WAGES AND WORK PRACTICES IN UNION AND OPEN SHOP CONSTRUCTION by Clinton Currier Bourdon Submitted to the Department of Urban Studies and Planning on December 15, 1982 in Partial Fulfillment of the Requirements for the Degree of Doctorate in Philosophy This is the most complete text of the thesis available. The following page(s) were not included in the copy of the thesis deposited in the Institute Archives by the author: (title page) MASSACHUStTS NSTTUTE OF TECHNOLOGY 0cT 208 6 4~A~8 Abstract WAGES AND WORK PRACTICES IN UNION AND OPEN SHOP CONSTRUCTION by Clinton Currier Bourdon Submitted to the Department of Urban Studies and Planning on December 15, 1982 in Partial Fulfillment of the Requirements for the Degree of Doctorate in Philosophy ABSTRACT Craft unions in the construction industry have long enjoyed relatively high hourly wages and benefits and have played major roles in the training, hiring, and assignment of construction labor. But in the 1970s they became increasingly threatened by the widespread growth of nonunion construction firms and labor. This spread of nonunion firms in the industry permits a detailed comparison of compensation and work practices in the union and open shop sectors of construction. This comparison allows a unique analysis of the union impact on both compen- sation and construction labor market institutions. A single-equation econometric estimation of the union/nonunion wage differential in construction using a micro-data base on workers' wages, characteristics, and union status provided evidence of a union wage differential in construction exceeding fifty percent. But further analysis showed that this estimate may be biased upward by the heter- eogenity of skills and occupations in construction as well as by the positive correlation of wages and union status. Other observations of union/nonunion wage differential, based on sample surveys designed to control for skill level, occupation, and type of construction, revealed much lower union wage differentials which varied considerably by trades and geographic area. Labor market institutions in construction, such as apprenticeship, hiring halls, and jurisdictions, are often seen as largely restrictive union practices, or labor market distortions, which serve to maintain high union wages. Interviews with a sample of union and open shop contractors showed, however, that (1) similar institutions existed in both sectors of the industry and thus were not a function of union status alone but an outgrowth of market structure, firm size, and technology and (2) these institutions could enhance the efficiency of construction labor markets by facilitating investment in training, job referrals, and the retention of a skilled but mobile labor force. Thesis Supervisor: Dr. Michael Piore Title: Profesor of Economics iii CONTENTS 1. INTRODUCTION AND SUMMARY 1.1 The Study of Union Impact ............................ 1 1.2 Craft Unions in Construction ......................... 6 1.3 External Labor Markets and Endogenous Unions ......... 17 2. ECONOMIC ANLAYSIS OF UNION IMPACT 2.1 Union Wage Impact: Lewis and Critiques .............. 25 2.2 Single-Equation Estimates ............................ 29 2.3 Union Wage Impact and Market Structure ............... 34 2.4 Wages and Endogenous Unions .......................... 37 2.5 Union Wage Impact--A Critique ....................... 41 3. UNION WAGE AND OCCUPATIONAL DIFFERENTIALS 3.1 Wage Equations: Craft Union Impact .................. 66 3.2 Union/Nonunion Construction Wage Survey ............. 91 4. NONWAGE IMPACTS OF CONSTRUCTION CRAFT UNIONS 4.1 The Labor-Management Context ........................ 128 4.2 Jurisdictions ....................................... 135 4.3 Skill Level and Skill Structure ..................... 159 4.4 Technology and Work Practices ........................ 170 4.5 Hiring and Screening Systems ......................... 181 4.6 Training and Apprenticeship ......................... 188 4. NONWAGE IMPACTS OF CONSTRUCTION CRAFT UNIONS (cont'd) 4.7 Other Observations ................................... 194 4.8 Nonwage Impacts: Summary and Implications ........... 201 5. CRAFT UNIONS: ROLE AND IMPACT 5.1 Models of Union Behavior ............................. 208 5.2 Market Structure and Union Behavior .................. 211 5.3 Craft Unions and External Labor Markets .............. 224 5.3.1 Labor Market Institutions--The Organizational Failures Approach .............. 229 5.3.2 Occupational Definition: Toward a Theory of Jurisdictions .............................. 238 5.3.3 Training and Apprenticeship ................... 252 5.3.4 Hiring and Referral: Networks and Halls ...... 257 5.3.5 Work Rules: Common Labor Standards ........... 261 5.3.6 Sum: The Efficiency Contributions of Craft Institutions ............................ 264 5.4 The Study of Unions .................................. 267 1. INTRODUCTION AND SUMMARY 1.1 The Study of Unions The industrial relations and labor economics literature of the nineteen-fifties is rich in descriptive studies of union behavior in particular sectors of the economy. Economists such as Segal, Chamberlain, Slichter, Dunlop, and Levinson wrote detailed studies of union impact on all aspects of the terms and conditions of employment in industries as various as trucking, construction, and paper. Lewis' work in the late nineteen-fifties was, however, the first economic study of unions which was rigorously analytical and largely quanti- tative in approach. At the time, Lewis' pioneering study of the union impact on wages alone was a useful complement to the more "institutionalist" approach which included a range of other issues in its analysis. Among these other issues were work rules and featherbedding; labor and product market structure; jurisdictional definitions; technological change; and management interests and ideology. Ever since the publication of Lewis' book, however, economic analysis of union impact has focused almost entirely on the union/non- union wage differential issue. The development of micro data bases unavailable to Lewis, first on an industry then on an individual level, facilitated the use of regression analysis to control for other than the "pure" union impact on wages. Currently, single- equation regressions which estimate the common proportional impact of -2- unionism on wages by industry group, while controlling for personal characteristics of workers (as a proxy for productivity), are the mainstay of the dwindling literature on union impact and behavior. This near degeneration of the literature into simple regression-running cannot be ascribed solely to the quantitative perversity of modern economics. Occasional attempts to include various institutional or structural variables in union wage equations, such as the industry concentration ratio, have not been very suc- cessful. Nonetheless, the possible impacts of unions on non-wage aspects of the employment relation, either deleterious or beneficial, have continued to remain largely unstudied or analyzed. In contem- porary economic analysis unions are now simple, homogeneous organizations ('unionism is unionism' as Reder put it in a critique of Lewis) with a single argument in their utility function: to raise wages above a competitive norm. If successful, and labor supply is excessive due to the higher wages, then unions may only become interested in non-wage institutions in order to restrict worker entry and ration employment. Despite what Ashenfelter calls this neoclassical "consensus" that has been reached both on how to approach the study of unions and on their wage impact there are odd strands in the literature which challenge the common view. Three most important of these are the following: (1) Endogenous Unions: the standard approach to the analysis of union impact is to assume unions are an exogenous, -3- independent force which acting alone raise wages. The common ex- pression of this theory is a single equation regression where wages are a function of both human capital variables (Xij) and union power: Wi = bo + Z bj Xij + bl Ui + ei j so that unionism is simply a dummy variable (Ui) affecting the wages of a particular worker i. Ashenfelter and Johnson, drawing on some of the institutional literature of the 1950's, show that since unions provide non-wage services to workers (e.g., grievance procedures) they may be demanded by higher wage or income workers. (Inother words, union services have a high wage or income elasticity.) If this is the case, the single-equation estimates of union impact will be biased since, while measuring the impact of unionism on wages, they will be also capturing some of the influence of wages on unionism. In a two- and three-stage least squares estimation of simultaneous equations relating wages to unionism and vice versa, Ashenfelter and Johnson found the union coefficient in the wage equation, though positive and substantial, was insignificant. They concluded that the simultaneous relationship of unionism and wages had been under- emphasized. Yet, their findings have not been elaborated on - partly due to the difficulty of specifying the simultaneous equations. (2) Labor-management Cooperation: The contemporary economic model of unionism stresses the adversary role unions play in wrestling higher wages from profits (inconcentrated industries) or from consumers (incompetitive industries). What this model overlooks is the beneficial role unions may play in the management and organization of workers in -4- some companies and industries. On the