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The Decline in American Trade Union Membership and the “Government Substitution” Hypothesis:A Review of the Econometric Literature

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Abstract

This paper reviews the empirical literature on the “Government Substitution” hypothesis. We focus our attention on the sample periods used, model specification, and econometric technique. The seminal piece on this topic is Neumann and Rissman (J Labor Econ 2:175–192, 1984) and to date there have been less than a handful of extensions beyond this initial investigation. By tracking the limited development of this hypothesis over time we are able to conclude that there is still an opportunity for additional empirical exploration in this area.

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Notes

  1. Source: Hirsch et al. (2001, updated annually). Union density is defined as the proportion of the nonagricultural labor force in the United States that are union members. This includes both private and public sector members of the labor force.

  2. Some have regarded passage of the Taft–Hartley Act in 1947, with specific interest in the provision of allowing each state to enact a right-to-work law, as a leading deterrent to union membership growth. For a review of the literature on the effects of right-to-work laws on union membership, see Moore and Newman (1985) and Moore (1998). Because these reviews encapsulate the major work in this area we do not include a review of the literature on the effects of right-to-work laws on union membership growth.

  3. In addition to the limited amount of empirical work generated on this topic, the last to address the issue was Moore et al. (1989) using time-series data to 1983.

  4. The ability to obtain accurate relative prices of union membership is hampered due to the components of these prices, which include initiation fees, dues, and lost income from work stoppages.

  5. Among the objectives of unions to its members are: raise wages, increase safety in the workplace, and institute grievance and arbitration procedures. For a comprehensive review on “what unions do”, see Freeman and Medoff 1984).

  6. Stieber provides several factors in limiting lower level salaried employees as wrongful discharge plaintiffs. One is that attorneys are discouraged to represent low-income employees because they expect smaller returns from cases under a contingent fee system. Another argument is that low-income employees are less likely to have opportunities to be fired for “refusing to commit unlawful acts, or “blowing the whistle on illegal conduct” (Stieber 1984: 8).

  7. Harvard Law Review (June 1983). This study examines the structure of the U.S. labor market as described by dual labor market theory. For a review of the dual labor market theory, see Amacher and Sweeny (1981).

  8. A “primary market” is divided into upper and lower tiers—the upper tier contains managerial and professional employees, the lower tier contains blue-collar and non-managerial white-collar employees.

  9. See Scoville (1971).

  10. See Walsh and Schwarz (1996) for a comprehensive list of sources that have performed the task of coding states with exceptions to employment-at-will. The authors also include their interpretation of the reasons for discrepancies across classifications. A common issue for disagreement includes differing dates of publication. Less common issues are use or nonuse of federal court decisions interpreting state law, substantial ambiguities within many of the decisions, and the courts’ propensity to fail to acknowledge rulings that contradict one another.

  11. The results of Autor et al.’s (2006) coding turn out to closely relate to those of Morriss (1995). Walsh and Schwarz (1996) select cases that best communicate a court’s rationale for publicly declaring a new doctrine. Arguably, these cases often follow the initial precedent-setting opinion by several years.

  12. This interpretation is especially appealing if it is also true that management is in favor of legislative or judicial action when it is appears that this would permit greater predictability of outcome and limit the size of the damage awards. See Krueger (1991) for an interpretation of this analysis.

  13. For empirical investigations into the “Structural” hypothesis see: Scoville (1971); Neumann and Rissman (1984); Freeman (1985), and Farber (1985). For empirical analyses on the “Management Opposition” hypothesis see: Dickens (1983); Freeman and Medoff (1984), and Freeman (1988). For evidence on the “Union Organizing” hypothesis see Freeman and Medoff (1984) and Hirsch and Addison (1986, pp. 29–74).

  14. Block et al. (1986) observed the relationship between employment-at-will judicial decisions and NLRB representation elections. While these judicial decisions by the state courts are not the same as social welfare payments to workers the issue has been raised as to the timing of labor protection by government relative to the timing of the steady decline in union membership. The authors also made note that during the late 1930s and early 1940s, when trade unions in the United States experienced their greatest expansion in membership, social programs such as unemployment insurance, minimum wage legislation and Social Security were beginning implementation. While the positive correlation suggested preliminary evidence that no union substitution effect existed during this period, it also provided an early indication that the weakened position of organized labor did not initiate the conception of social welfare expenditures.

  15. See Kau and Rubin (1979) for empirical evidence that supports this hypothesis.

  16. Dertouzos and Karoly (1992) find evidence that exceptions to the employment-at-will doctrine have resulted in a reduction in equilibrium employment levels when including the predicted values based on a logistic model of the probability of a doctrine existing in a state during a particular year using various economic, social, and legal factors that have influenced the judicial decisions. See Krueger (1991) for evidence of factors that affect the likelihood that a state enacts unjust-dismissal legislation. Included as a possible factor is union density but the coefficient is positive and not significant. Kesselring and Pittman (1993) find evidence that a more unionized state increases the likelihood of judicial protection in that state, although the authors’ definition of protection does not include narrow interpretations, which reduces the number of states defined as “protection” states.

  17. While Ashenfelter and Pencavel (1969) examined the behavior of the rate of growth of union membership, Neumann and Rissman (1984) examined the percentage of the workforce that is organized.

  18. Freeman used two measures of social welfare: (1) the share of GNP spent on social welfare in a country, and (2) the ratio of current disbursements of government to GNP in a country.

  19. Casting further doubt into Freeman’s findings is the fact that his rank correlations appear to be erroneous. After replicating rank correlations using Freeman’s data, we found evidence to suggest that the rankings were positively correlated between the change in union density in a country and current disbursements of government as a percentage of the country’s GNP but not social welfare expenditures as a percentage of the country’s GNP. The importance of this finding is noteworthy if one perceives that the latter measure is a relatively closer comparison of “union-like” services.

  20. Like A–P, B–E examined the behavior of the annual percentage change in trade union membership.

  21. Sheflin et al. (1981) also found evidence that a structural shift occurred in 1937 in both the A–P and B–E models.

  22. Because each specification included a lagged dependent variable on the right hand side of the equation, M–N–S performed Durbin’s H tests for the presence of autocorrelated residuals. The authors found no evidence of autocorrelation. See Durbin (1970) for more detail on this test.

  23. A–P offer explanations for using the annual percentage change in union membership as the dependent variable rather than the change in the ratio of union membership to the labor force. These include: (1) to reduce the problem of measurement error in the union membership data and to (2) eliminate a possible source of spurious correlation with the percentage rate of change of employment in the unionized sectors of the economy. Bernstein (1954) used “real membership,” both as a stock and flow measure, claiming it is reasonable to assume an association exists between membership and various factors when using a sufficient number of time periods. Although the results were not reported, A–P also used Bernstein’s measure of union membership growth and reported that the basic conclusions were unaffected.

  24. A list of the literature on these alternative hypotheses was provided in an earlier footnote.

  25. M–N use two alternative methods of decomposition to determine the relative importance of the various hypotheses in explaining the decline in union membership over time. Perhaps due to the weak support for the government substitution hypothesis, the authors do not provide any interpretation of the figures associated with the welfare variables. At any rate, the effect of the 3.5 (dollars, in thousands) average increase in the expected unemployment compensation benefits is predicted to reduce the level of unionization by slightly less than 1% (0.0725) over the time period 1950–1980, everything else held constant.

  26. See Wooldridge (2002) for a complete description of this issue.

  27. See Worthen (2002), who argues that organized labor is affected by the Workforce Investment Act in at least three ways. One is that WIA offers job training to program participants.

  28. It is possible, however, that there exists two influential differences between the two studies, which include: the codification of states that recognize an at-will exception, and the degree of recognition (“broad” versus “narrow”) for these exceptions.

  29. Only single-union, non-decertification elections were included in the analysis to mitigate the influence of non-measurable factors. The codification for the at-will exceptions used by B–M–C was based on Dichter et al. (1985).

  30. B–M–C run a probit model where a union win takes the value of one and a union loss takes the value of two for the dependent variable. Therefore, the saturation effect, implying an increase in the probability of a union defeat, would be evidenced by a positive sign on the coefficient for this variable. In contrast, if the general attitude toward unions in the state was positive, we would expect a negative sign on the coefficient.

  31. Four regressions were run—three models with each independent exception, and a fourth model including all three exceptions.

  32. See Greene (2000) for the fixed-effects model. See Hausman (1978) for a test comparing the random-effects and fixed-effects estimators.

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    Christopher K. Coombs

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Coombs, C.K. The Decline in American Trade Union Membership and the “Government Substitution” Hypothesis:A Review of the Econometric Literature. J Labor Res 29, 99–113 (2008). https://doi.org/10.1007/s12122-007-9031-0

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