Knowledge that Transforms

This article characterizes labor markets in which the heterogeneity of workers and firms results in thin markets and rents. Neoclassical marginal analysis and matching are blended into a computable general equilibrium model of trade in efficiency units of labor. Although workers' bargaining problems are interrelated, a simple wage contract generates wage flexibility and efficient matching in the model's equilibrium. Equilibrium wages are predicted to vary with the diversity of firms, the scarcity of skills, and the costliness of search. The model is applied to superstar markets, union bargaining in sports, interindustry wage differentials, and the relationship between pay and profit.

This study examines the difficult choice faced by members of a striking bargaining unit between withholding labor or crossing the picket line in violation of the prevailing behavioral norm. Using duration analysis, we test a model of crossing behavior using data on individual football players during the 1987 National Football League strike. A notable finding is that nonwhite players are less willing to cross the picket line if their team union representative is also nonwhite. Willingness to cross the line is also influenced by teammate crossing and proxies for expected career length, demand for current income, and expected benefits from union demands.

We examine cyclicality of strike frequency and incidence, using Canadian data on strikes and contracts. Total strike frequency exhibits significant procyclicality, to which within-contract strikes contribute appreciably. Evidence is weaker for procyclical behavior of contract-expiry strikes, both in total and disaggregated by issue. Strike incidence is also procyclical, particularly in manufacturing, though the procyclicality here is confined to strikes over nonwage issues. These results mirror those obtained by analyzing the frequency of strikes in the contract data. Industry-specific cyclical variables positively affect strike incidence in manufacturing, but region-specific variables have no effect.

Wage and unemployment responses to changes in economic environment are compared for efficiency wage and frictional models. Changes in aggregate demand, persistence of job-specific shocks, cost of living, and unemployment benefits are considered. Wages and unemployment move in the same direction in the two models, except that an upward shift in aggregate labor demand can reduce the real wage in the efficiency wage, but not the frictional, model. In a numerical simulation calibrated to U.S. data, real productivity shocks in the efficiency wage model yield a ratio of unemployment to wage variability close to that of the United States.

This article argues that the predictions of standard trade union models and the tests for distinguishing between these models are not robust to quite small and reasonable changes in the conventional assumptions. In particular, it considers the effect of assuming that the ex post substitutability between labor and capital is less than the ex ante substitutability. The paper shows that much of the conventional wisdom about the effects of trade unions is not necessarily true in this framework.

This article employs a model of Masanori Hashimoto with extensions by Donald Parsons to analyze variation in tenure by sex, age, and firm type. Fixed-wage contracts eliminate postcontractual opportunism associated with firm-specific human capital investment. However, such contracts result in inefficient quits and terminations. Calibration of the sharing of this investment between workers and employers minimizes the costs of these inefficient separations. Moreover, this optimal sharing rate varies systematically with the characteristics listed above. These tenure-slope implications are tested with favorable results.

Job displacement entails a substantial wage reduction for most displaced workers. We show that the mean reduction, the tenure profile of reductions, and the experience profile of reductions all vary substantially across industries. We then link this interindustry variation to analogous variation in firm size, unionization, wage levels, and the incidence of employer-provided training. While these industry characteristics explain some of the interindustry variation in mean wage reductions, they do not explain variation in the tenure or experience profiles of wage reductions.

Generally, it is acknowledged that changing the job-offer arrival rate has two opposite effects on unemployment duration. For a basic job search model, sufficient conditions on the wage-offer distribution have been derived, ensuring that one of the effects dominates. However, these are not satisfied for the popular families of wage-offer distributions. Here the author shows that the conditions can be weakened at virtually no cost. The set of distributions satisfying the new conditions is considerably larger than the set previously established. In particular, it includes all wage-offer distribution families that are popular in structural empirical research.

The response of union utility to labor-saving innovation is analyzed within a framework of oligopolistic competition in the product market, taking account of wage bargaining under several alternative structures of industrial relations. Conditions are established under which wages and employment will rise or fall in response to innovation. Union opposition tends to occur when union preferences are weighted in favor of jobs and labor demand is perceived to be inelastic. Thus opposition is more likely with industry- or craft-based union organization in noncompetitive industries and is less likely with enterprise unionism in competitive industries.

This article examines the role of middlemen in bilateral search markets (e.g., employment agencies, real estate brokers). It is shown that the middleman narrows the set of buyer (firm) and seller (worker) types who search; seller types with high valuations and buyer types with low valuations drop out of the search market and instead trade through the middleman. The middleman also decreases the equilibrium search intensities of those agents who search. It is proven that the middleman improves welfare if search is very costly and inefficient and decreases welfare if search is effectively costless and very efficient.