Abstract
Following Brown and Medoff (1978), a number of studies have investigated the effect of unionization on labor productivity using a log-linear, Cobb-Douglas model of technology. To derive this model, a first-order Taylor-series approximation to the intrinsically nonlinear unionization variable is made; the resulting linear equation is estimated with generalized least-squares (GLS) techniques. We demonstrate that this approximation introduces a bias that necessarily results in an overstatement of the absolute value of the exact union productivity effect. We illustrate the magnitude of this bias by comparing GLS estimates of the linear Brown-Medoff model with GLS estimates of the exact, nonlinear relationship, using aggregate time-series data from the private domestic sector of the U.S. economy.
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The authors are grateful to Lars-Henrick Röller for his computational assistance and to Steve Allen and Barry Hirsch for comments on an earlier draft.
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Knox Lovell, C.A., Sickles, R.C. & Warren, R.S. The effect of unionization on labor productivity: Some additional evidence. Journal of Labor Research 9, 55–63 (1988). https://doi.org/10.1007/BF02685229
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DOI: https://doi.org/10.1007/BF02685229