|



 
 
Patterns, Current Population Survey, 2002
Union premium averages 21%

Pattern by age (rising gap²

gap²seniority)
Pattern by gender (gap bigger for women)
Pattern by race (gap bigger for Blacks,
Hispanics)
Pattern by skill (gap biggest at low skill)
 |
 
 
 
orms of Payment
Standard rate (straight time) Pay
Overtime Premia
‡Daily overtime included in 93% of agreements
‡6th or 7th day premia included in 26% of agreements
‡Holiday pay
‡Pyramiding (compensation for more than one overtime
premium at once) prohibited in 69% of contracts
‡Most agreements specify how overtime is to be distributed
among workers. Mandatory overtime negotiated.
 |
 
 
 
orms of Payment
Piece Rate Pay: Pay for output
‡Only used where output is easy to measure and verify
‡Where rate can be agreed upon
‡Treats workers differently: unions may be uncomfortable
‡Example Safelite moves from straight time to piece rate
uŒverage pay rises
uŒverage output (windshields installed per worker per day) rises

uQuantity vs Quality

Standard hour plans

‡Expected time for a project set. Paid for the job at
presumed time. If worker produces at a faster pace, receive
a bonus
uSears got in trouble for performing unnecessary procedures.
uQuality vs Quantity again
 |
 
 
 
orms of Payment
Multiple year plans: Raises prorated over
time.
‡Value rises if front
front--loaded
‡Value falls if back loaded
‡Signing Bonuses (pay phased out)
COLΠ(cost-
(cost-of
of--living adjustments)
‡Tie pay increases to the CPI, typical quarterly
adjustments
‡48% of agreements in 1979
‡18% of agreements in 2002
‡Œlternative: wage reopener to reassess only
wages if economic circumstances dictate (7% in
2002)
 |
 
 
 
orms of Payment
Profit sharing
‡10% of plans
‡ESOPs (Employee Stock Ownership Plans)
‡Unions are cautious about these, firms favor
Scanlon Plans, Gain Sharing
‡Union and management evaluate ideas designed
to lower costs, raise productivity
‡Proceeds split (75% labor
labor--25% firm typical)
uSimilar to 75/25 split between labor and other factors
 |
 
 
 
orms of Payment
Two--tier wage systems: separate treatment of
Two
current, newly hired workers (27% of
contracts in 2002)
‡Used most commonly in declining or threatened
firms to preserve compensation for senior workers
uLow-tier workers view firm low on equity
Low-
uLow
Low--tier workers view union unfavorably
uOften phased out over time as senior workers retire,
economic circumstances improve
 |
 
 
 
orms of Payment
Roll--Up: Many benefits are tied to levels
Roll
of base pay through percentages
‡Taxes (Social Security, Unemployment
Insurance, Worker¶s Compensation)
‡Pensions
‡Overtime Premia
‡Life Insurance
‡Paid Vacations, «
 |
 
 
 
orms of Payment
Legal restrictions common across all
firms may lower gap somewhat
‡LSŒ (minimum wage, overtime)
‡ERISŒ (vesting, pension insurance)
‡COBRŒ Consolidated Omnibus Budget Reconciliation Œct)
uPortability of medical insurance
‡WŒRN
 O 
 
 
  
Other orms of Compensation
Pensions (98% of contracts)
‡Defined Benefit Plan (73%)
uGuarantees amount paid out, typically as a function of
years of service as well as earnings
‡Defined Contribution Plan (27%)
uGuarantees amount paid in
‡Cash Balance Plan (10%)
uSimilar to defined benefit plan except
‡Reporting includes interest earned as well as the set
contribution. Minimum benefit is still guaranteed.
‡Benefit can be received in a lump sum
‡Benefit not tied to years of service
 O 
 
 
  
Other orms of Compensation
Health Insurance (99% of contracts)
‡Hospitalization (97%)
‡Prescription drugs (96%)
‡Physician visits (96%)
‡Mental health (93%)
‡Dental (90%)
‡Vision (73%)
‡Preferred Provider: Specified services for a guaranteed
number of patients. Must select physician from group or pay
extra. (74%)
‡Health Maintenance Organization: Œccess to specified
services at specified institution(s) under direction of a named
primary care physician. Specialist services from the group or
not covered. (62%)
‡ee for Service: Traditional (48%)
 O 
 
 
  
Other orms of Compensation
Paid Holidays (99%)
‡May specify rate for employees who work holidays
‡95% 7+ days, median is 11
Paid Vacations (92%)
‡2-6 weeks
‡Plans dictated by regularity of work, production
process
uGraduated: weeks rise with seniority. Most common.
Big plants.
uUniform: set weeks for all. Manufacturing.
uRatio
Ratio--to
to--work: Set by intensity of work in previous
quarter, year. Transportation
uunded: Employer contributes to a pool. Employees
draw from the pool during slack work. Construction
 |
 
 
 
Theory: Two ±Sector Model
(Same model for differences in benefits or
compensation)

Consider two sectors of an industry:

U: Union
N: Nonunion

What would the wage be in the two sectors if

labor were freely mobile?
 |
 
 
 
Theory: Two ±Sector Model

Consider two sectors of an industry:

U: Union
N: Nonunion

Suppose that workers are equally productive in both

sectors

In the absence of restrictions on mobility, wages

would be equal across the two sectors
 |
 
  
 
Theory: Two ±Sector Model: What happens to labor
in the Union Sector? The Nonunion Sector?


|
  |


| |

   

   



 |
 
 
 
Theory: Two ±Sector Model

Spillover Effect: Displaced labor in the union

sector spills over to the nonunion sector
 |
 
  
 
Theory: Two ±Sector Model
Spillover Effect


|
  |


| |

   

   



 |
 
 
 
Theory: Two ±Sector Model

Threat Effect: irms in the nonunion sector

raise wages to induce their own workers to
resist incentives to unionize
 |
 
  
 
Theory: Two ±Sector Model
Threat Effect


|
  |


| |

   

   



 |
 
 
 
Theory: Two ±Sector Model

Wait Unemployment Effect: Displaced labor in

the union sector stays in the Union Sector to
wait for jobs to open

Œlternative: Share job loss across NU, each

works NU / NU¶
 |
 
  
 
Theory: Two ±Sector Model
Wait Unemployment


|
  |


|  |

   

   




 
 |
 
 
  

Wage = Price * Marginal Product

= Short-run demand curve

Marginal Product = f(Skill, firm attributes)

= f(Xi)
 
 |
 
 
  
Percent differential in the wage approximated by
WU ± WN = Observed difference

Œt least some of the wage differential will reflect differences in

productivity between the U and N sectors (sorting)

Suppose that union wages are well explained by the equation

WU = a0 + a1* XU
WN = b0 + b1* XN
Predicted Wage for a nonunion worker if s/he were in a union is

WN = a0 + a1* XN
 
 |
 
 
  

Percent differential in the wage approximated

by
WU ± WN = Observed difference

WU - WN = Explained difference

WN - WN = Unexplained difference
 |
 
  
 
Theory: Two ±Sector Model:Explained and
Unexplained Differences in Wages


|
  |


| |

WN

WN
 
 

   



 O    |
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# $ % &Ñ
% &Ñ
 

    '()*  
+,,-./+01223-'
+,,-./+01

Card: Table 2:
u Unadjusted union wage gap rising for men and
women
u Œdjusted union wage gap stable (men) or falling
(women)
u Œdjusted (explained) gap smaller than
Unadjusted (unexplained) gap =>some of union
wage effect is sorting on productivity
u Wage inequality lower for men and women in the
union sector (both overall and residual)
u Wage inequality rising in both the union and
nonunion sectors
¢ 
¢  * 45
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 |

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    '1
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u Bratsberg and Ragan: What is the magnitude of

the union wage gap, controlling for differences in
productive attributes:

u WN - WN = Unexplained difference
= Œdjusted Union Effect

Estimates reported in Œppendix and Time Path

shown in igure 1
¢ 
¢  * 45
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 |

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    '1
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u Bratsberg and Ragan:

Œppendix: Union Wage Premium by Industry,

adjusted for differences in education, experience,
gender, minority status, marital status, SMSŒ,
area of country, part-time status, occupational
status.

Overall, premium varies from 13% to 22%

(Consistent with Card)

Estimated adjusted premia vary from 2% (textiles,

instruments) to 31% (construction), all positive
¢ 
¢  * 45
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 |

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    '1
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Œppendix: Union Wage Premium by Industry, adjusted for
differences in factors.

Some downward trend in premium, not dramatic (consistent with

Card)

Trend effect by industry:

16 falling, 9 significant
16 rising, 9 significant
Is there are pattern to which industries are falling wage premia?

igure 1
alling: Construction, Mining, Wholesale, Retail, inance
Start with high premium
Rising:Communications, Durable Goods
Start at low premium
Reversion to the mean?
igure 2: Variance of union premia across industries
¢ 
¢  * 45
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 |

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    '1
)7 +,,+./1'2283
)7 +,,+./1'
u What actors affect union wage premia
over time, across industries?
‡ Business cycles: Union contracts insulate
wages from short-
short-term fluctuations
u Unemployment rate: should raise premium
u Inflation: should lower premium
u COLŒ: adds cyclical sensitivity back in
‡ Deregulation: adds competitors that should
lower bargaining power (Laws of Derived
Demand)
‡ Import penetration: Union insulates wages at
least temporarily
‡ Tests reported in Table 2
¢ 
¢  * 45
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 |

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    '1
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)7 +,,+./1'

u Conclusions:
‡ Union wage premia in all industries
‡ Premia becoming more similar across
industries over time
‡ Union wages less responsive to business cycles
unless tied to inflation through COLŒs
‡ Decentralization has mixed effects on wage
premia (generally lowers wages for both union
and nonunion however)
‡ Union wages more insulated from import
competition
¢
 
# 9 :$ 
  


22;  

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 |% 

|%#%& Ñ
 

   
'()*  +,,-./',+2
+,,-./',+2'+(

Deregulation has mixed effects on the union wage

premium because it lowers wages for both union
and nonunion workers.

Similarly, import competition may lower wage for

both union and nonunion workers, but it lowers
wages more for nonunion workers

Belman and Monaco document how deregulation

has affected union and nonunion wages in
trucking
¢
 
# 9 :$ 
  


22;  

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 |% 

|%#%& Ñ
 

   
'()*  +,,-./',+2
+,,-./',+2'+(

Between 1935 and 1979

‡ Entry in trucking routes restricted
‡ Rates set bureaucratically
‡ Back-hauls banned
‡ Some types of freight banned
u Created monopoly rents, some of which went to
union workers
These restrictions eliminated with deregulation

Deregulation of trucking began in 1979.

‡ Real wages fell by 21% between 1973-1995
‡ Unionization density in firms whose main business was
trucking fell from 55% to 25%
¢
 
# 9 :$ 
  


22;  

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 |% 

|%#%& Ñ
 

   
'()*  +,,-./',+2
+,,-./',+2'+(

Table 2: Data on individual trucker earnings between 1973-

1991
Union members earn 28% more, adjusted for skill

Holding individual productivity measures fixed, impact of

deregulation estimated

Impact on
or-hire Private carriage
Nonunion -0.163 -0.125
Union -0.079 -0.087

Impacts based on sum of coefficients from table 2

=>Deregulation lowered wages for all, but lowered wages less for
union members
¢
 
# 9 :$ 
  


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 |% 

|%#%& Ñ
 

   
'()*  +,,-./',+2
+,,-./',+2'+(

Œnother change in this market:

‡ Communications and location technologies
‡ Routing technologies
‡ Computer technologies
Technologies should raise worker productivity²
u adjust routes to changes in weather, traffic, road
construction
u More efficient back hauls
u More efficient partial loads
u Communication without stopping
Table 3 shows the use of various technologies by
drivers in 1997
¢
 
# 9 :$ 
  


22;  

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 |% 

|%#%& Ñ
 

   
'()*  +,,-./',+2
+,,-./',+2'+(

Belman and Monaco document how these

technologies have affected wages
‡ Earnings
u Satellites raise earnings
u Dispatchers (old technology) lower earnings
‡ Mileage rates (earnings per mile)
u Old technologies tend to lower rates per mile;
because
‡ Miles
u Satellite technologies raise miles (reduce wasted time
off road; raise hours without raising penalties)
 O    |
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# $ % &Ñ
% &Ñ
 

    '()*  
+,,-./+01223-'
+,,-./+01

Wage inequality lower for men and women

in the union sector (both overall and
residual)

But«Wage inequality rising in both the

union and nonunion sectors

u Have changes in union density led to

rising wage inequality?
‡ Male union density fell from 31% to 19% from
1973 and 1993
‡ emale union density fell from 14% to 13%
 O    |
!"
  
# $ % &Ñ
% &Ñ
 

    '()*  
+,,-./+01223-'
+,,-./+01

igures 1 and 2: Changes in union density

by gender, skill, and public versus private
sector employment
‡ Public sector
u Male and female density rising
u Biggest increases at upper tail of skill distribution
‡ Private sector
u Male and female density falling
u Biggest decreases at middle or lower end of skill
distribution
‡ Potential impact of density changes on
inequality different for public, private sectors
 O    |
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# $ % &Ñ
% &Ñ
 

    '()*  
+,,-./+01223-'
+,,-./+01

igures 3 and 4: Changes in pattern of

union premia by gender, skill, and public
versus private sector employment
‡ Wage premia largest for the least skilled for
both men and women
‡ Decline in wage premia faster for men as skill
increases, (negative for men at highest skills)
‡ Pattern identical
u between public and private sectors
u Between 1973 and 1993
 O    |
!"
  
# $ % &Ñ
% &Ñ
 

    '()*  
+,,-./+01223-'
+,,-./+01

Table 8: Estimate of impact of union density

changes on wage inequality by gender,
public vs private sectors
‡ Public sector union density rises for men and
women
u Lowers inequality by 1 percentage point for women
and men
‡ Private sector union density falls for men and
women
u No impact on inequality among women
u 1 percentage point increase in inequality among men
u Decline in union density has had only a
small effect on earnings inequality in the
united States
¢ 

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 <
! 6 O
  
 &Ñ
&Ñ
 

    '')*
+,,+./1-,
'')*
+,,+./1-,221+?

Percent covered by employer-

employer-provided
Health Insurance fell from 71% in
1983 to 64.5% in 1997

Unions raise probability of getting

benefits

How much of the decrease in benefits

is due to decline in union density?
¢ 

  O*   5 =>

 
 <
! 6 O
  
 &Ñ
&Ñ
 

    '')*
+,,+./1-,
'')*
+,,+./1-,221+?

Do differences in union and nonunion

health insurance benefits reflect
differences in firm, worker attributes
or are they a consequence of union
bargaining power?

Explained vs unexplained differences

in health insurance
¢ 

  O*   5 =>

 
 <
! 6 O
  
 &Ñ
&Ñ
 

    '')*
+,,+./1-,
'')*
+,,+./1-,221+?

Table 3: Changes in union effect on health

insurance (percent of workers)
Observed Œdjusted
1997 21.5 17.5
1983 27.4 21.1

=> Some of union benefits premium is sorting on

productivity
=> Union effect on benefits falling somewhat

Union also raises probability of eligibility (shorter

wait to get benefit, gap falling); union raises
probability of take-
take-up (higher quality benefits,
gap rising)
¢ 

  O*   5 =>

 
 <
! 6 O
  
 &Ñ
&Ñ
 

    '')*
+,,+./1-,
'')*
+,,+./1-,221+?

Differences in establishment size

Table 5: Union impact on health insurance

benefits is biggest in small firms (impact
in % of establishments)
u Virtually all large firms offer benefits
u If union density had remained constant (especially in
small firms) percentage covered by employer-
employer-
provided health insurance would be 1.6 percentage
point higher (25% of decline in employer provided
benefits)
u Œdjusted gap is 2.9%
¢ 

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 <
! 6 O
  
 &Ñ
&Ñ
 

    '')*
+,,+./1-,
'')*
+,,+./1-,221+?

Union Impact on benefit quality

Table 6: Union impact on firm share

of health insurance premium
payment
Single coverage: Œdjusted difference
is 9%
amily coverage: Œdjusted differences
is 10%
¢ 

  O*   5 =>

 
 <
! 6 O
  
 &Ñ
&Ñ
 

    '')*
+,,+./1-,
'')*
+,,+./1-,221+?
Union Impact on health insurance benefits for retirees

Table 8:Proportion of establishments providing health

insurance benefits that also provide benefits to retirees, by
union status and establishment size

Union gap rising due mainly to decrease in nonunion sector

(4.5% in 1988, 14.5% in 1993) (Table 6: CPS data, adjusted, %
of employees)

Gap exists at all firm sizes, biggest at small firms

Loss of union density may affect future retiree health benefits

 :

 = 5 #O

%6
|
 :
2
:
2O 6
& Ñ
 


    30)*
-081./',+
30)*
-081./',+22'-?
Union Impact on pension benefits

Table 1:Other things equal

Unions raise benefits at retirement by

6%, holding prior earnings fixed

Unions lower age at retirement by

about 1 year
 :

 = 5 #O

%6
|
 :
2
:
2O 6
& Ñ
 


    30)*
-081./',+
30)*
-081./',+22'-?
Union Impact on pension benefit increase
after retirement

Table 3:
Union pensions grow at a faster rate than
nonunion pensions

Union effect on pension rises as years of

retirement increases (17% for older
retirees vs. 5% for youngest retirees)
$<
O  2= 
 6
;
 %
7  6
/|    & Ñ  
  
 )-00?./+323+

ESOP: Employee Stock Ownership

Plans

Unions are skeptical

‡ Potential for firm abuse
‡ Potential union replacement by creating
community of interest with
management
Unions have set guidelines for ESOPs:
Table 1
$<
O  2= 
 6
;
 %
7  6
/|    & Ñ  
  
 )-00?./+323+

ESOP: Employee Stock Ownership Plans

Table 4: How do ESOPs differ in unionized

firms?

Greater labor influence in decisions

u Share of stock owned by ESOP is bigger
u More employee participation on Board, design of
ESOP
u Œllocation of stock more likely based on hours (equal
treatment)
4 5  $9
$ %
 !
 & Ñ
 

   
'+)*
-000./'-,2'+?

If Unions raise wages, benefits, do

they make firms insolvent?

Samuel Gompers m
 


 

 
 






4 5  $9
$ %
 !
 & Ñ
 

   
'+)*
-000./'-,2'+?
If Unions raise wages, benefits, do they make firms
insolvent?

Context
‡ Unions raise wages, benefits
‡ Unions raise productivity on average
‡ Gain in wages outweighs gain in productivity
u Virtually all studies find that unions lower rate of return on
assets
u Lower growth rate of firm
u Lower stock price
‡ Possible that what unions do is extract rents (excess
profits) from firms, do not lower profit below market
rate of return, do not threaten firm survival
u Unions concentrate on larger firms
u irms in concentrated industries
4 5  $9
$ %
 !
 & Ñ
 

   
'+)*
-000./'-,2'+?
If Unions raise wages, benefits, do they
make firms insolvent?
Subset of Compustat data (319 firms) with
union information added, 1983-
1983-1990
Union measures:
‡ Dummy variable if any workers covered by
union contract
‡ Percent of workers covered by union contract
Table 3: Union impact on profitability
‡ Union presence associated with 33--9 percentage point
lower net income on assets (latter is a bit high vs other
estimates)
‡ Œdverse effect is larger when union density is lower!!
4 5  $9
$ %
 !
 & Ñ
 

   
'+)*
-000./'-,2'+?
If Unions raise wages, benefits, do
they make firms insolvent?

Table 2: NO!!!

Probability of insolvency lower for

unionized firms

Selection effect? Unions target only

profitable firms