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Testing for Efficient Contracts in Unionized Labour Market

  • Martyn Andrews
  • Alan Harrison

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 Workplace 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.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/CILN/cilnwp12.pdf
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Paper provided by McMaster University in its series Canadian International Labour Network Working Papers with number 12.

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Length: 30 pages
Date of creation:
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Handle: RePEc:mcm:cilnwp:12
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  1. David Card, 1988. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," NBER Working Papers 2768, National Bureau of Economic Research, Inc.
  2. Card, David, 1986. "Efficient Contracts with Costly Adjustment: Short-run Employment Determination for Airline Mechanics," American Economic Review, American Economic Association, vol. 76(5), pages 1045-71, December.
  3. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S40-S87, June.
  4. L Christofides & A Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Contract Data," CEP Discussion Papers dp0041, Centre for Economic Performance, LSE.
  5. Alogoskoufis, George & Manning, Alan, 1991. "Tests of alternative wage employment bargaining models with an application to the UK aggregate labour market," European Economic Review, Elsevier, vol. 35(1), pages 23-37, January.
  6. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  7. Bean, Charles R & Turnbull, Peter J, 1988. "Employment in the British Coal Industry: A Test of the Labour Demand Model," Economic Journal, Royal Economic Society, vol. 98(393), pages 1092-1104, December.
  8. Lockwood, Ben & Manning, Alan, 1989. "Dynamic Wage-Employment Bargaining with Employment Adjustment Costs," Economic Journal, Royal Economic Society, vol. 99(398), pages 1143-58, December.
  9. Martinello, Felice, 1989. "Wage and Employment Determination in a Unionized Industry: The IWA and the British Columbia Wood Products Industry," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 303-30, July.
  10. Oswald, Andrew J., 1993. "Efficient contracts are on the labour demand curve : Theory and facts," Labour Economics, Elsevier, vol. 1(1), pages 85-113, June.
  11. Nickell, Stephen & Wadhwani, Sushil, 1991. "Employment Determination in British Industry: Investigations Using Micro-data," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 955-69, October.
  12. 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.
  13. 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.
  14. 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 S3-S39, June.
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