A TEST OF A MODEL OF TRADE UNION BEHAVIOUR: THE COAL AND STEEL INDUSTRIES IN BRITAIN*
| Date | 01 February 1986 |
| Author | Andrew J. Oswald,Alan Carruth,Lewis Findlay |
| Published date | 01 February 1986 |
| DOI | http://doi.org/10.1111/j.1468-0084.1986.mp48001001.x |
OXFORD BULLETIN
of
ECONOMICS and STATISTICS
Volume 48 February 1986 No. 1
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 48, 1 (1986)
0305-9409 $3.00
A TEST OF A MODEL OF TRADE UNION
BEHAVIOUR: THE COAL AND STEEL
INDUSTRIES IN BRITAIN*
Alan Carruth, Andrew J. Oswald and Lewis Findlay
I. INTRODUCTION
This paper uses data on the British coal and steel industries to test a
model of trade union behaviour. Despite the fact that the possible
economic effects of trade unions are widely debated in the press, and
by Britain's politicians, apparently the only British empirical work
which applies modern union theory to microeconomic data is that by
Kong and Nickell (1984) and Carruth and Oswald (1985). Evidence, in
other words, is rather scarcer than conjecture.
The model we test here is encompassed within a more general theo-
retical framework that has its seeds in the early work by Dunlop (1944)
and Leontief (1946). To the best of our knowledge there is no study,
for any of the European countries, which tests (rather than applies)
those models or any variants of them. For the United States, however,
there is some recent work by Ashenfelter and Brown (1983), Card
(1985) and MaCurdy and Pencavel (1985), but our approach is some-
what different from that of those authors. First, we test here what
might be called the 'flat indifference curve' (FIC) model of trade union
behaviour. Second, rather than impose untested structural restrictions
on production and demand functions, which Ashenfelter, Brown, Card,
MaCurdy and Pencavel are forced to do, we prefer to work with
reduced form equations for pay and employment. There should there-
* We thank Elias Dinenis for a good suggestion, and John Knight and Steve Nickell for their
many helpful points. Lewis Findlay collected the steel data. Useful comments were also
received at seminar presentations at Kent, Lancaster, LSE, Oxford, Princeton and Strathclyde.
Mistakes are our responsibility.
1
2BULLETIN
fore be something in this paper even for those who distrust the par-
ticular models considered here, because the results show what kinds of
economic variables are correlated with wages and the level of jobs in
the coal and steel sectors. Presumably it is the case that, regardless of
the true structural model, reduced form results - if truly robust - of
the kind to be discussed later should tell us something about the
elasticities in the world. The weakness of such an approach is that it is
not possible this way to learn about the size of structural parameters.
There are a number of economic questions one might hope to be
able to answer.
Do trade unions care about the level of employment amongst
their members, or are they concerned simply with the drive for
higher wage rates? Is it perhaps the case, to put it more pre-
cisely, that a union is approximately indifferent to the employ-
ment level?
Is the negotiated wage rate affected by economic variables like
the prices of output and substitute products or the level of taxes?
Does high aggregate unemployment push down sectoral real
wage rates, and if so by how much?
How are sectoral pay and employment influenced by incomes
policy and the size of real unemployment benefit?
Our results provide evidence on these issues.
The main idea in the paper is that it is possible to devise a test for the
extreme hypothesis that unions are indifferent to the level of employ-
ment. There are a number of reasons why this FIC model is worth
taking seriously. First, it is known that, especially in Britain and the US,
compulsory redundancies and lay-offs are made largely by inverse
seniority within the affected company or establishment. In a trade
union with majority voting, therefore, senior workers know themselves
to be insulated from economic fluctuations, and might be expected to
set wage demands without any concern for possible employment conse-
quences.' Around equilibrium such a union has flat indifference curves.
This is the seniority model described in Oswald (1984). It is important
to make clear, however, that exactly the same kind of argument will
apply whenever there is any known ordering of those to be made
redundant. This may well be a rather general case.2 Second, if workers,
when acting collectively, do have preferences of this kind, it is possible
to explain a long standing paradox in labour economics. Forty years
ago Leontief (1946) pointed out that in an efficient labour contract
Unless, of course, employment reductions are to be so immense that even the senior
majority feel themselves to be threatened.
2In the steel industry it has often been the case that the young have been the first to be
sacked (Bryer et al. (1982) contains useful information). For coal, however, the evidence is
mixed; older workers have sometimes gone first.
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