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Union Threat Effects and Nonunion Industry Wage Differentials

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  • David Neumark
  • Michael L. Wachter

Abstract

We investigate the impact of union strength on changes in nonunion wages and employment. The prevailing model in this area is the threat model, which predicts that increases in union strength cause increases in nonunion wages and decreases in nonunion employment. In testing the threat model, we are also testing two alternatives, the crowding and complements models. In contrast to the prediction of the threat model, decreases in the percent organized (reflecting a declining union threat) are associated with increases in the nonunion wage. Furthermore, increases in union wages appear to decrease, rather than to increase, nonunion wages. Evidence on the determinants of intra-industry variation in nonunion wage premia is somewhat more consistent with the crowding model and is strikingly consistent with the complements model of union and nonunion wage determination. Further evidence on the determinants of intra-industry variation in nonunion employment is consistent with the complements model and the threat model; movements in nonunion industry employment are negatively related to changes in proxies for union strength. Thus, the combined evidence supports the complements model, but neither the threat model nor the crowding model.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4046.

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Date of creation: Apr 1992
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Publication status: published as Neumark, David and Michael L. Wachter. "Union Effects Of Nonunion Wages: Evidence From Panel Data On Industries And Cities," International Labor Relations Review, 1995, v49(1), 20-38.
Handle: RePEc:nbr:nberwo:4046

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  1. Freeman, Richard B, 1986. "The Effect of the Union Wage Differential on Management Opposition and Union Organizing Success," American Economic Review, American Economic Association, American Economic Association, vol. 76(2), pages 92-96, May.
  2. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
  3. Peter D. Linneman & Michael L. Wachter & William H. Carter, 1990. "Evaluating the evidence on union employment and wages," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 44(1), pages 34-53, October.
  4. Freeman, Richard B & Medoff, James L, 1981. "The Impact of the Percentage Organized on Union and Nonunion Wages," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 561-72, November.
  5. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
  6. William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
  7. William T. Dickens & Brian A. Ross, 1984. "Consistent Estimation Using Data From More Than One Sample," NBER Technical Working Papers 0033, National Bureau of Economic Research, Inc.
  8. Montgomery, Edward, 1989. "Employment and Unemployment Effects of Unions," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(2), pages 170-90, April.
  9. Rosen, Sherwin, 1969. "Trade Union Power, Threat Effects and the Extent of Organization," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 36(106), pages 185-96, April.
  10. Lawrence M. Kahn, 1978. "The effect of unions on the earnings of nonunion workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 31(2), pages 205-216, January.
  11. Michael Podgursky, 1986. "Unions, establishment size, and intra-industry threat effects," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(2), pages 277-284, January.
  12. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
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Cited by:
  1. Corneo, Giacomo & Lucifora, Claudio, 1997. "Wage formation under union threat effects: Theory and empirical evidence," Labour Economics, Elsevier, Elsevier, vol. 4(3), pages 265-292, September.
  2. Jagadeesh Gokhale & Erica L. Groshen & David Neumark, 1993. "Do Hostile Takeovers Reduce Extramarginal Wage Payments?," NBER Working Papers 4346, National Bureau of Economic Research, Inc.
  3. David Neumark & Steven A. Sharpe, 1992. "Hostile takeovers and expropriation of extramarginal wages: a test," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 197, Board of Governors of the Federal Reserve System (U.S.).
  4. John DiNardo & Kevin F. Hallock, 2000. "When Unions "Mattered": Assessing the Impact of Strikes on Financial Markets: 1925-1937," NBER Working Papers 7794, National Bureau of Economic Research, Inc.

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