Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables
01 Jun 1978-International Economic Review (Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association)-Vol. 19, Iss: 2, pp 415-433
TL;DR: This paper used a variant of a traditional simultaneous equations model with a binary qualitative variable (union membership) and limited dependent variables, and found that the propensity to join a union depends on the net wage gains that might result from trade union membership.
Abstract: A large number of studies have been made on the impact of labor unions on wage rates of workers. These studies generally have found positive and significant effects of unionism on wage rates. More recently, a few authors have studied the simultaneous effects between unionism and wages. Ashenfelter and Johnson [1972] used aggregated U.S. Manufacturing Industries Data and found that unionism had no significant impact on wage rates, but that the wage rate had a significant effect on the extent of unionism. Since the data they used were quite limited, they could only conclude that the magnitude of the effects of unionism on wage rates was uncertain. Schmidt and Strauss [1976] reached similar conclusions using macroeconomic data. Their mixed logit approach, however, is not based on choice behavior and does not fit into a traditional econometric framework. This study extends recent investigations of the joint determination of the extent of unionism and the effects of unions on wage rates, using macroeconomic data from the Survey of Economic Opportunity Sample of 1967. Economic considerations suggest that the propensity to join a union depends on the net wage gains that might result from trade union membership. The explicit inclusion of this interdependence between the wage gain equation and the union membership equation in the model represents our point of departure from the previous work of Ashenfelter and Johnson and Schmidt and Strauss. The model is a variant of a traditional simultaneous equations model with a binary qualitative variable (union membership) and limited dependent variables. In Section 2, the conceptual framework of the model is discussed. Properties of the data are presented in Section 3. Section 4 briefly discusses estimation methods, and empirical estimates are presented in Section 5. Finally, in Section 6, conclusions are drawn.
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Additional excerpts
...Lee (1978) and Lee and Trost (1978) In Lee’s (1978) model, yz represents the logarithm of the wage rate of the ith worker in case he or she joins the union and y3: represents the same in case he or she does not join the union....
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...To correct for the effect of selection, we followed the procedure developed by Heckman (1978) and Lee (1978). Once we corrected the effects of selection, we generated the unbiased means for the two regimes and these, not surprisingly, reproduced the assumptions under which the data were generated: no difference in growth between the two regimes....
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544 citations
TL;DR: A large number of studies have attempted to quantify the impact of unions on the wages or earnings of workers as mentioned in this paper, with the assumption that unionism exerts a unilateral and exogenous effect on wages.
Abstract: A LARGE NUMBER OF STUDIES have attempted to quantify the impact of unions on the wages or earnings of workers. See, for example, Lewis [9] or Ashenfelter and Johnson [1] for critical summaries of many of these studies. Several different research methodologies have been employed to ascertain the extent to which unions have raised relative wages. Empirically, time series and cross-sectional data at the firm, industry and economy-wide level have been examined. Theoretically, most of the analyses have been partial equilibrium in nature, although the recent papers by Johnson and Mieszkowski [7] and Diewert [4] investigate the impact of unionism in a general equilibrium setting. Virtually all of these studies have found a positive, significant effect of unions on wages, although there is considerable variation in the estimated size of the effect. Common to all of these studies is the assumption that unionism exerts a unilateral and exogenous effect on wages. Unfortunately, the interesting issue of the determinants of union membership has been relatively unresearched, and by and large the matter of membership remains unrelated to the effects of unionism on wages. This is at least potentially a serious matter since it seems clear that there may be an effect of wages on unionism as well as an effect of unionism on wages. This may occur because relative wages affect the attractiveness of various industries to a potential union organizer, or because they may affect the probability of a worker voting for a union in a representation election. That relative wages may affect the probability or extent of unionization has been previously noted-see, for example, Reder [12] and Wachter [20]. From a statistical point of view, this would imply that union membership, or extent of unionization, would more properly be viewed as jointly or simultaneously determined with wages, rather than being treated as exogenous. Nevertheless, most studies of the effects of unions on wages or earnings have treated unionization as exogenous. A notable exception in this regard is the recent work of Ashenfelter and Johnson [1], which examined at the industry level the effect of unionization on wages and the effect of wages on unionization. In this paper we perform a similar analysis, except using individual observations. The two endogenous variables
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