals are also used by workers to pool their less successful employed partners to more productive jobs, then the process of on-the-job search is intensified. This is a positive pooling effect of referrals. Third, better connected workers bargain higher wages for a given level of productivity. This is a positive effect of referrals on reservation wages and earnings. In the equilibrium, the overall effect of referrals can be positive (wage premiums) or negative (wage penalties). The negative effect is dominating in labor markets with strong productivity heterogeneity of firms and large bargaining power of workers. Otherwise, the positive effect is dominating. Referrals can have a negative effect on social welfare if there is a sharp drop in the search intensity after workers accept low productivity jobs.

Reproduction Preferences and Wages: The Mineworker in Jharia Coalfields, 1895–1970

Why did workers bargain for a specific amount of wage? This was an expression of reproduction preferences of workers rather than merely any demand and supply calculation. This article brings out how the mineworkers evinced their post-traditional economic propensity, as it was in contradistinction to the ‘subsistence ethic’, in wage negotiations and work efforts. Mineworkers articulated the economic propensity upon the message derived from the self-respect campaign and respectable tastes of consumption. Their economic propensity was an excess for capital’s ‘iron law of wage’. Mineworkers interrogated the latter, and graduated to play the game of wage-work with the rules of struggles for a minimum living wage for a human, ‘civilized’ life. This concept of the minimum living wage represented mineworkers’ new reproduction preferences, the compensation for the loss of supplementary earnings and their awareness of a mismatch between their work-efforts and their earnings. This article takes the historiography of wage disputes beyond the detail of cost-of-living index and trade union militancy. It further questions the argument that the returns to labour depended on the supply of and demand for labour; and that the local customs and labour surplus inhibited workers’ attempt to secure wages adequate for comfortable living.

The Impact of Worker Bargaining Power on the Organization of Global Firms

We study the effect of worker bargaining power on global firms' boundaries. Our theory posits that outsourcing weakens the workers' bargaining position by limiting the revenues subject to worker extraction. Furthermore, when capital is relationship-specific, outsourcing reduces the firm's exposure to ex-post worker opportunism. Hence, worker bargaining power provides incentives for vertical fragmentation, and the more so in capital-intensive industries characterized by specific investments. Our empirical analysis relates global sourcing strategies to observable measures of worker bargaining power. We provide firm-level evidence consistent with the theoretical predictions.

Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search

Some workers bargain with prospective employers before accepting a job. Others face a posted wage as a take-it-or-leave-it opportunity. Both modes of wage determination have generated large bodies of research. We surveyed a representative sample of US workers to inquire about the wage determination process at the time they were hired into their current or most recent jobs. A third of the respondents reported bargaining over pay before accepting their current jobs. Almost a third of workers had precise information about pay when they first met with their employers, a sign of wage posting. About 40 percent of workers were on-the-job searchers—they could have remained at their earlier jobs at the time they accepted their current jobs, indicating a more favorable bargaining position than is held by unemployed job-seekers. About half of all workers reported that their employers had learned their pay in their earlier jobs before making the offer that led to the current job. (JEL C83, J31, J52, J64)

Employer-Provided Health Insurance and the Adverse Selection Problem

The role of employers in the health insurance market in the United States is substantial, but there is little formal analysis investigating how the introduction of employers affects the structure of equilibrium contracts in the health insurance market. In this article, the authors present and analyze a model of employer-provided health insurance and show that if the labor market is competitive, the equilibrium must be a separating equilibrium, as in the standard model. The key to this result is that insurance companies and employers have similar incentives because health insurance is an important component of total compensation. In addition, the authors show that if workers bargain collectively for employment contracts, the equilibrium can be a separating or a pooling equilibrium, but in any equilibrium, the low risks obtain more insurance than in the standard model and subsidize the insurance premiums of the high risks.

Double Matching: Social Contacts in a Labour Market with On-the-Job Search

This paper develops a matching model of the labor market with heterogeneous firms, on-the-job search and family referrals. The overall effect of referrals on wages can be decomposed into three distinct components. First, if referrals are used to help unemployed partners find jobs, then recommended workers are disproportionately concentrated in the left tail of the earnings distribution. This is a negative concentration effect of referrals, which emerges because workers accept (forward to the partner) job offers from more (less) productive employers. Second, if referrals are also used by workers to pool their less successful employed partners to more productive jobs, then the process of on-the-job search is intensified. This is a positive pooling effect of referrals. Third, better connected workers bargain higher wages for a given level of productivity. This is a positive effect of referrals on reservation wages and earnings. In the equilibrium, the overall effect of referrals can be positive (wage premiums) or negative (wage penalties). The negative effect is dominating in labor markets with strong productivity heterogeneity of firms and large bargaining power of workers. Otherwise, the positive effect is dominating. Referrals can have a negative effect on social welfare if there is a sharp drop in the search intensity after workers accept low productivity jobs.

Wages and International Tax Competition

Rent-sharing between firm owners and workers is a robust empirical finding. If workers bargain with firms, information on the actual surplus is essential. When the firm can use profit shifting to create private information on the surplus, it can thereby reduce its wage bill. We study how rent sharing and this wage incentive for profit shifting affect the ability of governments to tax multinational companies in a standard model of international tax competition. We find that if firms only have a tax incentive for profit shifting, rent-sharing decreases the competitive pressure on the large country and leads to higher equilibrium tax rates. When we allow for the wage channel, this result can change. If the wage incentive is sufficiently strong, rent-sharing increases the competitive pressure on the large country, implying a lower equilibrium tax rate.

WAGE SIGNALING: A DYNAMIC MODEL OF INTRAFIRM BARGAINING AND ASYMMETRIC LEARNING*

The article analyzes the effect of employer–worker bargaining on wage dynamics in the presence of asymmetric information between current and potential employers. A failure to reach an agreement leads to output loss. Because the disagreement points depend upon the worker's productivity, productive workers separate themselves from less productive workers and signal their ability through wages. In existing models of asymmetric learning, wages are attached to publicly observable characteristics and wage growth occurs only when there is a change in observable characteristics. This model, in contrast, generates an increase in earnings dispersion in cohorts of workers with similar observable characteristics.

Wage Formation between Newly Hired Workers and Employers: Survey Evidence

Some workers bargain with prospective employers before accepting a job. Others could bargain, but find it undesirable, because their right to bargain has induced a sufficiently favorable offer, which they accept. Yet others perceive that they cannot bargain over pay; they regard the posted wage as a take-it-or-leave-it opportunity. Theories of wage formation point to substantial differences in labor-market equilibrium between bargained and posted wages. The fraction of workers hired away from existing jobs is another key determinant of equilibrium, because a worker with an existing job has a better outside option in bargaining than does an unemployed worker. Our survey measures the incidences of wage posting, bargaining, and on-the-job search. We find that about a third of workers had precise information about pay when they first met with their employers, a sign of wage posting. We find that another third bargained over pay before accepting their current jobs. And about 40 percent of workers could have remained on their earlier jobs at the time they accepted their current jobs.

Using Micro Data to Estimate the Intertemporal Substitution Elasticity for Labor Supply in an Implicit Contract Model

Economists have devoted substantial resources to estimating the intertemporal substitution elasticity for labor supply because this elasticity plays a crucial role in the real business cycle literature. Generally, the estimates of the elasticity have been too low to explain business cycles. Economists have responded by trying to modify real business cycle models to allow for smaller elasticities, but they have experienced mixed success at best. However, the standard intertemporal substitution model has not done well when tested, and if this model is incorrect, so will be the estimated labor supply elasticities based upon it. An equilibrium alternative to the standard intertemporal labor supply model is the implicit contract model. In this latter model firms and workers bargain over state-contingent contracts denominated in terms of consumption and hours of work. Further, the price of leisure is the marginal product of labor or the shadow wage, which differs from the observed wage. A number of studies have found that the data are compatible with an implicit contract model; in particular in Ham and Reilly (2002) we found that we could reject a separable (within period) implicit contract model but not a non-separable one. If an implicit contract model is appropriate, this is the context in which we should try to estimate the intertemporal labor supply elasticity. However this estimation is potentially quite difficult with micro data since the shadow wage (marginal product of labor) is unobserved. In this paper we first develop a procedure that allows one to estimate the intertemporal substitution elasticity in an implicit contract model from micro data. We then implement this procedure using the Panel Study of Income Dynamics (PSID) and the Consumer Expenditure Survey (CES). We obtain statistically significant elasticities of 0.9 with the PSID and 1.0 with the CES. The consistency of the estimate across the data sets is impressive given that we use different estimation approaches (micro data versus synthetic cohorts) and different consumption measures (food consumption versus total nondurable consumption) in the two data sets. These results are three times larger than existing estimates based on the standard intertemporal supply elasticity from this data set and thus offer more hope that equilibrium perspectives on the labor market are capable of tracking the data. Given that the implicit contract model is less likely to be rejected than the standard model in our work and other research, we believe that our approach should prove to be quite useful.

Not Yet Dead at the Fed: Unions, Worker Bargaining, and Economy‐wide Wage Determination

Transcripts of the Federal Open Market Committee (FOMC) of the Federal Reserve and related documents provide new insights into how macro‐policy makers characterized the labor market. Over the period of the 1980s and the 1990s, the Federal Reserve seemingly overemphasized the significance of union settlements, characterizing them in wage‐push terms out of proportion to declining union density. Fed policy makers expressed surprise that the nonaccelerating inflation rate of unemployment (NAIRU) dropped during this period and offered various ad hoc explanations to explain the drop. The underlying common element of these explanations is that they were based on a rhetorical bargaining framework, explicit or implicit, that workers bargain as active agents for wages. Along with ongoing direct discussion of union settlements, this tendency suggests a view of worker bargaining power that seems at variance with union decline and the reality of an increasingly nonunion labor market. While worker bargaining models can be reconciled in a formal sense with various theories of nonunion wage determination, the ability of such models to realistically explain the macro outcomes that puzzled and challenged policy makers can be questioned.

Bargaining, binding contracts, and competitive wages

In a model where many workers bargain with one firm and sign binding contracts, we show existence of a stationary subgame perfect equilibrium. If the production function satisfies decreasing returns, each worker receives a share of his marginal product (treating all other workers as employed) in equilibrium. Thus, wages are competitive. This is in contrast to Stole and Zweibel (1996, Rev. Econ. Stud. 63, 375–410), who assume that contracts are non-binding and find that the payoff of a worker is a weighted average of the inframarginal contributions. Hence, binding contracts imply lower wages than non-binding contracts.

Endogenous Wage Rigidity

We use a random survey of Swedish human resource managers to study the reasons for wage rigidity. Our findings are as follows. First, during the exceptional recess ion of the 1990s only 1.1 percent of workers received a wage cut. Second, much wage rigidity can be tra ced to behavioral mechanisms involving negative reciprocity, relative wage comparisons and money illusion. Third, the reasons for wage rigidity differ significantly between large and s mall establishments, and between the high- and low-end of the labor market. Fourth, there are significan t empirical complementarities between efficiency wage mechanisms and worker bargaining strength, and between “exogenous” institutions and endogenous sources of wage rigidity. Fi fth, external pay comparisons are a more important source of rigidity in highly unionized est ablishments. Sixth, there are significant gender differences in pay bargaining and work moral.

Worker Bargaining Power and Real Wages from 1870 to 1913: Phelps Brown reconsidered

This paper discusses Phelps Brown's claims that (1) real wages in the long run cannot be explained by a theory where distribution is determined by the relative worker bargaining position, and (2) changes in real wages would be strictly linked to changes in the average product per worker.

Divide the hours and conquer the surplus: part-time workers and pay

A theory is presented, where the firm strategically over-employs part-time workers. Reductions in labor taxes, increases in the worker's bargaining strength or reductions in their outside employment opportunities will all increase the level of part-time work.

Competition and cooperation in the workplace

This paper examines promotion systems which are competitive (a tournament) or noncompetitive (a quota scheme). We introduce helping technologies where some aid to co-workers is efficient and consider various worker bargaining strategies. It is shown that the competitive scheme consistently prevents helping efforts, while the non-competitive scheme induces an efficient allocation of effort if workers bargain over help. Because the non-competitive scheme is less risky, it may dominate the competitive scheme even if workers do not help each other. If workers bargain over help, the non-competitive scheme will typically enhance welfare.

Non-cooperative Bargaining and Union Formation

We study a union formation decision problem when workers consist of two groups distinguished by different productivities. Workers may form either a joint union or two separate unions. The whole decision process is modelled as an extensive-form bargaining game. Workers form a joint union when the sizes or productivities of the groups are similar. In the first case, there is a wage differential which is more (less) than proportional to the productivity difference if the size of the more productive is smaller (larger) than that of the less productive. In the second case, there is no wage differential. In this paper we study a union formation decision problem when workers consist of two groups distinguished by different productivities. They may form either a joint union or two separate unions, depending on the relative size and productivity of the two groups. The whole decision process is modelled as an extensive-form bargaining game in which the two groups of workers bargain with each other as well as with a firm. The labour market is sharply distinguished from the goods market by the widespread practice of collective bargaining. Usually several groups of workers with different characteristics (for example, skill level or geographical location) are represented as a single unit, and/or several employers form a single bargaining unit against a giant union. This multiplicity of bargaining units creates a complicated bargaining structure and makes the outcome hard to analyse. The purpose of this paper is to provide a model which captures this complexity and, at the same time, clarifies the underlying structure of bargaining power. Although economists have been aware of the multiplicity problem for a long time, it has been received little rigorous theoretical treatment until recently.' Davidson (1985) examined the possible gains that can be obtained by trade unions through joint bargaining in an oligopolistic industry. There is a positive externality due to the fact that a higher wage rate in one firm generates a larger demand (hence a higher wage) in competing firms. When a joint union is organized, these externalities are internalized to the benefit of workers. Horn and Wolinsky (1985) investigated the equilibrium pattern of unionization in an industry where a firm employs two types of workers. They found that workers tend to form a single union when the two types are substitutes in the sense that the incremental contribution of one group to the firm's revenue is decreasing with respect to the size of the other group. Since workers' bargaining power comes from the loss that they can