Unions really really don’t matter that much these days…

by on March 8, 2007 at 7:21 am in Economics | Permalink

Idlehands points to this paper (QJE 2004) by John DiNardo and David Lee.  Neither author is a crazy right-winger, let’s hear their message:

Economic impacts of unionization on employers are difficult to estimate in the absence of large, representative data on establishments with union status information.  Estimates are also confounded by selection bias, because unions could organize at highly profitable enterprises that are more likely to grow and pay higher wages.  Using multiple establishment-level data sets that represent establishments that faced organizing drives in the United States during 1984-1999, this paper uses a regression discontinuity design to estimate the impact of unionization on business survival, employment, output, productivity, and wages.  Essentially, outcomes for employers where unions barely won the election (e. g., by one vote) are compared with those where the unions barely lost.  The analysis finds small impacts on all outcomes that we examine; estimates for wages are close to zero.  The evidence suggests that-at least in recent decades, the legal mandate that requires the employer to bargain with a certified union has had little economic impact on employers, because unions have been somewhat unsuccessful at securing significant wage gains.

Keep in mind what this means.  Once we control for endogeneity in where unions are formed, there may not be a union wage premium at all.  (A few posts ago I was telling you it was 10 to 20 percent, learn something new every day, etc.)  I learned also that when we look for the wage premium in establishment-level data, rather than household data, it usually isn’t there.  And that’s without considering the contribution and method of the authors.

I would like the highly intelligent left-wing part of the blogosphere to respond to this paper and to the Hirsch piece.  Here is an NBER version, here are other copies.  By the standards of labor economics, it does not suffice to note that the 1950s had both a more equal income distribution and more unions, or to call Western Europe a kinder, gentler place.  Those citations don’t sort out cause and effect, and in fact we do have more advanced ways of scrutinizing the data.

It is fair to say that these papers do not support the "right-wing scaremongering" scenarios about unions.  So a Kevin Drum might claim: "well, it can’t hurt to try more unions."  That still represents a significant downgrading of the original vision.  Unions are an emotional issue for the left, much as free trade and the fall of communism are so for the right.  Would it not be meaningful and rallying for the left to have the battle over collective bargaining once again?  But I am telling you all, there simply isn’t that much there.

By the way, here is Bloggingheads.tv with Megan and Matt on unions, can you imagine that?

spencer March 8, 2007 at 9:01 am

If union have no significant impact it is just as illogical for the right to oppose them as it is for the left to favor them.

Steve Roberts March 8, 2007 at 9:26 am

This would seem to imply that workers are all idiots for voting for union representation, employers are idiots for working against union representation and economists are the only bright people to see the reality of the situation. I suspect there might be a flaw in the reasoning.

Wasn’t there an article on here about how non-skilled wage earners are earning substantially similar wages to technically skilled workers? There must be a reason for that massive historical change.

Steve Popkes March 8, 2007 at 9:47 am

I couldn’t get to the full article. However, it seems from the abstract to focus on wages. Unions bargain for much more than just wages and often will take a wage hit to get some other benefit such as preserving retirement or health care. It would be interesting to determine if the total work compensation, including benefits, was helped or hindered by the presence or absense of unions.

IMHO, unions have a societal impact that other institutions don’t seem to have. They tend to act as curbs on excesses of corporations. Many of the benefits now accepted as standard were originally supported and proposed as union ideals. Viewing unions narrowly as mere negotiating mechanisms is as false as is viewing environmental organizations merely advocates of animals. By forcing the debate, both institutions change the nature of the debate. Policy decisions and the societal environment as a whole result from that changed debate.

liberty March 8, 2007 at 12:11 pm

Can’t it hurt? Unions do charge dues, you know. They can also cost efficiency in the long run, expansion, future raises, etc (not sure how long term the study was).

On the other hand, it is true that unions do bargain for more than just wages, including shorter hours, easier work, nicer working conditions, job security, etc etc.

Ben March 8, 2007 at 12:40 pm

Based just on the excerpt here, I don’t think this says much about whether unions raise wages overall. I’d suspect that employers make significant concessions in establishments threatened with unionization. The employer still gains from blocking the union, even if he offers the same wage the union would push for, because he maintains future flexibility and control.

Bottom line–workers who nearly vote to unionize have quite a bit of barganing power (and conversely, a barely-successful election suggests a weak union that can’t threaten much of a strike). I’d still guess that making unionization easier in general would make workers better off.

Steven Vickers March 8, 2007 at 1:00 pm

This would seem to imply that workers are all idiots for voting for union representation, employers are idiots for working against union representation and economists are the only bright people to see the reality of the situation. I suspect there might be a flaw in the reasoning.

How so? Just because something has no effect on wages (if the study is correct) doesn’t mean it wouldn’t have an effect on other variables employers might care about (e.g., flexibility) or that employees might care about (e.g. protection of longer-tenured employees).

Not too many economists advocating more competition in academia. Tenure is such a nice perk.

Does Steve Levitt count? http://www.freakonomics.com/blog/2007/03/03/lets-just-get-rid-of-tenure/

Anyway, it’s a little strange to use tenure as an argument on the pro-union side, since I don’t think Prof. Cowen is a member of the “American Economists Union” or anything…

Clinton Mac March 8, 2007 at 1:17 pm

This comment is VERY off topic. My apologies. I have some things to add about union organisation but am too busy for it now. I am a BIG fan of marginal revolution but am finding the IQ wank too much to take without comment.

I am really sick and tired of the whole “highly intellegent left”, thing. I don’t think IQ is everything though “I value it in my friends” bullshit.

I, by standard tests, have an above average IQ (not by a great deal) but find it to be more irrelevant each day. I know this is an economics blog and i am no expert in the field. I have an undergrad major in econ and am working towards an undegrad major in psych + sociology (to futher my inerest in econ by the way). I am still amazed at the interest in IQ. Given the authors of this blog both seem to have a serious and lifelong interest in ‘the Arts’, I am surprised how much weight is put on the subject. Clearly some of it is hornblowing (and they both deserve a bit of room there) but lets call it what it is.

IQ tests are NOT a reasonable test of potential contribution to almost anything worthwhile in life.

Again, sorry to bust in on the topic. ;^>

badger March 8, 2007 at 1:18 pm

[quote]This would seem to imply that workers are all idiots for voting for union representation, [/quote] If the median wage is less than the average wage and unions bring everyone to the average then it would make sense for the majority of workers to be pro-union.
Also the authors are looking at situations where the union vote was close, and some of them failed. It’s hard to say unions must be good for workers because some workers vote for unions, when half of the workers looked at vote against unionizing.

Josh March 8, 2007 at 1:44 pm

Although there is not likely a 100% cause-and-effect, trace the decline of
unions versus the decline of solvent defined benefit plans.

I’d think it’s probably closer to 0%, in that they’re both the effect, and the cause is a more volatile and dynamic work environment. The more people change jobs, the less likely they’ll join a union and the less likely they’ll accrue a vast benefits package.

Noah March 8, 2007 at 3:33 pm

Having just read this paper in my labor economics class, the message should actually be that labor unions formed between 1984 and 1999 are very weak. Older data shows a pretty wide range of things depending on the study (does employment go down is the big question, wages do seem to go up back in the day). I don’t think that showing the Reagan and Clinton weren’t good for unions is a big accomplishment of a study though.

Donald A. Coffin March 8, 2007 at 4:02 pm

Note, though, that the election outcome, including the margin of victory/loss, is engogenous. Workers at firms at which unions are more likely to have an impact on wages and benefits are also more likely to vote for a union. In relatively evenly divided votes, my prior is that workers are less certain (and, in a rational expectations world, correctly less certain) that unions can provide benefits.

I would think that comparing unions that win close certification elections with unions that win easily might come closer to the issue. Controlling, of course, for the other factors we are likely to think matter (capital per worker, industry/market structure–yes, I’d expect unions to be able to caputre some monopoly profits, worker characteristics, and so on).

EthanJ March 8, 2007 at 4:16 pm

Abstract:

“estimate the impact of unionization on business survival, employment, output, productivity, and wages. Essentially, outcomes for employers where unions barely won the election (e. g., by one vote) are compared with those where the unions barely lost. The analysis finds small impacts on all outcomes that we examine; estimates for wages are close to zero.”

So they looked at cases where unions were VERY close to organizing – i.e., those cases where if conditions or wages at the firm got even marginally worse, the union would win the next election. In those situations, is it any surprise that the firm would increase wages after an election to match union promises, trying to demonstrate that management is sufficiently understanding without the need for any ‘outside agitators’?

Moreover, few union drives are successful solely because of wage inadequacies. Its usually more a matter of working conditions, benefits, and fairness. But the authors didn’t look at things like seniority, job security, safety records, scheduling and overtime policies, health coverage eligibility, grievance or harassment reports, or anything else that reflects the real conditions of most workers. Just dollar-per-hour compensation, as if every job was equivalent to running an economic database through an underdeveloped model on a bucolic tree-lined university campus.

Anyways, what they really found was not that unions aren’t successful, but rather that unions are so effective that even the THREAT of a union pushes employers to make substantial changes in wages and working conditions.

spencer March 8, 2007 at 6:10 pm

George Mason economist blog at several places. But the one constant is that you can be sure on any issue they will tell you why anything issue or policy that increase the returns to labor or the share of gdp tht goes to labor is a bad thing and will harm the working poor. If you learned your economics from these blogs you would conclude that the best way to increase the economic wellbeing of the working poor is to increase the share of the pie that goes to capital to 100%.

Now, I recognize that this is an extreme statement. But I have seen nothing to contradict at the various blog where the George Mason economist blog.

So I suggest that you write up as one of the 50 response from readers a single thing you would find that increasing the share of the pie, or returns to labor is a good thing and actually makes the working poor better off.

TGGP March 8, 2007 at 7:54 pm

“much as free trade and the fall of communism are so for the right”. Huh? Since when has the right been in favor of free-trade?

vkri March 8, 2007 at 9:14 pm

Are average (or median) wages and such like quantities sufficient metrics to measure benefits from unions etc? It seems to me that unions play a role in stabilizing individuals employment and consequently their benefits etc. I am sure there is a hidden cost to volatility in the job markets, in the sense that while the median and average wages of employees remain high, there are costs on individuals due to the constant flux in the labor market-
e.g individuals having to face the prospect of being unemployed/underemployed for short periods of time. It appears to me that the presence of unions in industries somewhat offsets the volatility of the labor market and thus provides economic benefits to employees over the short run. I wonder how much metrics like wages, average or otherwise measure such things.

Sandy P March 9, 2007 at 1:06 am

Oh, yes, more unions, they make Europe work so well.

Ragout March 9, 2007 at 3:57 am

Looking some more at the paper, I see they address the issue I raised more than I had thought: they only look at firms where the union bargaining unit is at least half the workers. Still, when they compare bargaining units covering 75% or more of workers to those covering 50-75%, they find results substantially closer to the usual unions raise wages and lower employment story for the 75%+ bargaining units.

So I still think that they fact that they’re looking at the effect of unions on a mixed group of union & nonunion workers is an important problem.

Mr. Econotarian March 10, 2007 at 9:46 am

trace the decline of
unions versus the decline of solvent defined benefit plans.

I would suggest a look at the decline of defined benefit plans with the increase in competition between corporations after the 1970′s.

Defined benefits from a corporation are backed by growth in future corproate profits. Enhanced competiton make future profit growth more variable and the company may even go under.

Moreover, it a defined benefit plan from a single corporaiton breaks the basic concept that investment should be diverse to reduce risk.

triticale March 10, 2007 at 7:41 pm

Spencer, I don’t give an airborne activity what percentage of the pie I get, and don’t comprehend why I should. All I care about is the size of my slice. The easiest way to maximize that is to increase the total size of the pie, and policies which concern themselves with percentages of the pie do not do that.

Alan Reynolds March 14, 2007 at 9:46 am

A union premium, if it exists, could mean that union members may have gained at the expense of other workers, possibly in their capacity as consumers (e.g., unions of airline pilots and telecom workers expropriating monopoly rents during the era when regulators stifled competition among airlines and telephone service and equipment providers).

If unions had gained at the expense of capital we would expect to see employee labor compensation falling as a share of national income over time as unionization declined. But that compensation share (aside from the self-employed) was 62.45% from 1960 to 1969, 65.79% from 1970 to 1979, 65.98% from 1980 to 1989, and 65.53% from 2000 to 2005.

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