Knowledge that Transforms

This article presents a static and dynamic intertemporal analysis of employment and income distribution in unionized and labor-managed firms. Motivated by theoretical considerations and institutional features of Western trade unions and labor-managed firms, we examine firms in which worker-members share the risk of layoffs by (acting as if) compensating laid-off members. In the static framework we show that, although the firms do not behave perversely, their behavior depends crucially on the initial membership. Since the issue of optimal initial membership has been virtually ignored in the literature, we analyze it next within a dynamic framework.

This article reports on an experiment that was designed to test predictions about the frequency of disagreement (strikes) in games with complete information. An empirical test of the "joint-cost" theory, which relates strike activity to the marginal cost of striking, is based on a set of "shrinking pie" games in which subjects bargained in consecutive periods over how to divide a sum of money. Strike activity was a frequent occurrence in these games and, moreover, did not disappear over time. The joint-cost theory received some support, indicating that further tests may be useful.

This article builds and tests a model of the impact of a firm's bank-ruptcy probability on its propensity to offer deferred compensation schemes. Using 1983 Current Population Survey data, we find that, ceteris paribus, lower failure rates raise the incidence of pensions for nonunion workers outside manufacturing. Further, we find some evidence that, among those workers with a pension, a higher industry failure rate steepens tenure-earnings profiles (jointly controlling for union-nonunion and pension-no pension selectivity). Such a result suggests that workers discount implicit promises of future earnings increases by the likelihood that the firm will not survive.

This article uses a hazards model permitting continuous covariates and fixed effects to estimate the effect of local employment opportunity and family background on the cohabitation and childbearing of black youths from low-income households. Support is found for W. J. Wilson's hypothesis that employment opportunity encourages the formation of cohabitational unions, as well as for the "opportunity-cost" hypothesis that employment opportunity discourages childbearing outside such unions. However, the latter effect appears to be larger, suggesting that the opportunity-cost hypothesis is the primary channel through which higher employment rates result in lower rates of illegitimacy among underclass youths.

When creditors do not honor human capital as collateral, firms can mediate financially by offering workers long-term wage contracts. The optimal contract specifies a wage consisting of a spot general skill component plus a component equal to the expected time-averaged value of the worker's specific skills with a competitor. Variations in the smoothed specific component are due only to changes in expectations about the likelihood of quitting a competing firm. The theory also explains interindustry disparities in wage paths and statistical discrimination by firms.

An efficient matching model of quits and layoffs is developed to account for several empirical regularities. Differences between quits and layoffs over the life and business cycles and across demographic groups are generated by differential rates of general productivity growth. The standard approach to quits and layoffs, based on wage rigidity, is shown to be incapable of accounting for many of the empirical regularities. Although a formal test rejects a structural prediction of the efficient turnover model, the specification does well in predicting both the level of and time-series variation in the fraction of separations labeled quits.

The unionization rate in a worker's industry and the worker's tenure are interacted with employer size in wage regressions using Current Population Survey data. The results provide insight into the relatively small size-wage relationship in the union sector. Nonunion tenure profiles steepen sharply with establishment size, while union profiles flatten. Also, the effect of industry unionization increases with firm size in the nonunion sector, a pattern indicative of threat effects. A separate analysis of nonunion wages indicates that size-wage relationships are stronger in occupations associated with high monitoring costs.

This article explores the McDonald and Solow (1981) conjecture that the outcome from a bargain over wages and employment can be approximately achieved by a bargain over wages and the labor-capital ratio (the "crew size"), where the latter can be argued to be more representative of the real world. I derive a crew size contract curve and show that this conjecture is not generally true. A test to determine which model is generating real-world data is suggested. The wage rigidity results derived by McDonald and Solow for their contract curve do not apply to this crew size contract curve.