unions and the economy: what we know; what we should know

Unions and the Economy: What We Know; What We Should KnowAuthor(s): Peter KuhnSource: The Canadian Journal of Economics / Revue canadienne d'Economique, Vol. 31, No. 5(Nov., 1998), pp. 1033-1056Published by: Wiley on behalf of the Canadian Economics AssociationStable URL: http://www.jstor.org/stable/136458 .

Accessed: 18/06/2014 18:37

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Wiley and Canadian Economics Association are collaborating with JSTOR to digitize, preserve and extendaccess to The Canadian Journal of Economics / Revue canadienne d'Economique.

http://www.jstor.org

This content downloaded from 185.2.32.58 on Wed, 18 Jun 2014 18:37:26 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=black

http://www.jstor.org/action/showPublisher?publisherCode=cea

http://www.jstor.org/stable/136458?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


Unions and the economy: what we know; what we should know P E T E R K U H N McMaster University

Abstract. The wages and working conditions of about one in three Canadian workers are determined by collective bargaining. In this paper current knowledge about the economic effects of collective bargaining is surveyed. Unions raise wages (by about 15 per cent on average) and reduce wage dispersion for their members while also reducing profits. Unions do not seem to reduce employment levels in affected firms, or cause non-union wages to fall. Efficiency losses due to sectoral misallocation of labour and to strikes are small, but some evidence suggests lowered investment in unionized firms. Union effects on total factor productivity need more careful study using firm-level data.

Sytndicats et economie: ce qu'on connatt et ce qu'on ne connatt pas. Les salaires et les conditions de travail d'a peu pres un travailleur canadien sur trois sont definis par des conventions collectives. Dans ce memoire, l'auteur fait le point sur ce qu'on connait sur les effets 6conomiques des conventions collectives. L'existence des syndicats tend a augmenter le niveau des salaires (a peu pres 15 pour cent en moyenne) et a reduire la dispersion des taux de salaires des membres mais tend aussi 'a r6duire les profits. L'existence de syndicats ne semble pas r6duire les niveaux de l'emploi dans les entreprises affect6es, ou entrainer une chute des niveaux de salaires des travailleurs non-syndiques. Les pertes d'efficacit6 attribuables a la mauvaise allocation du travail ou aux greves sont faibles, mais certains resultats suggerent qu'il existe un niveau plus faible d'investissement dans les entreprises syndiqu6es. Il faudra analyser l'effet des syndicats sur la productivite totale des facteurs de production 'a l'aide de donn6es au niveau de la firme avant de pouvoir tirer quelque conclusion que ce soit.

1. Introduction

Collective bargaining by labour unions determines the wages and working conditions of about one in every three Canadian workers. What effects does this have

The Innis Lecture delivered at the Canadian Economics Association Meetings at Ottawa, 29 May 1998. 1 thank John Pencavel for helpful comments and the Canadian International Labour Network (CILN) for research support. CILN is a major research initiative of the Social Sciences and Humanities Research Council of Canada and McMaster University.

Canadian Journal of Economics Revue canadienne d'Economique, Vol. 31, No. 5 November / novembre 1998. Printed in Canada lmprime au Canada

0008-4085 / 98 / 1033-56 $1.50 ' Canadian Economics Association



1034 Peter Kuhn

on those workers, on other Canadian workers, and on the Canadian economy as a whole? My purpose in this article is to review what economists currently know about these questions, and to identify the key areas in which we need to know more. I shall start by providing in section 2 a little more detail about the degree of unionization in Canada, especially compared with other developed nations. I shall then discuss, in sections 3-8, a set of potential effects of unions, roughly in diminishing order of how much we know, and in increasing order of what we need to know. I conclude in section 9.

The economic literature on unions is huge, so to make my task manageable, I exclude from the outset a number of interesting and important topics on which much of value has been written. One such question is the determinants of union growth and decline. How, for example, did we get from a situation of similar union coverage rates in Canada to one in which Canada's unionization rate is more than double that of the United States? Under what conditions does union growth occur, and can unions grow only in 'spurts'? These are important questions; for important references on these issues see Weiler (1983), Troy (1990), Riddell (1993), and Freeman (1997).

A second question I largely avoid is the nature and effects of unions outside North America. Much more so than firms and households, unions tend to bear the distinctive national stamp of the places where they exist; the effects of these differences have been an important preoccupation in European labour and macro- economics. See, for example, Calmfors and Driffil (1988) and Flanagan, Moene, and Wallerstein (1993).

Third, despite the fact that unionism is much more prevalent in the public than the private sector, I shall say little about public sector unionism here. Many of the theoretical issues are very different when unions' bargaining partner is a non- profit-maximizing entity. As well, legislation concerning public sector unions is very complex and quite distinct from that in the private sector (see, e.g., Swimmer and Thompson 1995). These issues are best treated separately.

Another branch of the union movement I shall not treat in much depth is craft unions: these unions, organized on the basis of a single skill or craft, date back to medieval times, and include such diverse groups as musicians, bricklayers, doctors, and typographers. My main concern here is with industrial unions, which organize and bargain by workplace (plant, restaurant, or store). Industrial unions, now a large majority of the North American union membership, did not become a permanent feature of its labour scene until highly supportive legislation was passed in the 1930s and 1940s.

Fifth, I shall not review the extensive economic literature that tries to explain the existence, incidence, and duration of disputes in collective bargaining, including strikes, lockouts, holdouts, work-to-rule, and other apparently inefficient outcomes. This literature, and an associated literature on the effects of alternative dispute- resolution mechanisms, such as mandatory conciliation and arbitration, blossomed after the development of non-cooperative models of bargaining in economics, especially under asymmetric information. An early review of the strikes literature is



Unions and the economy 1035

provided in Kennan (1986). More recent examples of that literature include Farber and Bazerman (1989) and Currie (1994) on arbitration, and Gu and Kuhn (1998) on holdouts.

Finally, although some supporters of unions take that position because of a belief that unions redistribute economic well-being from the top to the bottom of the income ladder, I shall not - aside from some comments on the effects of unions on profits - address the effects of unions on income distribution in this talk. This is also an important issue and is more complex than might at first appear: the answers depend on which workers unions organize and what kinds of families union members live in, and they become even more complex when we take a global view and consider the incentives of unions in developed countries to shelter their members from competition by much poorer workers abroad.

With all these fascinating questions about unions excluded, is there much left to say of any interest? Let's proceed, and in the end I hope you will agree that there is.

2. How important are unions? Canadian collective bargaining rates in an international context

Recent statistics on union membership, and on union coverage in Canada and the United States are presented in table 1. As mentioned, about a third (34 per cent) of Canadian workers have their wages and working conditions set in a collective bargaining agreement. A slightly smaller fraction actually belong to unions, since there are cases where covered individuals can opt out of union membership. At over three-quarters of the work force, union coverage is much higher in the public sector than in the private sector, but in the private sector it still amounts to one in four workers. Although there was once a much larger gender gap in unionization rates, table 1 shows that this is now only about 3 percentage points; the high unionization rate in Canada's public sector has played an important role in narrowing this differential.

U.S. union coverage and membership are less than half those of Canada, at about 16 and 15 per cent, respectively, but, as it is in Canada, unionism is much more prevalent in the public sector. With the exception of the United States and perhaps Japan, however, Canada has a very low rate of union coverage by the standards of other developed nations. According to table 2, more than half (nine of seventeen) of the OECD countries for whom 1990 statistics are available have union coverage rates of 75 per cent or more. It is interesting (most notably in France) that the gap between coverage and membership is much greater in those countries, reflecting the large-scale, usually state-sanctioned, extension of union contracts to non-union workers. In sum, while unions are a fairly small (and, some would argue, dying) force in the United States, they still play major roles in the determination of wages and working conditions in Canada and in most of the developed world. Their effect on those economies deserves serious and careful study.

3. Wage levels

In his survey of the literature on union wage effects, H. Gregg Lewis (1986) discusses nearly 200 empirical studies of this question. Since then, there have been



1036 Peter Kuhn

TABLE 1 Union membership and coverage rates, 1997

Membership Coverage (per cent) (per cent)

Canada Total 31.1 34.0 Public 72.5 77.5 Private 21.9 24.4 Men 32.4 35.5 Women 29.6 32.4

United States Total (non-agricultural) 14.2 15.8 Private, non-agricultural 9.8 10.8 Public 37.2 42.3

SOURCES: Akyeampong (1997) for Canada; U.S. Bureau of Labor Statistics, http://www.bls.gov/news.release/union2.tO3.htm, for the United States

TABLE 2 Union membership and coverage, OECD countries, 1990

Membership Coverage (per cent of employed) (per cent of employed)

Australia 40 80 Austria 46 98 Belgium 51 90 Canada 36 38 Finland 72 95 France 10 92 Germany 32 90 Japan 25 23 Netherlands 26 71 New Zealand 45 67 Norway 56 75 Portugal 32 79 Spain 11 68 Sweden 83 83 Switzerland 27 53 United Kingdom 39 47 United States 16 18

SOURCE: OECD (1994 chart 5.1). Coverage rates in France, Germany, Japan, and Portugal refer to 1985, 1992, 1989, and 1991, respectively.

dozens more; historically, the union wage effect is one of the most-studied questions in the history of labour economics. What has this literature told us?

First, we have learned that, in a cross-section of randomly selected Canadian or U.S. workers, those who are covered by union contracts earn wages that are, on average, 15 per cent higher than observationally equivalent non-covered workers.




'Observationally equivalent' in this context means holding constant, in a regression framework, all the characteristics typically observed about individuals in standard social surveys: age, labour market experience, education, sex, and a variety of other characteristics including, sometimes, industry and occupation. This number is remarkably constant across data sets and, except for some cyclical fluctuation (it rises in recessions), across the last four decades in North America.

Of course, it is possible that workers who are observationally equivalent to analysts of standard social surveys are not equivalent to employers: except for sex, most newly minted economics Ph Ds are observationally equivalent in a standard social survey, yet we agonize a great deal about which ones to hire. Union workers might thus simply be more 'able' on unobserved dimensions and would have earned more than others even if they were not unionized. To my mind the most convincing solution to this selection bias problem has been to use panel data: information on individuals collected at more than one point in time.' If we can compare the wages of the same person in a unionized and a non-unionized job, that differential cannot be attributed to differences in worker quality, whether observed or unobserved. It is interesting that studies that make this comparison and at the same time correct for the greater amount of measurement error involved in using panel data find average wage gains for workers gaining union coverage and losses for workers losing union coverage of about 15 per cent (Freeman 1984; Card 1996).

One potential remaining problem with existing panel estimates of union/non- union wage differentials is the fact that they are based, almost entirely, on the wage changes of persons who change employers, many of whom make these changes voluntarily in search of better jobs.2 These comprise, of course, a non-random sample of the population we wish to observe: the wage changes that would occur were a random sample of workers randomly reallocated to union and non-union jobs. Of note, the one study I know of that attempts to avoid this problem by examining wage changes of permanently displaced workers (Kuhn and Sweetman 1998) also finds an average union wage effect of about 15 per cent.3

In sum, there is abundant and robust evidence that identical workers in North America earn about 15 per cent more in unionized than in non-unionized jobs. Does this prove that unions raise wages by 15 per cent? No, for at least two reasons. One is 'spillover effects': a higher union wage might cause labour to be released from the union sector, which then bids down wages in the non-union sector. In this

1 Another approach has been the use of econometric techniques to correct for sample selection bias in cross-section data; see Robinson (1989) for a summary and synthesis.

2 While firms, or plants, do change union status from time to time via certification and decertifica- tion elections, this occurs imnuch more rarely than the rate at which individuals change jobs.

3 Specifically, holding constant all observable characteristics, displaced workers with less than a year of tenure incur a 14 per cent wage loss if moving from a union to a non-union job, and a 9 per cent wage gain if moving from non-union to union. For these low-tenure workers, displacement-induced wage losses are not strongly confounded with losses of firm-specific capital that can affect more senior workers (table 5, columns 4 and 5).



1038 Peter Kuhn

case the 15 per cent union/non-union wage differential (because it also incorporates the negative effect of unions on non-union wages) will overstate the true effect of unions on wages. But 'spillover effects' occur only when unions actually cause labour to be released from the unionized sector, an eventuality that I argue to be unlikely in a following section. Second, the threat of unionization might lead non-union firms voluntarily to raise their wages towards union levels. If this is the case, observed union/non-union wage differentials will understate the true effect of unions on wages.4 Empirically, studies of union effects on non-union wages in the same industry tend to be more consistent with the latter, 'threat' hypothesis (see, e.g., Rosen 1969; Ichniowski, Freeman, and Lauer 1989; and Corneo and Lucifora 1997). Thus, if anything, unions appear to raise, rather than lower, the wages of non-union workers, at least when those workers are in the same industry.5

If we take it as given that unions raise wages, does that imply that union workers earn rents? Not necessarily; to argue this we still need to rule out the possibility that higher union wages simply represent compensating differentials for other, dis- preferred, aspects of union jobs. I think that this is highly unlikely, for two reasons. First, on almost all measurable dimensions, including pensions, employer-provided health insurance, and job security, union workers enjoy more, not less, non-wage compensation than non-union workers.6 In fact, the union/non-union differential in fringe benefits exceeds that in wages (Freeman 1981). Second, it is well established that union workers are much less likely to quit their jobs than non-union workers (Freeman 1980), and there is anecdotal, but fairly convincing, evidence of queueing for union jobs.7

4. Wage dispersion

A second thing we know about unions concerns their effects on the structure of wages among their members: unions compress wage differentials. One way to see this can be replicated very easily: pick any North American microdata set

4 A classic example comes from the steel industry in Hamilton, where I teach. Dofasco (the non- union plant) makes a point of matching, and sometimes bettering, the wages and benefits paid by the unionized plant (Stelco). For a closely related reason, very few union wage effect studies have been done in continential European countries: union wage settlements are often automatically extended (often by law) to non-union workers. Thus, wage differentials between unionized and non-unionized workers in, say, Germany, are essentially non-existent (Schmidt 1995). Clearly, this does not mean that German unions are powerless to raise their members' wages.

5 More broadly, of course, union wage increases might have general-equilibrium effects on real wages outside the union sector that operate through higher product prices. I am not aware of any empirical evidence on this issue however.

6 I am aware of two exceptions. One is reported job satisfaction, which is always lower among union members despite their much lower quit rates. It is also the case that, in some data sets, union workers tend to have less control over their work hours and have less break time. Duncan and Stafford (1980) examine the effects of these factors on the union wage premium.

7 Passell (1998) describes the case of a former Los Angeles bank clerk, who raised her annual earnings to U.S. $81,000 by queuing for a job in the longshoremen's union. Ms Hummel made hundreds of telephone calls over a five-year period before she was allowed to take a test determining whether she had the strength and dexterity for the work.




with information on individual workers' wages and union status. Run separate log wage regressions on measured personal characteristics, including age, sex, tenure, experience, marital status, and so on, and you will find, with perhaps a random exception or two, that all the coefficients will be lower in absolute value in the union sector. Further, you will find that the residual variance is smaller in the union sector, a fact that has been extensively analysed by Lemieux (1998). Another piece of evidence comes from establishment surveys that contain data on individual workers' wages. Unionized establishments have lower wage dispersion among their workers, and this lower dispersion can be explained statistically by a difference in pay practices: unionized workplaces are more likely to pay a standard hourly wage rate and less likely to use merit pay, bonuses, performance review, and other incentive mechanisms (Freeman 1982; Gosling and Machin 1995).

At least among their members, then, unions reduce wage inequality, and they do so by choosing methods of compensation that dampen the impact of both effort and ability on workers' pay. This does not, of course, mean that unions reduce overall wage inequality (that depends also on which workers unions organize and the size of the mean union/non-union wage gap), let alone any form of income inequality. A careful study of the impact of unions on overall wage inequality in Canada (Lemieux 1993), however, suggests that they do reduce overall wage inequality for men, but not for women (because it is predominantly high-wage women who tend to be unionized in Canada, and their wages are raised by unions).

5. Profits

The third main fact I claim we know about unions is that they reduce profits. Careful studies, among them Ruback and Zimmerman (1984), Abowd (1989), Bronars and Deere (1990), and Machin and Stewart (1996), show that unions have a negative effect on shareholder wealth. Ruback and Zimmerman find a 1.38 per cent reduction in NYSE-listed firms' stock prices on the day a petition to hold a union election is held (2.4 per cent for petitions that, ex post, turn out to succeed), and a further 1.43 per cent fall on the day of a successful election, for a total cumulative loss of 3.3 per cent. Given the share of wages in costs and the average fraction of each firm's employees involved in new unionization bids, this loss is surprisingly consistent with a 15 per cent wage increase among the newly unionized workers, a finding that is echoed in Abowd's (1989) exhaustive study. Addison and Hirsch's very useful review of the U.S. literature on unions and profits confirms that these results are quite typical (1989, 83-95).

Even though unions lower profits, there is no evidence that unions drive firms out of business. Two small studies that have addressed this issue have found no difference between union and non-union firms (Freeman and Kleiner 1994; Machin 1995). Also telling in this regard is that, in the Canadian displaced worker survey, the representation of unionized workers is virtually identical to that in the whole labour force (see, e.g., Kuhn and Sweetman 1998). Like successful viruses, unions are smart enough not to kill their hosts.



1040 Peter Kuhn

6. Employment

When told that unions raise wages, the natural response of most economists is that, surely, unions must reduce employment. Standard microeconomic theory, while largely silent on cross-elasticities of factor demand, unambiguously predicts that own factor-demand elasticities should be negative. Despite this, I argue in this section that unions' effects on employment are theoretically ambiguous, and that there is almost no empirical evidence to support the claim that unions reduce employment. I say this in spite of my reading of the minimum-wage literature, which I believe shows that minimum wages do reduce employment, and in spite of the centrality of a negative union employment effect in much of the European macroeconomic literature (e.g., Layard, Nickell, and Jackman 1991).8 I confine my theoretical discussion below to the case of bargaining with a single profit- maximizing firm.

6. 1. Theory The standard economic intuition about unions and employment is captured in figure 1. In that figure I measure the number of workers hired by a firm along the horizontal axis and the wage per worker along the vertical axis. The lower horizontal line indicates the best alternative wage available to the unions' (actual and prospec- tive) members, which, for simplicity, I take to be the same for all workers. The downward-sloping line is the schedule of the firm's labour demand or marginal revenue product. Clearly, any union that simply raised workers' wages would face an opportunity set given by this labour demand curve: the more we raise wages, the fewer workers the firm will want to hire. Which point along this curve will unions choose? The standard solution to this question (see, e.g., Booth 1995) posits a union 'utility function' that depends positively on both wages and employment. (Union leaders prefer to have more members, and - especially in times when the optimal size of the firm is shrinking - existing union members want to keep their jobs). The union's optimal wage is then defined by the tangency of one of its indifference curves with the firm's labour demand curve, at point b in figure 1.9 Clearly, according to this simple economic intuition, which labour economists have come to call the 'monopoly' model, unions should reduce employment, relative to the competitive equilibrium at point a.

What could possibly be wrong with the monopoly model? The main problem, in my view, is that, unlike minimum wage laws, unions do much more than just set wages. It is not at all unusual, for example, for North American collective agreements to extend to more than 200 pages, covering issues ranging from pension and health benefits, vacations, promotion and layoff policies, grievance procedures,

8 Layard et al.'s claims are about employment at the economy-wide level, but are based on the standard monopoly model I discuss here.

9 There is also the possibility of a corner solution at the highest wage consistent with the firm's survival (the zero-profit wage, or in the short run the shutdown wage). For brevity I discuss only internal solutions in this paper.




w

Union indifference curve

\\ ~~Monopoly Ulnion Wage

. ~~~~~~\ \ s-

D Alternative Wage

L FIGURE I Monopoly and 'efficient contract' models

overtime and hours limits, work rules, and work loads.'0 To the extent that these provisions effectively set, or constrain, the firm's employment level, union-firm bargaining pairs can almost always design collective agreements that make both parties better off than they would be in the monopoly equilibrium.

To see this, note first that, analogous to unions' indifference curves, firms' isoprofit 7r curves in (w, L) space must have the shape shown in figure 1: Profits increase to the southwest, and (because the labour demand curve is derived from profit maximization) isoprofit curves must be horizontal when they cross the labour demand curve. It follows that there will always exist a point like c, which - because of the standard allocative inefficiencies associated with simple monopoly - is preferred by both the firm and the union to the monopoly equilibrium. In essence, the union can undo the employment-reducing inefficiency of a simple monopoly wage demand at b by making the following offer to the firm: 'We shall be willing to settle for a lower wage (than at b) if, in return, you promise to employ more of our members; indeed, you must employ even more workers than you normally would hire at this lower wage (employment at c is to the right of the labour demand curve). It is easy to derive examples where, as is the case in figure 1, such 'efficient contracts' involve higher employment than the non-union equilibrium at a. Thus, unions can plausibly raise employment. This is particularly likely where unions care a lot about employment, as in firms or industries affected by declining

10 Because they are highly centralized and cover a large number of firms, union agreements in Europe tend to be much less detailed. But in those cases works councils and local subagreements often intervene in plant-level employment decisions.



1042 Peter Kuhn

$/unit of L

D = MRP

A / w(L) MRP

N

It.~~~~~~~~~~~~~~t wage

L

FIGURE 2 Discriminating monopoly model

demand or by labour-saving technical change, where the competitive equilbrium could involve job losses among existing union members.

The above 'efficient contracts' model requires unions and firms to bargain, either explicitly or implictly, over employment levels. It is not clear how common this is.11 As was pointed out by Kuhn (1988b), there is a way around this that permits efficient contracts to be attained without bargaining over employment. The chief insight of Kuhn's discriminating monopoly model is to relax the constraint, implicit in the monopoly and efficient contract models, that the union must attach the same wage to each of its members. If we do so, but give the union the power to control the order in which workers are hired and fired, unions can extract the firm's rents and achieve efficient employment levels without needing to bargain over employment at a1.

To see this, consider figure 2 and interpret the horizontal axis as the number of workers employed, with workers ordered along the axis from most senior on the left (this worker must be employed by the firm before any others can be employed), to increasingly junior union members as one moves to the right; the chances of such extreme 'outsiders' ever being hired approach zero. By attaching a wage to each worker that is essentially equal to his or her MRP (thus making wages increase with seniority) the union can now act as a perfect price discriminator, extracting all the firm's quasi-rents and inducing it to employ the same number of workers as a competitive firm. The discriminating-monopoly model thus provides us with

11 Oswald (1993) claims it is rare in written union contracts, but it is not clear whether his statistics include a number of provisions that perform roughly the same function,




another way to implement 'efficient' contracts that undo the allocative problems of simple monopoly wage-setting. 12

6.2. Evidence In stark contrast to the evidence on unions and wages, there is an extreme scarcity of empirical research on unions' employment effects. The reason for this is straight- forward when one thinks, by analogy with the wage effect literature, of the kind of data one would need for a convincing study: a panel of firms or establishments, with information on their wages, union status, and employment levels, that was sufficiently long for a number of plants to change union status. Ideally, one would like some of those changes in union status to have occurred for relatively exogenous reasons, such as changes in provincial industrial relations legislation, and to have a rich set of control variables for factors like product demand shifts, which also affect employment levels. Such a data set simply does not exist in the public domain in Canada, and it has only been loosely approximated in a small number of studies elsewhere.

In my view one of the few convincing studies of unions' effects on employment is from a time and place far removed from contemporary Canada: a study of West Virginia coal mines between 1897 and 1938 by Boal and Pencavel (BP) (1994).13 BP's data approaches our ideal in that it is a long panel with substantial variation in unionization over time; it is not perfect, since the unit of observation is the county rather than the firm, but it is one of the best data sets available. When BP estimate the effects of exogenous wage variation on employment in non-union mines, they find a sizable negative labour demand elasticity. If the monopoly model was a good way of thinking about unions, this labour demand elasticity, in combination with the estimated 13 per cent effect of unions on wages in their data, would be a reasonable predictor of unions' effects on employment. It is not - the predicted decline in employment from this simple monopoly model is 5 per cent; but the total actual employment decline associated with unions is essentially zero. Thus Boal and Pencavel's evidence strongly suggests that unions do more than just raise wages: other policies, including mandatory staffing ratios, and so on, appear to prevent the employment losses that union-induced wage increases might otherwise cause.

Boal and Pencavel's empirical study also points out another important missing element in all three of the above models of unions: the standard practice of identi-

12 Kuhn's (1988b) treatment deals with the more realistic, and more interesting, case where the union has imperfect knowledge of the position of the firm's demand curve. In that case the model yields the additional prediction, supported by the evidence, of greater cyclical variability of union employment levels.

13 There is a small empirical literature that attempts to distinguish the 'monopoly' and 'efficient contracts' models of unions. One approach to this question is based on the notion that alternative wages should influence employment in the latter but not the former (Brown and Ashenfelter 1986). As there are a lot of hard-to-control-for reasons that alternative wages (usually measured as a mean manufacturing wage) may be correlated with employment, I find these studies less than convincing. A second approach (MaCurdy and Pencavel 1986) tests for equality between wages and marginal products.



1044 Peter Kuhn

fying the firm's labour input with the number of workers employed. It is interesting that, when BP look at unions' effects on another dimension of labour input - operating days per year - they find a large, negative union effect that is much stronger than a simple monopoly model would predict. This apparently paradoxical result can be quite easily reconciled with 'efficient contracts' model if one is willing to assume (as seems reasonable to me) that, for a fixed employment level, more operating days per year are a bad, not a good, to union members. When operating days per year is the relevant dimension of labour input, efficient contracts might would then lie to the left, not the right, of the labour demand curve, at a point like d in figure 1. This seems especially plausible, given unions' historical role in reducing the length of the working day and working week (and their continuing role in doing so in Europe), and is consistent with both a zero or positive effect on employment and an efficient-contracts view of union wage bargaining.

In sum, while it seems plausible and, indeed, even likely that unions reduce labour input to firms along certain dimensions (such as weekly hours, and annual weeks worked per employee), I have seen no convincing evidence that they reduce employment levels in affected firms. While this may seem counter-intuitive at first, it is not, once one considers the simple microeconomics of wage bargains between unions and firms: unions have a strong incentive to do more than just set wages. Much work remains to be done, of course, because of the lack of good data to date, but my suspicion of a zero or positive employment effect is strengthened by early reports from case studies of firms that were recently de-unionized in Britain (Brown and Ryan 1998). It is interesting that de-unionization of these firms was associated with massive reductions in employment, the opposite of what a simple monopoly model would predict. To see the intuition, ask yourself the following question: If Canada Post were suddenly de-unionized, would you expect its employment level to rise or fall?

7. Economic efficiency: static considerations

Probably the most relevant public policy question about unions is not their effect on their members' wages or employment, but their overall effects on economic efficiency, defined broadly as a (perhaps) weighted sum of household surplus and firms' profits over a long time horizon. What do we know, and what should we know, about these issues? I shall focus in this section on static efficiency considerations, that is, on maximizing social welfare for a given total stock of physical capital and productive knowledge. I turn to issues of investment, growth, and training in the following section.

7.1. Allocative efficiency Probably the earliest, and best-known, static efficiency argument about unions is the notion that, because they introduce a wage 'wedge' between the unionized and non-unionized sectors of the economy, they lead to an inefficient allocation of resources between these sectors (Johnson and Mieszkowski 1970). I believe this is




very unlikely to be a serious issue for a modem economy like that of Canada for at least two reasons. First, the misallocation is predicated on the release of labour from the unionized sector because of the simple 'monopoly' effects described in the last section.14 As was argued there, it is unclear whether these effects exist. Second, even if such effects existed, all indications are that, for current levels of the union/non-union wage gap, they would be trifling in magnitude. In one of the more careful studies, DeFina (1983) imposes a CES technology - and otherwise competitive assumptions - on the U.S. economy (thereby guaranteeing a negative union employment effect). His CGE model estimates a maximum deadweight loss of unionism - corresponding to an implausibly high 25 per cent union wage premium - of 0.2 per cent of GDP. Especially because this number affects the level, not the growth rate, of GDP, it is a trifling issue, compared with some of the other issues I consider below.15

7.2. Strikes Allocative efficiency issues, while dear to the heart of economists, usually arouse little passion in the typical 'person in the street.' Surely, this putative person might say, the big problem with unions is not misallocation of resources, but lost production due to strikes: every day that a factory is not operating because of a labour dispute constitutes a loss of income to workers, the storekeepers they buy from, the suppliers they, in turn, buy from, and capitalists also.

As economists, of course, we know better. First, most of us, trained in general equilibrium theory, would not take the implicit 'multiplier' argument in the above very seriously: while strikes reduce output, we should not double- or triple- count this loss by enumerating the items that it would have been exchanged for in the market. Second is a quantitative issue: strikes simply are not very common. Between 1960 and 1993, the total number of person-days lost due to strikes and lockouts ranged from 0.06 per cent of total days worked (1960) to 0.59 per cent (1976), with a mean of 0.26 per cent (Gunderson, Hyatt, and Ponak 1995, table 14.1), a number, coincidentally, that is reminiscent of DeFina's estimated allocative efficiency losses, noted in the last section. Third, the fraction of work days (or for that matter value-added) lost is a poor measure of the social loss due to strikes. In most cases, both firms and consumers can engage in a variety of compensating behaviours to mitigate these losses, including the accumulation of inventories and buffer stocks, movement of production from strike-bound to other firms, and imports.16 The difference between actual losses in social surplus and person-days

14 There is one type of allocative efficiency loss that does persist even if all unions write efficient contracts, modelled in Kuhn (1988a): I call this the 'not enough chiefs' problem. If individuals either work in firms or manage them, and managers aren't unionized, even 'efficient-contract' unions make it too attractive to work, thus distorting the 'entrepreneurship' decision. While interesting, I do not think this is quantitatively important.

15 One might argue that such losses are higher in Europe, where workers released from the union sector have nowhere to go but into (highly subsidized) unemployment. Note, however, that such losses would still require labour to be released from the union sector.

16 One important exception to this is strikes involving public sector services in which the govern-



1046 Peter Kuhn

lost is known as the 'offset factor' and has been estimated, at least in case studies, as very small (Paarsch 1990).17 Finally, as the mechanism design literature makes very clear, even though strikes are ex post inefficient, they are not necessarily so ex ante. Incentive-compatible mechanisms designed to implement the best possible contract in a situation of asymmetric information typically require some ex post inefficiencies. All told, it is therefore very difficult to argue that strikes, like allocative efficiency losses, cost us any more than a quarter of a percentage point of GDP.

7.3. Queueing for union jobs Some recent literature in the field of law and economics, industrial organization, and trade has argued that, whenever non-competitive rents exist, economic agents will expend resources, up to the total amount of those rents, trying to win ownership of them (Tullock 1993). In the case of unions, the argument is that workers expend time and energy queueing for scarce union jobs, and that this time and energy should be included in the allocative efficiency losses due to unions.

This is a valid point, but like the above two sources of inefficiency, I believe its quantitative importance is likely very limited, for two main reasons. The first is theoretical: it is simply not always optimal for agents to spend a lot of resources trying to capture rents. If it is absolutely clear that union jobs will be allocated by some mechanism that is insensitive to my effort (a scrupulously fair lottery or pure nepotism are equally effective in this regard) I will not expend effort looking for those jobs, no matter how desirable they are. Empirically, rent-seeking for union jobs might entail a large social cost if, as some models assume, workers must spend time unemployed while waiting to get those jobs, but this is typically not the case in a developed economy. While there may be some resources lost in preparing resumes and making phone calls, it is hard to imagine that this is quantitatively significant.

7.4. Productive, or X-efficiency Given the level of detail in most union contracts, and given the fact that unions are present in the workplace on a daily basis, monitoring and affecting decisions regarding safety, promotions, layoffs, dismissals, the pace of work, and many other factors, it seems highly likely that unions will affect the amount of output that can be produced from a given quantity of inputs. In other words, unions may affect the level of X-efficiency, not just allocative efficiency. Because these effects are, in a mathematical sense, first-order (i.e., rectangles, in comparison with the 'triangle' allocative efficiency effects discussed above), they are likely to be much bigger in magnitude. Unfortunately, this is an issue about which we know only a little.

Theoretically, one can easily tell stories about why one might expect either a positive or negative effect of unions on productivity. For a negative effect, one

ment is (sometimes by law) a monopoly provider. Especially in the short run, substitutes to police and fire protection, to first-class mail, and to public education are very hard to purchase.

17 Paarsch finds essentially no effect of strikes in B.C. pulp and paper mills on product prices.




need only recall unions' effects on the structure of wages: union compensation practices reduce the reward to effort, echoing the person in the street's impression that unions 'protect the lazy and incompetent.' The fact that union workers are significantly less likely to be dismissed than other workers also seems to support this impression. Restrictive union work rules and job definitions, which sometimes strictly limit the kinds or amounts of work that can be done, are also often cited as sources of negative union productivity effects.18

At the same time, some influential analysts of unions, among them Freeman, Medoff, and others, have argued that they might raise total factor productivity, for a number of reasons. Most of these involve improvements in the information flow among workers, or between workers and management. For example, as Carmichael and MacLeod (1993) have argued about Japanese lifetime employment practices, the job security provided by unions may make workers less reluctant to give management information about labour-saving innovations; this same security may make senior workers more likely to train juniors, as their jobs will not be threatened by a junior who outperforms them. Another potential channel involves unions' effects on the quality and effort of management: it has been argued that unions 'shock' complacent managers into becoming more professional. A formal model of how this might work is provided in Kuhn (1985).

An influential early empirical study of unions' effects on productivity is Brown and Medoff's (1978) study of U.S. manufacturing industries. The authors of this study looked at a cross-section of detailed industries (or, in one case, state-industry cells) and regressed a measure of average labour productivity on union status, with detailed controls for observed labour quality, and the quantity and quality of capital input.'9 The study found a positive effect of unions on productivity.

Brown and Medoff's study had some serious problems, including the inability of their cross-section framework to control for unobservable aspects of worker quality (as in the wage literature, union workers may be more able), and firm quality (unions may disproportionately target high-productivity firms for organization), and the inadequacy of their productivity measure, which was based on value added. Since value added depends on price as well as quantity, Brown and Medoff's study might be measuring simply the shifting of union wage increases into consumer prices, rather than any productivity effects at all.

Because of Brown and Medoff's provocative findings, however, a number of studies have attempted to improve on it. To avoid the problem of endogenous output prices, the best studies tend to be single-industry econometric 'case studies' in which either physical output can be measured or the law of one price can be invoked. Most are reviewed in Hirsch and Addison (1986, 192-204; 1989, 73-83); the industries examined range from wood furniture, to coal and construction. A particularly careful example is Clark's (1980a) study of cement, in which he finds an increase in productivity of 6-8 per cent in cement plants that become unionized

18 Nickell and Nicolitsas (1997) present direct evidence that restrictive work practices reduce productivity.

19 This regression structure can be derived from a Cobb-Douglas production technology.



1048 Peter Kuhn

relative to other cement plants. Some light is shed on the mechanisms behind this in a companion piece (1980b), where Clark reports the unionization of a plant is associated with hiring of new plant managers, increased emphasis on cutting costs, establishing production targets, improving communications, and monitoring of employees.

A fair summary of the industry studies is that most estimates are positive, with the negative effects largely confined to industries and periods known for their conflictual union-management relations, or to the public sector. Supporting this impression, a recent careful study by Hoxby (1996) has found a negative effect of unions on the productivity of U.S. public elementary schools (measured by subsequent high school dropout rates), while Black and Lynch (1997) find unions' productivity effects depend on other aspects of the human resources environment, tending to be negative when unions adopt a 'traditional' adversarial stance, but positive in other environments.

Aside from industry case studies, one broader study of this issue is noteworthy for its quality: Clark's (1984) study of 902 manufacturing businesses from 1970 to 1980. Using industry fixed effects to control, at least in part, for the endogeneity of output prices, Clark finds a negative average union productivity effect of 2 to 3 per cent, which is statistically significant, but only marginally so. When Clark ran separate regressions by two-digit industry, however, he found a significant amount of heterogeneity in union productivity effects, including positive coefficients in textiles, furniture, and petroleum, and large negative ones in some other industries.

In sum, the evidence on unions and total factor productivity suggests that not only are both positive and negative effects conceivable, both may well exist in different industries and situations. Moreover, a willing eye can detect a pattern in the results across studies: negative effects may be more likely in the public sector, or in cases of particularly conflictual or adversarial union-managemernt relations. The latter point suggests that union productivity effects are probably best viewed as part of a much larger nexus of human resource management practices that affect the workplace. Much more about these interaction effects, and about interindustry differences needs to be known. What we need, to proceed further, are large, publicly available, panel data sets on firms, classified by detailed industry, with good measures of firm performance and information on a variety of human resource practices, including unionism. Unfortunately, there is no such data set available in Canada at this time and only a handful of studies of these issues using data from other countries. For the time being we shall need to make do with smaller bits and pieces of the whole puzzle.

8. Economic efficiency: dynamic considerations

The previous section considered the effects of unions on economic efficiency, holding fixed the amount and quality of capital, as well as the qualifications and skills of workers. In a dynamic context, however, physical capital as well as a firm's stock of productive knowledge are created by investment and by research




and development. Human capital is created, in part, by training workers on the job. What are the effects of unions on these processes?

8.1. Physical capital: investment Textbook economic theory has an ambiguous prediction about the effects of unions on investment. If unions raise wages, the standard story goes, this will induce firms to substitute away from labour, towards capital, thus adopting a more capital- intensive production technique. This substitution effect tends to raise investment, but it is counteracted by a negative 'scale' effect: higher union wages raise costs, thus reducing the firm's (or industry's) long-run size and hence tending to reduce its capital stock in the long run. Still, capital intensity (the capital-labour ratio) should increase as firms mechanize in response to higher union labour costs.

The standard textbook model ignores a very important aspect of investment: much physical and informational capital is either very specific to a particular use, or irreversible. In such situations, capital, once in place, is vulnerable to 'holdup' by unions who can demand a share of the ex post quasi-rents without fear of the firm's moving its operations elsewhere. This problem was first formalized in the union context by Grout (1984). It is the same problem faced by firms investing in countries where there is a risk of asset expropriation, either directly or via unanticipated changes in tax policy. This ability to hold a firm's physical capital hostage may, in fact, be the very basis for industrial unionism, which (unlike craft unionism) is not based on a monopoly of any scarce skill: most histories of the industrial union movement argue that the essential ingredient for success is an ability to control access to the plant.

If holdup is a real possibility, then, of course, firms will be reluctant to make specific investments. While a number of contracting mechanisms have been pro- posed to get around this problem (e.g., MacLeod and Malcolmson 1993), I see the main message of the holdup literature for unions as the following: unless unions can acquire a reputation for moderation, firms faced by unions will reduce specific investment below non-union levels. Acquiring such a reputation may be a tall order, especially for newer and smaller unions. Another interesting and testable implica- tion suggested by the 'holdup' model is that union firms should alter their financial structure to shelter investors from holdup. In particular, Bronars and Deere (1991) argue that union firms should choose more debt relative to equity.

There is now a small empirical literature on unions and investment, with information on both total investment and some of its components, such as advertising and R&D, which might be considered more firm-specific. Studies in which industries are the unit of analysis include Denny and Nickell (1991, 1992) for the United Kingdom and Odgers and Betts (1997) for Canada. Studies based on a panel of firms include Machin and Wadhani (1991) for the United Kingdom; and Hirsch (1991, 1992), Bronars and Deere (1993), and Bronars, Deere, and Tracy (1994) for the United States. All but Machin and Wadhani (who find no effect) find a negative effect. There would thus appear to be an emerging consensus that holdup is an important issue. Much more work, however, is needed; in particular, one wonders



1050 Peter Kuhn

whether the trends seen in the United States are a decline in total investment or a shift in firms' investments from unionized to non-union plants in the South and abroad.

If unions reduce investment, particularly in research and development, one would expect this eventually to have an effect on productivity growth rates in firms. Because productivity growth ultimately determines the long-run increase in our standards of living, any such effects would have tremendous social significance, dwarfing the static efficiency losses considered earlier in this article. In a literature not well known to many labour economists, early empirical studies of total factor productivity growth sometimes included union density (usually at a point in time) as a 'control' variable. Examples are Mansfield (1980) for the United States and Maki (1983), both of whom found a negative union effect on productivity growth. Unfortunately for students of unions, this tradition does not seem to have continued. It is important to note, however, that the union coefficient in studies like Mansfield's measures only the direct effect of unions on productivity growth, holding R&D investment fixed. To the extent that unions reduce R&D, their total effect on productivity will be even more negative than that coefficient suggests. In a panel study of 2-digit US manufacturing industries focused more specifically on measuring the union impact, Hirsch and Link (1984) find a negative direct effect of unions on productivity growth; more recent work by Hirsch (1991) on a panel of publicly traded manufacturing firms, however, finds that the negative correlation between firm productivity growth rates and unionization disappears when industry fixed effects are introduced. More recently, in two British studies using firm-level data (Nickell, Wadhani, and Wall 1992; Gregg, Machin, and Metcalf 1993) faster productivity growth is found in unionized firms. Note, however, that the authors attribute this to a reassertion of managerial prerogatives in the 1980s that was associated with a decline in union power. Clearly, this is an issue of immense importance on which much more needs to be known.20

8.2. Human capital: training If unions can 'hold up' firms' investments of specific physical capital, then might not employers do the same with workers' investments in specific human capital? This point is raised by Booth and Chatterji (1998), who argue that, because unions provide workers with greater job and wage security, they will undo 'undertraining' problems resulting in part from the employer holdup of workers.2' Lynch's (1992)

20 Another source of ambiguity on this point derives from the cross-country evidence; perhaps for reasons modelled in Moene and Wallerstein (1997), the highly unionized European economies have had higher total factor productivity growth over the past several decades than the United States and Canada (Nickell and Layard, forthcoming). (Moene and Wallerstein claim that union- induced wage standardization accelerates the reallocation of labour into newer, more productive plants.) This correlation makes it difficult to attribute the recent lower productivity growth of Canada, compared with that of the United States to its higher union coverage.

21 I am sceptical of the quantitative importance of this phenomenon, for the following reason. Em- ployer hold-up seems most likely to be a problem in small, young firms that cannot credibly commit to high future wages, yet these are precisely the types of firms where unions are least likely to exist.




finding that union workers are more likely to receive formal, company-provided, on- the-job training, is supportive of this argument, but it could of course be consistent with a number of other scenarios as well.22

Finally, an interesting potential effect of unions on workers' skills has recently been identified by Kuhn and Sweetman (1996). In comparing the experiences of permanently displaced union and non-union workers, Kuhn and Sweetman find that, controlling for total labour market experience (and in contrast to non-union workers), union workers' postdisplacement wages fall with tenure on the lost job. While it remains unclear what role selection on unobservable ability plays in this result, it suggests the possibility of a negative, causal effect of unions on workers' alternative skills. Given that union jobs are (at least ex ante) more secure (Freeman 1980) and that they tend to involve narrower job definitions (Ichniowski 1990), union workers may be more likely to allow the skills they do not use on their current job to atrophy. While this may be optimal, it leaves senior union workers particularly vulnerable when their jobs do disappear. The effect of unions on workers' maintenance of their alternative skills thus may be an important area for further work.

9. Conclusion

While a relatively weak and shrinking presence in the United States, labour unions continue to play a major role in determining the wages and working conditions of workers in essentially all other developed countries, including Canada. As a result, they could also affect many aspects of those economies, including the level and distribution of wages, employment, profits, productivity, investment, financial structure, and productivity growth. What has the economics literature told us about these effects?

In this paper I argue that we know the following: unions (at least in North America) raise wages by about 15 per cent. These wage increases are not, by and large, compensating differentials for a less desirable working environment. Unions reduce wage dispersion among their members, primarily by bargaining for pay practices that are less sensitive to individual ability and performance. Unions reduce profits.

Despite the fact that unions raise wages, there is little or no evidence that they reduce employment, though they they may reduce firms' labour inputs along other dimensions, such as weekly hours and weeks worked per year. For that reason (and because second-order allocative effects of small distortions tend to be very small), union-induced efficiency losses due to the misallocation of labour between sectors are likely extremely small. Similarly, both strikes and rent-seeking behaviour for union jobs likely cause only minimal resource losses.

22 Weiss (1985) has argued that unions may over-train their members, with long and unneccessary apprenticeship periods or overly difficult qualifying exams, as a way of restricting membership. This is probably more relevant to craft unions than to the industrial unions I focus on in this article.



1052 Peter Kuhn

Two other potential effects of unions on economic efficiency are probably much more important, but they remain poorly understood. One of these is unions' effects on investment (conceived broadly as including research and development, devel- oping trademarks, and other long-term firm-specific assets in addition to buildings and machines). Here, a small but significant literature quite clearly suggests a negative effect: firms are more reluctant to invest in unionized than in non-union plants. What remains unclear, however, is whether this constitutes a decline in total investment or just a shift between the union and non-union sectors.

The other key question concerning unions' effects on economic efficiency is their effect on both the level and the growth rate of total factor productivity. Here, the literature is more mixed. On the one hand, high-quality case studies of specific industries suggest that union effect on the level of TFP differs substantially across industries and interacts in important ways with other human resource practices at the firm level. Positive effects are not uncommon and are associated with significant changes in management personnel and style after unions are introduced, since management is 'shocked' into more professsional behaviour. Negative effects can also be found, however, especially in the public sector or in cases where industrial relations are particularly adversarial. There is only a small amount of evidence, and no real consensus, on the effects of unions on productivity growth rates, though this is potentially the most important effect of unionism, because it affects the long-term growth in our standard of living. Unfortunately, it seems unlikely that our knowledge of this issue will advance much until panel data on firms become as easily available as panel data on individuals and households have become in the last two decades. Statistics Canada, are you listening?

References

Abowd, J.M. (1989) 'The effect of wage bargains on the stock market value of the firm,' American Economic Review 79, 774-809

Addison, J., and B. Hirsch (1989) 'Union effects on productivity, profits, and growth: has the long run arrived?' Journal of Labor Economics 7, 72-105

Akyeampong, E. (1997) 'A statistical portrait of the union movement,' Perspectives on Labour and Income, 45-54

Black, Sandra, and L. Lynch (1997) 'How to compete: the impact of workplace practices and information technology on productivity,' NBER Working Paper No. 6120

Boal, W., and J. Pencavel (1994) 'The effects of labor unions on employment, wages, and days of operation: coal mining in West Virginia,' Quarterly Journal of Economics 109, 267-98

Booth, A. (1995) The Economics of the Trade Union (Cambridge: Cambridge University Press)

Booth, A., and M. Chatterji (1998) 'Unions and efficient training,' Economic Journal 108, 328-43

Bronars, Stephen G., and Donald R. Deere (1990) 'Union representation elections and firm profitability,' Industrial Relations 29, 15-37

- (1991) 'The threat of unionization, the use of debt, and the preservation of shareholder wealth,' Quarterly Journal of Economics 106, 231-54

- (1993) 'Unionization, incomplete contracting, and capital investment,' Journal of Business 66, 117-32




Bronars, Stephen G., Donald R. Deere, and Joseph S. Tracy (1994) 'The effects of unions on firm behavior: an empirical analysis using firm-level data,' Industrial Relations 33, 426-51

Brown, C., and J. Medoff (1978) 'Trade unions in the production process,' Journal of Political Economy 86, 355-78

Brown, J., and 0. Ashenfelter (1986) 'Testing the efficiency of employment contracts,' Journal of Political Economy (Special Issue) 94, 540-87

Brown, W., and P. Ryan (1998) 'Decentralized pay setting and productivity: issues and evidence,' mimeo, University of Cambridge

Calmfors, L., and J. Driffil (1988) 'Centralization of wage bargaining and macroeconomic performance,' Economic Policy 6, 13-61

Card, D. (1996) 'The effect of unions on the structure of wages: a longitudinal analysis,' Econometrica 64, 957-79

Carmichael, L., and B. MacLeod (1993) 'Multiskilling, technical change and the Japanese firrn,' Economic Journal 103, 142-60

Clark, K. (1980a) 'Unionization and productivity: micro-econometric evidence,' Quarterly Journal of Economics 95, 613-39

- (1980b) 'The impact of unionism on productivity: a case study,' Industrial and Labor Relations Review 33, 451-69

- (1984) 'Unionization and firm performance: the impact on profits, growth, and productivity,' American Economic Review 74, 893-919

Corneo, G., and C. Lucifora (1997) 'Wage formation under union threat effects: theory and empirical evidence,' Labour Economics 4, 265-92

Currie, J. (1994) 'Arbitrator behavior and the variances of arbitrated and negotiated wage settlements,' Journal of Labor Economics 12, 29-40

De Fina, R. (1983) 'Unions, relative wages, and economic efficiency,' Journal of Labor Economics 1, 408-29

Denny, K., and S. Nickell (1991) 'Unions and investment in British manufacturing industry,' British Journal of Industrial Relations 29, 113-21

-(1992) 'Unions and investment in British industry,' Economic Journal 102, 874-87

Duncan, G., and F. Stafford (1980) 'Do union members receive compensating wage differentials?' American Economic Review 70, 355-71

Fallick, B., and K. Hassett (1996) 'Investment and union certification,' Board of Gover- nors of the Federal Reserve System, Finance and Economics Discussion Series 96-43, May

Farber, H., and M. Bazerman (1989) 'Divergent expectations as a cause of disagreement in bargaining: evidence from a comparison of arbitration schemes,' Quarterly Journal of Economics 104, 99-120

Flanagan, R.J., K.O. Moene, and M. Wallerstein (1993) Trade Union Behaviour, Pay- Bargaining, and Economic Performance, FIEF Studies in Labour Markets and Eco- nomic Policy (Oxford: Oxford University Press)

Freeman, R.B. (1980) 'The exit-voice tradeoff in the labor market: unionism, job tenure, quits and separations,' Quarterly Journal of Economics 94, 643-73 (1981) 'The effect of unionism on fringe benefits,' Industrial and Labor Relations Review 34, 489-509

-(1982) 'Union wage practices and wage dispersion within establishments,' Industrial and Labor Relations Review 36, 3-21

-(1984) 'Longitudinal analysis of the effects of trade unions,' Journal of Labor Eco- nomics 2, 1-26

-(1997) 'Spurts in union growth: defining moments in social processes,' NBER Working Paper No. 6012, April



1054 Peter Kuhn

Freeman, R.B., and M. Kleiner (1994) 'Do unions make enterprises insolvent?' NBER Working Paper No. 4797, July

Gosling, A., and S. Machin (1995) 'Trade unions and the dispersion of earnings in British establishments, 1980-90,' Oxford Bulletin of Economics and Statistics 57, 167-84

Gregg, P., S. Machin, and D. Metcalf (1993) 'Signals and cycles? productivity growth and changes in union status in British companies, 1984-9,' Economic Journal 103, 894-907

Grout, Paul A. (1984) 'Investment and wages in the absence of binding contracts: a Nash bargaining approach,' Econometrica 52, 449-60

Gu, W., and P. Kuhn (1998) 'A theory of holdouts in wage bargaining,' American Eco- nomic Review 88, 428-49

Gunderson, M., D. Hyatt, and A. Ponak (1995) 'Strikes and dispute resolution,' in Union- Management Relations in Canada., 3rd ed., ed. M. Gunderson and A. Ponak (Don Mills, ON: Addison-Wesley)

Hirsch, B.T. (1991) Labor Unions and the Economic Performance of Firms (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research) (1992) 'Firm investment behavior and collective bargaining strategy,' Industrial Rela- tions 31, 95-121

Hirsch, B.T., and J.T. Addison (1986) The Economic Analysis of Unions: New Ap- proaches and Evidence (Boston: Allen and Unwin)

Hirsch, B.T., and A.N. Link (1984) 'Unions, productivity, and productivity growth,' Journal of Labor Research 5, 29-37

Hoxby, C.M. (1996) 'How teachers' unions affect education production,' Quarterly Journal of Economics 111, 671-718

Ichniowski, C. (1990) 'Human resource management systems and the performance of U.S. manufacturing businesses,' National Bureau of Economic Research Working Paper No. 3449, September

Ichniowski, C., R. Freeman, and H. Lauer (1989) 'Collective bargaining laws, threat effects, and the determination of police compensation,' Journal of Labor Economics 7, 191-209

Johnson, H.G., and P. Mieszkowski (1970) 'The effects of unionization on the distribution of income,' Quarterly Journal of Economics 85, 539-61

Kennan, J. (1986) 'The economics of strikes,' in Handbook of Labor Economics, ed. 0. Ashenfelter and R. Layard (Amsterdam: North-Holland)

Kuhn, P. (1985) 'Union productivity effects and economic efficiency,' Journal of Labor Research 6, 229-48

- (1988a) 'Unions in a general equilibrium model of firm formation,' Journal of Labor Economics 6, 62-82

- (1988b) 'A non-uniform pricing model of union wages and employment,' Journal of Political Economy 96, 473-508

Kuhn, P., and A. Sweetman (1996) 'Vulnerable seniors: unions, tenure, and the cost of job loss,' mimeo, McMaster University (1998) 'Wage loss following displacement: the role of union coverage,' Industrial and Labor Relations Review 51, 384-99

Layard, R., S. Nickell, and R. Jackman (1991) Unemployment: Macroeconomic Perfor- mance and the Labor Market (Oxford: Oxford University Press)

Lemieux, T. (1993) 'Unions and wage inequality in Canada and the United States,' in Small Differences that Matter: Labor Markets and Income Maintenance in Canada and the United States, ed. D. Card and R. Freeman (Chicago: University of Chicago Press) (1998) 'Estimating the effects of unions on wage inequality in a panel data model with comparative advantage and nonrandom selection,' Journal of Labor Economics 16, 261-91




Lewis, H.G. (1986) Union Relative Wage Effects: A Survey (Chicago: University of Chicago Press)

Lynch, Lisa (1992) 'Private sector training and the earnings of young workers,' American Economic Review 82, 299-312

Machin, S. (1995) 'Plant closures and unionization in British establishments,' British Journal of Industrial Relations 33, 55-68

Machin, S., and M. Stewart (1996) 'Trade unions and financial performance,' Oxford Economic Papers 48, 213-41

Machin, S., and S. Wadhani (1991) 'The effects of unions on investment and innovation: evidence from WIRS,' Economic Journal 101, 324-30

MacLeod, B., and J. Malcomson (1993) 'Investments, holdup, and the form of market contracts,' American Economic Review 83, 811-37

MaCurdy, T.E. and J.H. Pencavel (1986) 'Testing between competing models of wage and employment determination in unionized markets,' Journal of Political Economy (Special Issue) 94, 503-39

Maki, D. (1983) 'The effects of unions and strikes on the rate of growth of total factor productivity in Canada,' Applied Economics 15, 29-41

Mansfield, E. (1980) 'Basic research and productivity increase in manufacturing,' Amer- ican Economic Review 70, 863-73

Moene, K., and M. Wallerstein (1997) 'Pay inequality,' Journal of Labor Economics 15, 403-30

Nickell, S., and R. Layard 'Labour market institutions and economic performance,' draft chapter for Handbook of Labor Economics, ed. D. Card and 0. Ashenfelter, forthcoming

Nickell, S., and D. Nicolitsas (1997) 'Wages, restrictive practices, and productivity,' Labour Economics 4, 201-22

Nickell, S., S. Wadhwani, and M. Wall (1992) 'Productivity growth in U.K. companies, 1975-1986,' European Economic Review 36, 1055--85

Odgers, C., and J. Betts (1997) 'Do unions reduce investment? Evidence from Canada,' Industrial and Labor Relations Review 51, 518-36

OECD (1994) Employment Outlook (Paris: OECD) Oswald, A. (1993) 'Efficient contracts are on the labour demand curve,' Labour Eco-

nomics 1, 85-114 Paarsch, Harry J. (1990) 'Work stoppages and the theory of the offset factor: evi-

dence from the British Columbian lumber industry,' Journal of Labor Economics 8, 387-417

Passell, P. (1998) 'Royal blue collars: some laborers find princely pay,' New York Times, Sunday 22 March, Section 3, 1 and 12

Riddell, Craig (1993) 'Unionization in Canada and the United States: a tale of two countries,' in Small Differences that Matter: Labor Markets and Income Maintenance in Canada and the United States, ed. D. Card and R. Freeman (Chicago: University of Chicago Press)

Robinson, C. (1989) 'The joint determination of union status and union wage effects: some tests of alternative models,' Journal of Political Economy 97, 639-67

Rosen, S. (1969) 'Trade union power, threat effects, and the extent of organization,' Review of Economic Studies 36, 185-96

Ruback, R.S., and M.R. Zimmerman (1984) 'Unionization and profitability: evidence from the capital market,' Journal of Political Economy 92, 1134-57

Schmidt, C. (1995) 'Relative wage effects of German unions,' mimeo, SELAPC), Univer- sity of Munich, December

Swimmer, G., and M. Thompson, eds. (1995) Public Sector Collective Bargaining in Canada (Kingston, ON: IRC Press)



1056 Peter Kuhn

Troy, L. (1990) 'Is the U.S. unique in the decline of private sector unionism?' Journal of Labor Research 11, 111-43

Tullock, G. (1993) 'The welfare costs of tariffs, monopolies, and theft,' in Public Choice Theory. Volume 2: The characteristics of political equilibrium, ed. C. Rowley (Alder- shot, U.K.: Elgar)

Weiler, P. (1983) 'Promises to keep: securing workers' rights to self-organization under the NLRA,' Harvard Law Review 96, 1769-827

Weiss, Yoram (1985) 'The effect of labor unions on investment in training: a dynamic model,' Journal of Political Economy 93, 994-1007



unions and the economy: what we know; what we should know

Documents