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The Impact of Collective Bargaining: Illusion or Reality?

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  • Richard B. Freeman
  • James L. Medoff

Abstract

This paper reviews a significant body of evidence regarding the impact of trade unionism on economic performance and seeks to evaluate antithetical views regarding whether estimated differences between union and nonunion workers and firms represent: illusions created by poor experiments, real effects explicable solely in price-theoretic terms, or real effects which reflect the non wage-related dimensions of trade unions. The review yields conclusions on both the substantive questions at hand and the methodologies which have been used to address their validity. With respect to the illusion/reality debate, the preponderance of extant evidence indicates that union effects on a wide variety of economic variables estimated with cross-sectional data are real. Moreover, since the effects of unions on nonwage outcomes generally come from models which hold fixed the level of wages and variables affected by wages, the evidence supports the view that unions do much more than simply raise wages as an economic monopolist. While, in this study, we do not examine interpretations of these nonwage effects, the effects represent an empirical foundation for the "institutional" view of unionism, which is described in Section I. With respect to methods for evaluating the quality of standard cross-sectional experiments, some techniques appear more useful than others. In particular, we find that sensitivity analyses of single-equation results and longitudinal experiments provide valuable checks on cross-sectional findings while multiple-equations approaches produce results which are much too unstable to help resolve the questions of concern.

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File URL: http://www.nber.org/papers/w0735.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0735.

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Date of creation: Aug 1981
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Publication status: published as in "U.S. Industrial Relations 1950-1980: A Critical Assessment" edited by J. Stieber, R. B. McKersie, and D. Q. Mills , pp. 47-97. Madison, WI: Industrial Relations Research Association, 1981.
Handle: RePEc:nbr:nberwo:0735

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  1. George J. Borjas, 1979. "Job Satisfaction, Wages, and Unions," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 21-40.
  2. Orley Ashenfelter, 1976. "Union Relative Wage Effects, New Evidence, and a Survey of Their Implications for Wage Inflation," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 469, Princeton University, Department of Economics, Industrial Relations Section..
  3. Duane E. Leigh, 1978. "Racial Discrimination and Labor Unions: Evidence from the NLS Sample of Middle-Aged Men," Journal of Human Resources, University of Wisconsin Press, vol. 13(4), pages 568-577.
  4. Kochan, Thomas A & Block, Richard N, 1977. "An Interindustry Analysis of Bargaining Outcomes: Preliminary Evidence from Two-Digit Industries," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 91(3), pages 431-52, August.
  5. Oliver E. Williamson & Michael L. Wachter & Jeffrey E. Harris, 1975. "Understanding the Employment Relation: The Analysis of Idiosyncratic Exchange," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 6(1), pages 250-278, Spring.
  6. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(1), pages 113-34, February.
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Cited by:
  1. Richard B. Freeman, 2009. "Labor Regulations, Unions, and Social Protection in Developing Countries: Market distortions or Efficient Institutions?," NBER Working Papers 14789, National Bureau of Economic Research, Inc.
  2. Freeman, Richard B., 2010. "Labor Regulations, Unions, and Social Protection in Developing Countries," Handbook of Development Economics, Elsevier, Elsevier.

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