We analyze the relationship between how long an employer has been in business (firm age) and wages. Using data from special supplements to the Survey Research Center’s monthly Survey of Consumers, we find that firms that have been in business longer pay higher wages (as previous studies found), but when we control for worker characteristics, the relationship becomes insignificant or negative. There is some evidence that the relationship is not monotonic, with wages falling and then rising with years in business. Established employers appear to make greater use of back‐loaded compensation, consistent with their higher probability of remaining in business.

In order to estimate the effects of unions on worker productivity, a Cobb-Douglas production function is modified so that unionization is included as a variable. The resulting functional form is similar to that used to isolate the effect of worker quality in previous studies. Using state by two-digit SIC observations for U.S. manufacturing, unionization is found to have a substantial positive effect on output per worker. However, this result depends on two important assumptions which we cannot verify directly; attempts to relax these assumptions are not conclusive.

This study provides direct evidence concerning the relationship between experience and performance among managerial and professional employees doing similar work in two major U. S. corporations. The facts presented indicate that while, within grade levels, there is a strong positive association between experience and relative earnings, there is either no association or a negative association between experience and relative rated performance. If we are correct that the performance ratings given to managerial and professional employees in any grade level adequately reflect those employees' relative productivity in the year of assessment, the results imply that the human capital on-the-job training model cannot explain a substantial part of the observed return to labor market experience.

Charles Brown, George Fane, James Medoff; The Income Distribution as a Pure Public Good: Comment*, The Quarterly Journal of Economics, Volume 87, Issue 2,

THE ease of substitution between labor and other factors of production is an important determinant of the elasticity of demand for labor and thus of the economic effects of unionism. All else the same, the greater the elasticity of substitution, the greater is the elasticity of derived demand and the greater the displacement of labor for a given union-induced wage increase. In sectors where this elasticity is large, unions are likely to be relatively weak and able to win only slight wage gains (Freeman and Medoff, 1981 and forthcoming) or, if they win large gains, will have to pay a high price in terms of lost jobs. In the sectors where the elasticity is small, unions may be able to extract a substantial wage premium at little cost in terms of employment. Moreover, as a simple general equilibrium model indicates, the elasticity of substitution between labor and other factors in the unionized sector is a key parameter in determining the impact of the IIunion wage effect on the earnings of nonunion workers and on the efficiency of the economy (Johnson and Mieskowski, 1970). Despite the importance of the elasticity of labor demand for an analysis of unionism, little attention has been given to the absolute and magnitude of this elasticity under collective bargaining. While there is some discussion of technological change and the substitution of capital and nonproduction workers for organized production workers in the institutional literature (e.g., Slichter, 1941; Slichter, Healy and Livernash, 1960; Bok and Dunlop, 1970), modern econometric work provides no estimates of the relevant parameters. As a result, Johnson and Mieskowski (1970), Rees (1963), Lewis (1964) and others have been forced to evaluate union effects with guesstimates of the elasticities of concern in union settings. This paper attempts to fill some of the gap in our knowledge by providing estimates for U.S. manufacturing of the constant output elasticity of demand for unionized and nonunionized production workers and of the elasticity of substitution between these workers and other inputs. The analysis concentrates on what we call the relative inelasticity hypothesis, which states that the demand for production workers will be more inelastic in the presence of a union for two reasons: the likelihood that unions have organized and survived in sectors with low elasticities, and the effects of various contract provisions on the ability of management to substitute other factors for production labor. The study is divided into four sections. Section I develops the rationale for the inelasticity hypothesis and describes the nature of the empirical analysis conducted to test its validity. The second section uses a 1972 state by 2-digit Standard Industrial Classification (SIC) industry data file for manufacturing to estimate the elasticity of substitution between production labor and both nonproduction labor and capital in the union and nonunion sectors of U.S. manufacturing industries. Section III provides estimates, based on a 1968-72 sample of manufacturing establishments, of the elasticity of substitution between production and nonproduction labor (the only two inputs for which information is available). The final section briefly summarizes the findings and discusses their implications for understanding the impact of trade unionism on the U.S. economy. To preview the ensuing discussion, our main conclusion is: Substitution between production labor and other inputs is generally lower in union Received for publication March 6, 1978. Revision accepted for publication August 17, 1981. * Both authors are with Harvard University and the National Bureau of Economic Research. Supported by U.S. Department of Labor Grant No. J-9-M-6-0094, National Science Foundation Grant No. APT77-16279, and the National Bureau of Economic Research (under its program of research on labor economics). We are especially grateful to Jane Mather for her invaluable assistance on this project and to Greg Bialecki, Charles Brown, Gary Chamberlain, Kathy Coons, Jon Fay, Martin Van Denburgh, and Lori Wilson for their significant contributions. The study has not been reviewed by the Board of Directors of the National Bureau.

T HE impact of unions on wages is likely to depend on the extent to which they organize workers in the relevant product market.1 As the organization in a market increases, the opportunity for substituting nonunion for union products will be reduced, lowering the elasticity of demand for organized workers and the potential loss of employment for a given wage increase. As a result, the wages of union workers are likely to be higher, all else the same, the greater the percentage organized. The wages of nonunion workers may also be influenced by the extent of organization, though the direction of the effect is not clear. On the one hand, union wage gains due to greater coverage may induce increases in nonunion wages because of the threat of organization and/or because of shifts in demand favoring nonunion producers brought about by the increased relative cost of union labor. On the other hand, the supply of labor to nonunion firms may increase as a result of reduced employment in the union sector, which would most likely depress nonunion wages. Whether the threat plus demand effect or the supply effect dominates is an empirical issue. The impact of the percentage organized on the union wage differential (the difference between the natural logarithms of union and of nonunion wages) depends on the relative magnitudes of the likely positive impact on union wages and the positive or negative impact on nonunion wages. This paper seeks to disentangle the relation between the percentage of workers organized in a product market and the wages received by union workers and by nonunion workers. In contrast to most of the literature on the union wage effect, which either relates some average of wages in an industry to the percentage organized or which relates the wages of individuals to their membership in a union, our analysis examines the impact of the percentage organized on the compensation of union labor and nonunion labor taken separately.2 By relating the wages of unionized workers to the percentage covered by collective bargaining in the relevant product market, we estimate directly the extent to which unionized workers in highly organized markets receive higher wages than unionized workers in less organized settings. By relating nonunion wages to the percentage covered, we provide direct estimates of the extent to which, as a result of threat, demand, and supply effects, nonunion workers in highly organized markets receive higher or lower wages than nonunion workers in less organized industries or areas. Two sets of data are used in the study: information on individuals from the 1973, 1974, and 1975 May Current Population Surveys (CPS), which contain data on usual weekly earnings, usual weekly hours, union membership status, and key personal characteristics; and information on establishments from the Bureau of Labor Statistics' 1968, 1970, and 1972 Expenditures for Employee Compensation Surveys (EEC), which contain data on the components of compensation, labor hours, collective bargaining coverage, and some relevant establishment characteristics. The availability of both individual and establishReceived for publication April 24, 1980. Revision accepted for publication May 27, 1981. * Harvard University. We have benefited from the comments of K. Abraham, C. Brown, H. G. Lewis, and L. Summers. We are most grateful to G. Bialecki, J. Fay, C. Ichniowski, L. Nelson, M. Van Denburgh, L. Wilson, and J. Zax for research assistance. The study has been supported by the National Science Foundation (Grant APR 77-16279) and the National Bureau of Economic Research (under its program for research on labor economics). Any opinions expressed are not necessarily shared by the individuals who have aided us, NSF, or NBER. I Throughout our theoretical discussion we refer to a product market, which is the appropriate unit of observation for an analysis of the relationship between percentage organized and wages. However, in the empirical work we focus on either a 3-digit Standard Industrial Classification or Census industry (in the manufacturing analysis) or a Current Population Survey state group (in the construction analysis). Unfortunately, the data used do not permit a closer correspondence between the theoretical and empirical parts of our study. 2 For an early attempt to disentangle this relation, using average wages in an industry and percentage organized, see Rosen (1969). For more recent related analyses, see (in alphabetical order) Donsimoni (1978), Hendricks (1975), Kahn (1978), and Lee (1978). For a trenchant treatment of the analysis, see Lewis (1980).