Announcements: 20021113

1
Announcements 2002-11-13

• Midterm Key Makeup Key posted on course
  website.
• For Makeup Q2 see Midterm Key.
• Midterm average 68, Makeup avg. 66
• Margaret Yap, Office hours
• Wed Nov. 13 , 400 pm to 500 pm
• Thurs Nov 14, 200 pm to 400 pm
• Location Woodsworth College, 119 St. George
  Street, Room 220B.
• Email margaret.yap_at_utoronto.ca

2
Announcements 2002-11-13

• Arbitration Assign. Due W Nov 27, 2002
• Arbitration TA Scott Walsworth
• Office hours 430-530 p.m, Nov 13, 20 27.
• Location Centre for Industrial Relations,
  121 St. George Street, Room 202
• Email s.walsworth_at_utoronto.ca
• Final exam
• Thursday Dec 12, 2002, 7 pm to 9 pm.
• Check exam schedule to confirm!

3

• WDW244H Labour Relations
• Fall 2002
• PART 5
• Strikes IR System Outcomes
• Union Impacts
• Professor Frank Reid
• Centre for Industrial Relations

4
Outline

• Reference GPT Chapter 13
• Union Power
• Union Impacts
• On Compensation
• Wages, wage structures and benefits
• On Productivity
• On Profitability
• On Investment
• On Employment Level
• On Management

5
Union Power

• Magnitudes of union impact depend on the power of
  the unions.
• Internal Power
• The power of the union to fulfill its goals.
• External Power
• Union power is greater the lower the elasticity
  of demand for labour .
• Substitute products, difficulty in using
  substitute inputs and labour cost portion.
• Non-Competitive Markets
• Monopoly power (one seller) in the product market
  
• Monopsony power (one buyer) in the labour market.

6
Impact On Wages

• Union Wage Premium is calculated by
• X 100
  
• Range 10 to 25.
• Magnitude Recessions gt Boom.

7
Impact On Wage Structures

• Higher but flatter
• Started higher but rises less steeply.
• Impact on Distribution of Wages
• Among unionized workers narrow wage
  differentials.
• But expand overall differential between union and
  non-unionized workforces.

8
Union Wage Premium
Blue-Collar Less-skilled Female Decentralized
Private
White-CollarMore-Skilled MaleCentralized Pu
blic
V
9
Impact on Non-Union Wages

• Displacement Effect decreases non-union wages
• Higher wages in union sector reduced employment
  levels in union sector.
• Displaced workers enter non-unionized labour
  market.
• Increase in supply of labour depresses non-union
  wages.
• Threat Effect increases non-union wages
• In general, management dislikes union as it
  decreases it power.
• Non-union employers may pay union wages to deter
  unionization.
• Similarly, may also improve non-union work
  conditions.

10
Measurement Issues

• Factors to consider when measuring the size of
  the premium
• Quality Differences
• Selectivity Bias
• Displacement and Threat effects
• Reverse Causation
• Measurement Techniques and Data

11
Measurement Issues

• Quality Differences
• Statistical techniques (regression analysis) can
  account for quality differences that can be
  measured and which correlate with wages.
• However, if these are not properly accounted for,
  the union impact on wages may be overstated.
• Selectivity Bias
• Union and non-union workers of the same skill
  type may differ in ways that are not measured and
  so cannot control for.
• If these unobserved differences affect wages, the
  measured differential will either over- or
  under-state the true union impact.

12
Measurement Issues

• Displacement and Threat Effects
• Displacement effect will cause the union premium
  to be overstated.
• Threat effect will cause the union premium to be
  understated.
• Reverse Causation
• Do unions caused high wages or are high-wage
  earners more likely to unionize?
• Outcome Overestimate impact of union.

13
Measurement Issues

• Measurement Techniques and Data
• Different statistical technique, eg. controlling
  for a different set of variables
• Different dataset, eg. macro vs micro,
  cross-section vs panel or longitudinal
• often yield quite different results.

14
Non-Cash Compensation

• Unions have even greater effect on non-wage
  (fringe) benefits than on wage.
• Reason
• An average union member values benefits (more
  likely to be older and have dependents).
• Evidence Renaud (1997) estimated a union impact
  on nonwage benefits at 45.

15
Union Impact on Productivity

• Arguments for lower productivity
• Less incentive to be productive due to higher job
  security.
• More difficult to fire unionized employees.
• Resistance towards technology
• Restriction of output through restrictive work
  rules, ie. featherbedding.
• Resources directed at strikes, contract
  negotiations, etc.

16
Impact on Productivity

• Arguments for higher productivity
• Higher employee quality due to more applicants.
• Improved morale and greater motivation
• Exit-Voice tradeoff leads to lower turnover.
• Freeman and Medoff (What Do Unions Do?)
• Union improves lines of communication.
• Shock employers into more professional
  management (fewer arbitrary decisions) .
• More cooperative behaviour among employees.

17
Impact on Productivity

• Empirical Evidence
• Evidence is inconclusive, depending on the data
  and the specification.
• Freeman Medoff (1984) showed productivity is
  higher in unionized firms.
• Warren (1985) found negative union impact on
  productivity.
• Direction and magnitude of impact depend on the
  labour management relations.

18
Impact on Profitability

• Unionization reduces profitability
• Higher wage costs exceed the benefits from higher
  productivity.
• Unionization also reduces the stock market value
  of firms.

19
Impact on Investments

• Encourage investment
• Increase capital investment to substitute for
  labour
• Unions negotiate for investment in specific
  workplaces to preserve employment levels.
• Discourage investment
• investors may prefer to invest in non-unionized
  workplaces as they have more control over
  management issues and need not share fruits of
  labour.
• Empirical evidence found a negative effect.

20
Impact on Employment Level

• Recall a downward-sloping demand curve implies
  higher wages will lead to lower levels of
  employment.
• However, unions negotiate not only compensation
  but also employment levels.
• Bargaining emphasis depends on members
  preferences and the power of the union.
• Powerful unions could increase both.

21
Impact on Employment Level

• Unions can prevent employment reduction through
• No-layoff provisions.
• Restrictions on subcontracting, outsourcing, use
  of overtime and plant closings.
• Featherbedding, etc.

22
Impact on Management

• At unionized workplaces
• With the assistance of legislation, unions
  restrict the unfettered rights of management,
  examples include
• Recognition of union as exclusive bargaining
  agent.
• Requirement to bargain in good faith.
• Ensure due process through grievance procedure.
• Establishment of joint labour-management
  committees.
• At non-unionized workplaces
• The union threat effect results in better and
  more formalized work practices and policies.