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The Impact of Collective Bargaining: Illusion or Reality?


  • Richard B. Freeman
  • James L. Medoff


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.

Suggested Citation

  • Richard B. Freeman & James L. Medoff, 1981. "The Impact of Collective Bargaining: Illusion or Reality?," NBER Working Papers 0735, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0735
    Note: LS

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    References listed on IDEAS

    1. Orley Ashenfelter, 1976. "Union Relative Wage Effects, New Evidence, and a Survey of Their Implications for Wage Inflation," Working Papers 469, Princeton University, Department of Economics, Industrial Relations Section..
    2. Greg J. Duncan, 1976. "Earnings Functions and Nonpecuniary Benefits," Journal of Human Resources, University of Wisconsin Press, vol. 11(4), pages 462-483.
    3. Thomas A. Kochan & Richard N. Block, 1977. "An Interindustry Analysis of Bargaining Outcomes: Preliminary Evidence from Two-Digit Industries," The Quarterly Journal of Economics, Oxford University Press, vol. 91(3), pages 431-452.
    4. Nicholas M. Kiefer & Sharon P. Smith, 1977. "Union Impact and Wage Discrimination by Region," Journal of Human Resources, University of Wisconsin Press, vol. 12(4), pages 521-534.
    5. repec:pri:indrel:dsp019w032302f is not listed on IDEAS
    6. George J. Borjas, 1979. "Job Satisfaction, Wages, and Unions," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 21-40.
    7. Charles Brown, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 94(1), pages 113-134.
    8. 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, vol. 6(1), pages 250-278, Spring.
    9. 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.
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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. repec:eee:labchp:v:2:y:1986:i:c:p:1039-1089 is not listed on IDEAS
    3. Freeman, Richard B., 2010. "Labor Regulations, Unions, and Social Protection in Developing Countries," Handbook of Development Economics, Elsevier.
    4. repec:eee:labchp:v:2:y:1986:i:c:p:1139-1181 is not listed on IDEAS

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