Wage Differentials between Union and Nonunion Sectors Patterns, Current Population Survey, 2002 Union premium averages 21% Pattern by age (rising gap—seniority)

Wage Differentials between Union Wage Differentials between Union and Nonunion Sectorsand Nonunion Sectors

Patterns, Current Population Survey, 2002Patterns, Current Population Survey, 2002

Union premium averages 21%Union premium averages 21%

Pattern by age (rising gap—seniority)Pattern by age (rising gap—seniority)

Pattern by gender (gap bigger for women)Pattern by gender (gap bigger for women)

Pattern by race (gap bigger for Blacks, Pattern by race (gap bigger for Blacks, Hispanics)Hispanics)

Pattern by skill (gap biggest at low skill)Pattern by skill (gap biggest at low skill)


Forms of Payment Forms of Payment Standard rate (straight time) PayStandard rate (straight time) PayOvertime PremiaOvertime Premia

•Daily overtime included in 93% of agreementsDaily overtime included in 93% of agreements•66thth or 7 or 7thth day premia included in 26% of agreements day premia included in 26% of agreements•Holiday pay Holiday pay •Pyramiding (compensation for more than one overtime Pyramiding (compensation for more than one overtime premium at once) prohibited in 69% of contractspremium at once) prohibited in 69% of contracts•Most agreements specify how overtime is to be distributed Most agreements specify how overtime is to be distributed among workers. Mandatory overtime negotiated.among workers. Mandatory overtime negotiated.


Forms of Payment Forms of Payment Piece Rate Pay: Pay for outputPiece Rate Pay: Pay for output

•Only used where output is easy to measure and verifyOnly used where output is easy to measure and verify•Where rate can be agreed uponWhere rate can be agreed upon•Treats workers differently: unions may be uncomfortable Treats workers differently: unions may be uncomfortable •Example Safelite moves from straight time to piece rateExample Safelite moves from straight time to piece rate

Average pay risesAverage pay risesAverage output (windshields installed per worker per day) risesAverage output (windshields installed per worker per day) risesQuantity vs QualityQuantity vs Quality

Standard hour plansStandard hour plans•Expected time for a project set. Paid for the job at presumed Expected time for a project set. Paid for the job at presumed time. If worker produces at a faster pace, receive a bonustime. If worker produces at a faster pace, receive a bonus

Sears got in trouble for performing unnecessary procedures.Sears got in trouble for performing unnecessary procedures.Quality vs Quantity againQuality vs Quantity again


Forms of Payment Forms of Payment Multiple year plans: Raises prorated over Multiple year plans: Raises prorated over time. time.

•Value rises if front-loadedValue rises if front-loaded•Value falls if back loadedValue falls if back loaded•Signing Bonuses (pay phased out)Signing Bonuses (pay phased out)

COLA (cost-of-living adjustments)COLA (cost-of-living adjustments)•Tie pay increases to the CPI, typical quarterly Tie pay increases to the CPI, typical quarterly adjustmentsadjustments•48% of agreements in 197948% of agreements in 1979•18% of agreements in 200218% of agreements in 2002•Alternative: wage reopener to reassess only Alternative: wage reopener to reassess only wages if economic circumstances dictate (7% in wages if economic circumstances dictate (7% in 2002)2002)


Forms of Payment Forms of Payment

Profit sharing Profit sharing •10% of plans10% of plans•ESOPs (Employee Stock Ownership Plans)ESOPs (Employee Stock Ownership Plans)•Unions are cautious about these, firms favorUnions are cautious about these, firms favor

Scanlon Plans, Gain Sharing Scanlon Plans, Gain Sharing •Union and management evaluate ideas designed Union and management evaluate ideas designed to lower costs, raise productivityto lower costs, raise productivity•Proceeds split (75% labor-25% firm typical)Proceeds split (75% labor-25% firm typical)

Similar to 75/25 split between labor and other factorsSimilar to 75/25 split between labor and other factors



Two-tier wage systems: separate treatment of Two-tier wage systems: separate treatment of current, newly hired workers (27% of contracts current, newly hired workers (27% of contracts in 2002)in 2002)

•Used most commonly in declining or threatened Used most commonly in declining or threatened firms to preserve compensation for senior workersfirms to preserve compensation for senior workers

Low-tier workers view firm low on equityLow-tier workers view firm low on equityLow-tier workers view union unfavorablyLow-tier workers view union unfavorablyOften phased out over time as senior workers retire, Often phased out over time as senior workers retire, economic circumstances improveeconomic circumstances improve


Forms of Payment Forms of Payment Roll-Up: Many benefits are tied to levels Roll-Up: Many benefits are tied to levels of base pay through percentagesof base pay through percentages

•Taxes (Social Security, Unemployment Taxes (Social Security, Unemployment Insurance, Worker’s Compensation)Insurance, Worker’s Compensation)•PensionsPensions•Overtime PremiaOvertime Premia•Life InsuranceLife Insurance•Paid Vacations, …Paid Vacations, …



Legal restrictions common across all Legal restrictions common across all firms may lower gap somewhatfirms may lower gap somewhat

•FLSA (minimum wage, overtime)FLSA (minimum wage, overtime)•ERISA (vesting, pension insurance)ERISA (vesting, pension insurance)•COBRA COBRA Consolidated Omnibus Budget Reconciliation Act)Consolidated Omnibus Budget Reconciliation Act)

Portability of medical insurancePortability of medical insurance

•WARNWARN

Compensating Differentials between Compensating Differentials between Union and Nonunion SectorsUnion and Nonunion Sectors

Other Forms of Compensation Other Forms of Compensation Pensions (98% of contracts)Pensions (98% of contracts)

•Defined Benefit Plan (73%)Defined Benefit Plan (73%)Guarantees amount paid out, typically as a function of Guarantees amount paid out, typically as a function of years of service as well as earningsyears of service as well as earnings

•Defined Contribution Plan (27%)Defined Contribution Plan (27%)Guarantees amount paid inGuarantees amount paid in

•Cash Balance Plan (10%)Cash Balance Plan (10%)Similar to defined benefit plan exceptSimilar to defined benefit plan except

•Reporting includes interest earned as well as the set Reporting includes interest earned as well as the set contribution. Minimum benefit is still guaranteed.contribution. Minimum benefit is still guaranteed.•Benefit can be received in a lump sumBenefit can be received in a lump sum•Benefit not tied to years of serviceBenefit not tied to years of service


Other Forms of Compensation Other Forms of Compensation Health Insurance (99% of contracts)Health Insurance (99% of contracts)

•Hospitalization (97%)Hospitalization (97%)•Prescription drugs (96%)Prescription drugs (96%)•Physician visits (96%)Physician visits (96%)•Mental health (93%)Mental health (93%)•Dental (90%)Dental (90%)•Vision (73%)Vision (73%)•Preferred Provider: Specified services for a guaranteed Preferred Provider: Specified services for a guaranteed number of patients. Must select physician from group or pay number of patients. Must select physician from group or pay extra. (74%)extra. (74%)•Health Maintenance Organization: Access to specified Health Maintenance Organization: Access to specified services at specified institution(s) under direction of a named services at specified institution(s) under direction of a named primary care physician. Specialist services from the group or primary care physician. Specialist services from the group or not covered. (62%)not covered. (62%)•Fee for Service: Traditional (48%)Fee for Service: Traditional (48%)


Other Forms of Compensation Other Forms of Compensation Paid Holidays (99%)Paid Holidays (99%)

•May specify rate for employees who work holidaysMay specify rate for employees who work holidays•95% 7+ days, median is 1195% 7+ days, median is 11

Paid Vacations (92%)Paid Vacations (92%)•2-6 weeks2-6 weeks•Plans dictated by regularity of work, production Plans dictated by regularity of work, production processprocess

Graduated: weeks rise with seniority. Most common. Big Graduated: weeks rise with seniority. Most common. Big plants.plants.Uniform: set weeks for all. Manufacturing.Uniform: set weeks for all. Manufacturing.Ratio-to-work: Set by intensity of work in previous Ratio-to-work: Set by intensity of work in previous quarter, year. Transportationquarter, year. TransportationFunded: Employer contributes to a pool. Employees Funded: Employer contributes to a pool. Employees draw from the pool during slack work. Constructiondraw from the pool during slack work. Construction


Theory: Two –Sector ModelTheory: Two –Sector Model(Same model for differences in benefits or (Same model for differences in benefits or

compensation)compensation)

Consider two sectors of an industry:Consider two sectors of an industry:U: UnionU: UnionN: NonunionN: Nonunion

What would the wage be in the two sectors if What would the wage be in the two sectors if labor were freely mobile?labor were freely mobile?


Theory: Two –Sector ModelTheory: Two –Sector Model

Consider two sectors of an industry:Consider two sectors of an industry:U: UnionU: UnionN: NonunionN: Nonunion

Suppose that workers are equally productive in both Suppose that workers are equally productive in both sectorssectors

In the absence of restrictions on mobility, wages would In the absence of restrictions on mobility, wages would be equal across the two sectorsbe equal across the two sectors

Wage Differentials between Union and Wage Differentials between Union and Nonunion SectorsNonunion Sectors

Theory: Two –Sector Model: What happens to labor in Theory: Two –Sector Model: What happens to labor in the Union Sector? The Nonunion Sector?the Union Sector? The Nonunion Sector?

Wage Wage

EmploymentEmployment

WU

UnionNonunion

WN

NU NN

Demand Demand

NU’



Spillover Effect: Displaced labor in the union Spillover Effect: Displaced labor in the union sector spills over to the nonunion sectorsector spills over to the nonunion sector



Spillover EffectSpillover Effect

Wage Wage


WU

UnionNonunion

WN

NU NN

Demand Demand

NU’



Threat Effect: Firms in the nonunion sector Threat Effect: Firms in the nonunion sector raise wages to induce their own workers to raise wages to induce their own workers to

resist incentives to unionizeresist incentives to unionize



Threat EffectThreat Effect

Wage Wage


WU

UnionNonunion

WN

NU NN

Demand Demand

NU’



Wait Unemployment Effect: Displaced labor in Wait Unemployment Effect: Displaced labor in the union sector stays in the Union Sector to the union sector stays in the Union Sector to

wait for jobs to openwait for jobs to open

Alternative: Share job loss across NAlternative: Share job loss across NUU, each , each works Nworks NU U / N/ NU’U’



Wait UnemploymentWait Unemployment

Wage Wage


WU

UnionNonunion

WN

NU NN

Demand Demand

NU’

?

?

Empirical Tests of Wage Differentials between Empirical Tests of Wage Differentials between Union and Nonunion SectorsUnion and Nonunion Sectors

Wage = Price * Marginal Product= Short-run demand curve

Marginal Product = f(Skill, firm attributes)= f(Xi)


Percent differential in the wage approximated by Percent differential in the wage approximated by WWUU – WN = Observed difference

At 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 equationWWUU = a0 + a1* XU

WWNN = b0 + b1* XN

Predicted Wage for a nonunion worker if s/he were in a union is

WWNN = a0 + a1* XN


Percent differential in the wage approximated Percent differential in the wage approximated by by

WWUU – WN = Observed difference

WU - U - WNN = Explained difference

WN - - WNN = Unexplained difference


Theory: Two –Sector Model:Explained and Unexplained Theory: Two –Sector Model:Explained and Unexplained Differences in WagesDifferences in Wages

Wage Wage


WU

UnionNonunion

WU

NU NN

DemandDemand

NU’

WN

WN

Card, David. “The Effect of Unions on Wage Inequality in the U.S. Card, David. “The Effect of Unions on Wage Inequality in the U.S. Labor Market.” Labor Market.” Industrial and Labor Relations ReviewIndustrial and Labor Relations Review 54 (January 54 (January 2001): 296-315.2001): 296-315.

Card: Table 2: Card: Table 2: Unadjusted union wage gap rising for men and Unadjusted union wage gap rising for men and

womenwomen Adjusted union wage gap stable (men) or falling Adjusted union wage gap stable (men) or falling

(women)(women) Adjusted (explained) gap smaller than Unadjusted Adjusted (explained) gap smaller than Unadjusted

(unexplained) gap =>some of union wage effect (unexplained) gap =>some of union wage effect is sorting on productivityis sorting on productivity

Wage inequality lower for men and women in the Wage inequality lower for men and women in the union sector (both overall and residual)union sector (both overall and residual)

Wage inequality rising in both the union and Wage inequality rising in both the union and nonunion sectorsnonunion sectors

Bratsberg, Bernt and James F. Ragan Jr. “Changes in the Union Bratsberg, Bernt and James F. Ragan Jr. “Changes in the Union Wage Premium by Industry.”Wage Premium by Industry.” Industrial and Labor Relations Review Industrial and Labor Relations Review 56 56 (October 2002): 65-83.(October 2002): 65-83.

Bratsberg and Ragan: What is the magnitude of Bratsberg and Ragan: What is the magnitude of the union wage gap, controlling for differences in the union wage gap, controlling for differences in productive attributes: productive attributes:

WN - - WNN = Unexplained difference = Adjusted Union Effect

Estimates reported in Appendix and Time Path shown in Figure 1


Bratsberg and Ragan:Bratsberg and Ragan:

Appendix: Union Wage Premium by Industry, adjusted for differences in education, experience, gender, minority status, marital status, SMSA, 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


Appendix: 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 significant16 rising, 9 significantIs there are pattern to which industries are falling wage premia?

Figure 1 Falling: Construction, Mining, Wholesale, Retail, Finance

Start with high premiumRising:Communications, Durable Goods

Start at low premiumReversion to the mean?Figure 2: Variance of union premia across industries


What Factors affect union wage premia What Factors affect union wage premia over time, across industries?over time, across industries?• Business cycles: Union contracts insulate Business cycles: Union contracts insulate

wages from short-term fluctuationswages from short-term fluctuations Unemployment rate: should raise premiumUnemployment rate: should raise premium Inflation: should lower premiumInflation: should lower premium COLA: adds cyclical sensitivity back inCOLA: adds cyclical sensitivity back in

• Deregulation: adds competitors that should Deregulation: adds competitors that should lower bargaining power (Laws of Derived lower bargaining power (Laws of Derived Demand)Demand)

• Import penetration: Union insulates wages at Import penetration: Union insulates wages at least temporarilyleast temporarily

• Tests reported in Table 2Tests reported in Table 2


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 COLAs• Decentralization has mixed effects on wage

premia (generally lowers wages for both union and nonunion however)

• Union wages more insulated from import competition

Belman, Dale L. and Kristen A. Monaco. Belman, Dale L. and Kristen A. Monaco. “The Effects of Deregulation, “The Effects of Deregulation, De-Unionization, Technology and Human Capital on the Work and De-Unionization, Technology and Human Capital on the Work and Work Lives of Truck Drivers.”Work Lives of Truck Drivers.” Industrial and Labor Relations Review Industrial and Labor Relations Review 54 (January 2001): 502-524.54 (January 2001): 502-524.

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


Between 1935 and 1979• Entry in trucking routes restricted• Rates set bureaucratically• Back-hauls banned• Some types of freight banned

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%


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 For-hire Private carriage

Nonunion -0.163 -0.125Union -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


Another change in this market:• Communications and location technologies• Routing technologies• Computer technologies

Technologies should raise worker productivity— adjust routes to changes in weather, traffic, road

construction More efficient back hauls More efficient partial loads Communication without stopping

Table 3 shows the use of various technologies by drivers in 1997


Belman and Monaco document how these technologies have affected wages• Earnings

Satellites raise earnings Dispatchers (old technology) lower earnings

• Mileage rates (earnings per mile) Old technologies tend to lower rates per mile;

because

• Miles Satellite technologies raise miles (reduce wasted

time off road; raise hours without raising penalties)


Wage inequality lower for men and women Wage inequality lower for men and women in the union sector (both overall and in the union sector (both overall and residual)residual)

But…Wage inequality rising in both the But…Wage inequality rising in both the union and nonunion sectorsunion and nonunion sectors

Have changes in union density led to rising Have changes in union density led to rising wage inequality?wage inequality?• Male union density fell from 31% to 19% from Male union density fell from 31% to 19% from

1973 and 19931973 and 1993• Female union density fell from 14% to 13%Female union density fell from 14% to 13%


Figures 1 and 2: Changes in union density Figures 1 and 2: Changes in union density by gender, skill, and public versus private by gender, skill, and public versus private sector employmentsector employment• Public sectorPublic sector

Male and female density rising Male and female density rising Biggest increases at upper tail of skill distributionBiggest increases at upper tail of skill distribution

• Private sectorPrivate sector Male and female density fallingMale and female density falling Biggest decreases at middle or lower end of skill Biggest decreases at middle or lower end of skill

distributiondistribution

• Potential impact of density changes on Potential impact of density changes on inequality different for public, private sectorsinequality different for public, private sectors


Figures 3 and 4: Changes in pattern of Figures 3 and 4: Changes in pattern of union premia by gender, skill, and public union premia by gender, skill, and public versus private sector employmentversus private sector employment• Wage premia largest for the least skilled for Wage premia largest for the least skilled for

both men and womenboth men and women• Decline in wage premia faster for men as skill Decline in wage premia faster for men as skill

increases, increases, (negative for men at highest skills)(negative for men at highest skills)

• Pattern identical Pattern identical between public and private sectorsbetween public and private sectors Between 1973 and 1993Between 1973 and 1993


Table 8: Estimate of impact of union density Table 8: Estimate of impact of union density changes on wage inequality by gender, changes on wage inequality by gender, public vs private sectorspublic vs private sectors• Public sector union density rises for men and Public sector union density rises for men and

womenwomen Lowers inequality by 1 percentage point for women Lowers inequality by 1 percentage point for women

and menand men• Private sector union density falls for men and Private sector union density falls for men and

womenwomen No impact on inequality among womenNo impact on inequality among women 1 percentage point increase in inequality among men1 percentage point increase in inequality among men

Decline in union density has had only a Decline in union density has had only a small effect on earnings inequality in the small effect on earnings inequality in the united Statesunited States

Buchmueller, Thomas C. John Dinardo and Robert G. Valletta. “Union Buchmueller, Thomas C. John Dinardo and Robert G. Valletta. “Union Effects on Health Insurance Provision and Coverage in the United Effects on Health Insurance Provision and Coverage in the United States.” States.” Industrial and Labor Relations ReviewIndustrial and Labor Relations Review 55 (July 2002): 610-627. 55 (July 2002): 610-627.

Percent covered by employer-provided Percent covered by employer-provided Health Insurance fell from 71% in Health Insurance fell from 71% in 1983 to 64.5% in 19971983 to 64.5% in 1997

Unions raise probability of getting Unions raise probability of getting benefitsbenefits

How much of the decrease in benefits How much of the decrease in benefits is due to decline in union density? is due to decline in union density?


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

Explained vs unexplained differences Explained vs unexplained differences in health insurancein health insurance


Table 3: Changes in union effect on health Table 3: Changes in union effect on health insurance (percent of workers)insurance (percent of workers)

ObservedObserved Adjusted Adjusted 19971997 21.521.5 17.517.519831983 27.427.4 21.121.1

=> Some of union benefits premium is sorting on => Some of union benefits premium is sorting on productivityproductivity

=> Union effect on benefits falling somewhat=> Union effect on benefits falling somewhat

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


Differences in establishment sizeDifferences in establishment size

Table 5: Union impact on health insurance Table 5: Union impact on health insurance benefits is biggest in small firms (impact in benefits is biggest in small firms (impact in % of establishments)% of establishments)

Virtually all large firms offer benefitsVirtually all large firms offer benefits If union density had remained constant (especially in If union density had remained constant (especially in

small firms) percentage covered by employer-small firms) percentage covered by employer-provided health insurance would be 1.6 percentage provided health insurance would be 1.6 percentage point higher (25% of decline in employer provided point higher (25% of decline in employer provided benefits)benefits)

Adjusted gap is 2.9%Adjusted gap is 2.9%


Union Impact on benefit qualityUnion Impact on benefit quality

Table 6: Union impact on firm share of Table 6: Union impact on firm share of health insurance premium paymenthealth insurance premium payment

Single coverage: Adjusted difference Single coverage: Adjusted difference is 9%is 9%

Family coverage: Adjusted differences Family coverage: Adjusted differences is 10%is 10%


Union Impact on health insurance benefits for retireesUnion Impact on health insurance benefits for retirees

Table 8:Proportion of establishments providing health Table 8:Proportion of establishments providing health insurance benefits that also provide benefits to retirees, by insurance benefits that also provide benefits to retirees, by union status and establishment sizeunion status and establishment size

Union gap rising due mainly to decrease in nonunion sector Union gap rising due mainly to decrease in nonunion sector (4.5% in 1988, 14.5% in 1993) (4.5% in 1988, 14.5% in 1993) ((Table 6: CPS data, adjusted, Table 6: CPS data, adjusted, % of employees% of employees))

Gap exists at all firm sizes, biggest at small firmsGap exists at all firm sizes, biggest at small firms

Loss of union density may affect future retiree health benefitsLoss of union density may affect future retiree health benefits

Allen, Steven G and Robert L. Clark. “Unions, Pension Allen, Steven G and Robert L. Clark. “Unions, Pension Wealth, and Age-Compensation Profiles.”Wealth, and Age-Compensation Profiles.” Industrial and Industrial and Labor Relations ReviewLabor Relations Review 39 (July 1986): 502-517. 39 (July 1986): 502-517.

Union Impact on pension benefitsUnion Impact on pension benefits

Table 1:Other things equalTable 1:Other things equal

Unions raise benefits at retirement by Unions raise benefits at retirement by 6%, holding prior earnings fixed6%, holding prior earnings fixed

Unions lower age at retirement by Unions lower age at retirement by about 1 yearabout 1 year

Allen, Steven G and Robert L. Clark. “Unions, Pension Allen, Steven G and Robert L. Clark. “Unions, Pension Wealth, and Age-Compensation Profiles.”Wealth, and Age-Compensation Profiles.” Industrial and Industrial and Labor Relations ReviewLabor Relations Review 39 (July 1986): 502-517. 39 (July 1986): 502-517.

Union Impact on pension benefit increase Union Impact on pension benefit increase after retirementafter retirement

Table 3: Table 3:

Union pensions grow at a faster rate than Union pensions grow at a faster rate than nonunion pensionsnonunion pensions

Union effect on pension rises as years of Union effect on pension rises as years of retirement increases (17% for older retirement increases (17% for older retirees vs. 5% for youngest retirees)retirees vs. 5% for youngest retirees)

McHugh, Cutcher-Gershenfeld and Polzin. “Employee Stock Ownership Plans: Whose interests do they Serve?” IRRA 49th Annual Proceedings. (1997):23-32.

ESOP: Employee Stock Ownership ESOP: Employee Stock Ownership PlansPlans

Unions are skepticalUnions are skeptical• Potential for firm abusePotential for firm abuse• Potential union replacement by creating Potential union replacement by creating

community of interest with managementcommunity of interest with management

Unions have set guidelines for ESOPs: Unions have set guidelines for ESOPs: Table 1 Table 1

McHugh, Cutcher-Gershenfeld and Polzin. “Employee Stock Ownership Plans: Whose interests do they Serve?” IRRA 49th Annual Proceedings. (1997):23-32.

ESOP: Employee Stock Ownership PlansESOP: Employee Stock Ownership Plans

Table 4: How do ESOPs differ in unionized Table 4: How do ESOPs differ in unionized firms?firms?

Greater labor influence in decisionsGreater labor influence in decisions Share of stock owned by ESOP is biggerShare of stock owned by ESOP is bigger More employee participation on Board, design of More employee participation on Board, design of

ESOPESOP Allocation of stock more likely based on hours (equal Allocation of stock more likely based on hours (equal

treatment)treatment)

Freeman, Richard and Morris Kleiner. “Do Unions Make Enterprises Insolvent?” Industrial and Labor Relations Review 52 (July 1999): 510-527.

If Unions raise wages, benefits, do they If Unions raise wages, benefits, do they make firms insolvent?make firms insolvent?

Samuel Gompers Samuel Gompers “The worst crime “The worst crime against working people is a company against working people is a company which fails to operate at a profit”which fails to operate at a profit”

Freeman, Richard and Morris Kleiner. “Do Unions Make Enterprises Insolvent?” Industrial and Labor Relations Review 52 (July 1999): 510-527.If Unions raise wages, benefits, do they make firms If Unions raise wages, benefits, do they make firms

insolvent?insolvent?

ContextContext• Unions raise wages, benefitsUnions raise wages, benefits• Unions raise productivity on averageUnions raise productivity on average• Gain in wages outweighs gain in productivityGain in wages outweighs gain in productivity

Virtually all studies find that unions lower rate of return on Virtually all studies find that unions lower rate of return on assetsassets

Lower growth rate of firmLower growth rate of firm Lower stock priceLower stock price

• Possible that what unions do is extract rents (excess Possible that what unions do is extract rents (excess profits) from firms, do not lower profit below market rate profits) from firms, do not lower profit below market rate of return, do not threaten firm survivalof return, do not threaten firm survival

Unions concentrate on larger firmsUnions concentrate on larger firms Firms in concentrated industriesFirms in concentrated industries



Subset of Compustat data (319 firms) with Subset of Compustat data (319 firms) with union information added, 1983-1990union information added, 1983-1990

Union measures:Union measures:• Dummy variable if any workers covered by Dummy variable if any workers covered by

union contract union contract • Percent of workers covered by union contractPercent of workers covered by union contract

Table 3: Union impact on profitabilityTable 3: Union impact on profitability• Union presence associated with 3-9 percentage point Union presence associated with 3-9 percentage point

lower net income on assets (latter is a bit high vs other lower net income on assets (latter is a bit high vs other estimates)estimates)

• Adverse effect is larger when union density is lower!!Adverse effect is larger when union density is lower!!



Table 2: NO!!!Table 2: NO!!!

Probability of insolvency lower for Probability of insolvency lower for unionized firms unionized firms

Selection effect? Unions target only Selection effect? Unions target only profitable firmsprofitable firms

Documents

Wage Differentials between Union and Nonunion Sectors Patterns, Current Population Survey, 2002 Union premium averages 21% Pattern by age (rising gap—seniority)