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Testing for Efficient Contracts in Unionized Labour Markets

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  • Andrews, Martyn
  • Harrison, Alan

Abstract

This paper addresses the design of empirical tests to distinguish between two competing explanations of wage and employment determination in unionized labour markets, the labour-demand and efficient-contract models. We argue that most of the tests employed are restrictive, propose an alternative non-nested approach, a central feature of which is the variation in the set of instrumental variables across the models, and provide an illustration of how it might be implemented, using data from the Work-place Industrial Relations Survey (WIRS) 1984 Panel File. The results demonstrate how the traditional approach can lead to inappropriate conclusions, and thereby emphasize the empirical importance of the specification of the instrumental variables. Copyright 1998 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Suggested Citation

  • Andrews, Martyn & Harrison, Alan, 1998. "Testing for Efficient Contracts in Unionized Labour Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 50(3), pages 171-200, July.
    • Handle: RePEc:bla:buecrs:v:50:y:1998:i:3:p:171-200
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    References listed on IDEAS

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    1. Card, David, 1990. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," American Economic Review, American Economic Association, vol. 80(4), pages 669-688, September.
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    8. Smith, R.J., 1989. "Non-Nested Tests For Instrumental Variable Regression Modls With Differing Conditionning Sets," Cambridge Working Papers in Economics 9103, Faculty of Economics, University of Cambridge.
    9. MaCurdy, Thomas E & Pencavel, John H, 1986. "Testing between Competing Models of Wage and Employment Determination in Unionized Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 3-39, June.
    10. Lockwood, Ben & Manning, Alan, 1989. "Dynamic Wage-Employment Bargaining with Employment Adjustment Costs," Economic Journal, Royal Economic Society, vol. 99(398), pages 1143-1158, December.
    11. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 40-87, June.
    12. Booth,Alison L., 1994. "The Economics of the Trade Union," Cambridge Books, Cambridge University Press, number 9780521468398, January.
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    14. Godfrey, L G, 1984. "On the Uses of Misspecification Checks and Tests of Non-Nested Hypotheses in Emperical Econometrics," Economic Journal, Royal Economic Society, vol. 94(376a), pages 69-81, Supplemen.
    15. Andrew Oswald, 1984. "Efficient Contracts are on the Labour Demand Curve: Theory and Facts," Working Papers 555, Princeton University, Department of Economics, Industrial Relations Section..
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    More about this item

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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