Union-non-union wage differentials: individual level and organizational level effects

Transcription

1 European Sociological Review, Vol. 9 No. 2, September 1993 Oxford University Press Union-non-union wage differentials: individual level and organizational level effects ARNE MASTEKAASA ABSTRACT The wage difference between unionized and non-unionized employees is assumed to be small in Norway (and in other Scandinavian countries), due to a high degree of unionization, spill-over effects, and standard rate policies. Previous research nevertheless indicates that there is a union member nonmember wage differential, at least for blue-collar workers. For white-collar workers the wage differential is smaller or even negative. This paper argues that in an economy with widespread spill-over and standardization, the union-non-union wage differential could be due to (1) effects of union strength (as measured by the degree of unionization) at the establishment or industry level, or (2) selection effects at the individual level. Degree of unionization or selection effects may also explain why the union-non-union wage differential is larger for blue-collar than for white-collar employees. In the private sector, the blue-collar-white-collar difference in the wage differential can be accounted for by degree-of-unionization effects. In the public sector, there seems in addition to be some positive selection for union membership. Unionization also serves to narrow the wage differential between blue-collar and white-collar workers, in part by keeping white-collar wages down. INTRODUCTION Neo-classical economics as well as some sociological approaches such as status-attainment theories regard wages as primarily determined by individuals' human capital and other individual characteristics. However, most sociological treatments of wage determination put more emphasis on structural and institutional characteristics of labour markets (e.g. Baron, 1984). Colbj0rnsen and Kalleberg (1988) distinguish between five different kinds of work structures work organizations, industrial sectors, occupations, unions, and classes that can be expected to influence wages (and other individual labour-market outcomes). This paper focuses on one of these work structures, unions, examining how union membership as well as the degree of unionization of the establishment affect the wages of a representative sample of Norwegian private- and public-sector employees. Compared to other European and North American countries, the Scandinavian countries are characterized by high levels of unionization (see e.g. Neumann et al., 1991). Even in Norway, which has the lowest proportion of unionized employees in Scandinavia about 60 per cent of the labour-force (not including the self-employed) are union members. At the same time, the economic advantage of belonging to a union seems to be particularly small in the Scandinavian countries, i.e. there are only small wage differences between union members and non-members (Le Grand, 1989:196;Colbj0rnsen and Kalleberg, 1988). The most prominent explanation of the small or non-existent union effects in Scandinavian countries is, perhaps slightly paradoxically, that it is a result of the high degree of unionization. 1 With a very high degree of unionization, unions have a strong influence on wage determination in the entire economy, and nonunionized employees are generally offered the

2 110 UNION-NON-UNION WAGE DIFFERENTIALS union-bargained rates. As argued by Colbj0rnsen and Kalleberg (1988), standardization of wage rates across occupations is common. Moreover, there are substantial spill-over effects; i.e. wage settlements obtained by a union influence subsequent wage changes for non-unionized employees or for employees belonging to other unions. One reason for spill-over as well as the use of standard rates across occupations is that transaction costs may be reduced when every new contract does not have to be negotiated from scratch (Kalleberg and Colbj0rnsen, 1989). Second, employers may fear that lower wages to non-unionized workers will encourage unionization (the so-called 'union threat effect', cf. Podgursky, 1986). Third, wage differences between otherwise identical union members and non-members may be perceived by workers as inequitable, and therefore lead to dissatisfaction and lower productivity (cf. discussions of equity theory (Adams, 1965; Austin et al., 1980) and relative deprivation (Runciman, 1966)). There are few empirical studies of wage differences between unionized and nonunionized employees in Norway. In the light of their own theoretical discussion and in comparison with other countries, Colbj0rnsen and Kalleberg (1988: 29) report surprisingly large differences. Controlling for a number of individual and job characteristics, they find a union-non-union wage difference of 18 per cent (averaging the results for men and women). 2 As far as other European countries are concerned, Blanchflower and Freeman (1992) report wage differences of 11 per cent for the UK, 8 per cent for West Germany, and 7 per cent for Austria, and they cite similar results for these countries from other sources. For Sweden, Le Grand (1989: 170) reports a union-non-union difference of only 2 per cent, whereas Kalleberg and Colbj0rnsen (1989) found a 16 per cent difference in their Swedish data. For the United States, Blanchflower and Freeman report a differential of 25 per cent and Colbj0rnsen and Kalleberg (1988) 39 per cent. Both these estimates are considerably higher than the 16 per cent estimate reported by Lewis (1986), based on a review of a large number of American studies, and they differ even more from the corrected estimates reported by Jarrell and Stanley (1990). One objective of this paper is to provide new estimates of union-non-union wage differences in Norway, partly replicating Colbj0rnsen and Kalleberg's (1988) study. More important, new data make it possible to move beyond a purely individual level examination of union effects, taking into account not only whether the individual employee is a union member or not, but also the degree of unionization of the establishment in which he or she is employed. If spill-over and standardization effects are sufficiently strong, within-firm differences between union members and non-members should be eliminated, and any remaining wage differential should be due to differences between unionized and non-unionized firms or industries. Measures of the degree of unionization also make it possible to test hypotheses about union effects on wage dispersion or wage differences between categories of workers, particularly on white-collar-blue-collar differentials. Several studies indicate that union influences often serve to reduce wage dispersion (Freeman, 1980, 1982; Blanchflower and Freeman, 1992; Kalleberg and Colbj0rnsen, 1989). Elster (1989a, 19896) argues that unions may be strongly influenced by norms of equity and equality, and thus may have preferences for relative and not only for absolute wages. The equalizing effects of unions should be particularly strong in Norway (and Sweden), where unions have been dominated by a strong egalitarian ideology and have pursued so-called 'solidaristic wage policies' (Hibbs, 1990, 1991; H0gsnes, 1989). I examine whether union strength influences wage differences between blue-collar and white-collar workers within establishments. To the extent that equalization of wages takes place, one may further distinguish between equalization through increased bluecollar wages, and through decreased white-collar wages. In other words, do strong unions bring blue-collar wages up, or do they (also) keep white-collar wages down? The next section provides some descriptive background on Norwegian unions and the wageformation process. I then discuss in more detail how spill-over, standardization, and union strength at the establishment level can be

3 expected to influence wages. This is followed by a description of statistical models and data. Results are presented in the fifth and sixth sections of the paper, and some unexpected findings for the public sector are further discussed in a separate section. UNIONS AND WAGE DETERMINATION NORWAY There are three major trade-union federations in Norway. The oldest one, the Norwegian Confederation of Trade Unions (LO), is dominated by blue-collar workers (see Table 1), but it also organizes a considerable number of white-collar workers, particularly in the public sector. Another trade-union federation, the Confederation of Vocational Unions (YS) organizes mainly lower and medium-level whitecollar employees. The Federation of Norwegian Professional Associations (AF) organizes collegeand university-educated employees only. Table 1 shows that the degree of unionization is much higher in the public than in the private sector. 3 Aggregated across the three occupational categories the percentages unionized are 85 and 50, respectively. It is also higher among blue-collar workers and among higher white-collar employees than among lower white-collar workers. 4 LO is the dominant union federation among blue-collar and lower white-collar workers, whereas the three federations are of more equal size among medium and higher white-collar workers. The EUROPEAN SOCIOLOGICAL REVIEW 111 TABLE 1 Union membership by sector and occupation (percentages) blue-collar Private sector lower white-collar IN AF is, however, the largest union federation for medium and higher white-collar personnel in the public sector. In the private sector, about 27 per cent of all employees work in firms with individual contracts only and no collective bargaining, 28 per cent in firms with collective tariffs determined by centralized (industry or national level) bargaining, and 45 per cent in firms with local, firm-level bargaining, or a combination of central and local bargaining. Even in collectivebargaining firms there will generally be some employees with individual contracts, particularly higher administrative personnel. The combination of centralized and local bargaining is common in many industries, particularly in manufacturing. With a so-called 'minimum wage' system, the central negotiations only provide a minimum wage increase, and further wage increases can be negotiated at the firm level. Even in firms without firm-level bargaining (and a so-called 'normal wage' system) the employer may in some cases unilaterally raise wages beyond the centrally negotiated agreement. (For more details on the Norwegian system of wage determination see e.g. R0dseth and Holden, 1990.) In the public sector wage-setting for state and municipality employees is more centralized, and there is no real firm or establishment-level bargaining. There is nevertheless some room for local variations. For the state sector a small part of the total agreed wage increase is reserved for so-called local adjustments in individual agencies higher white-collar blue-collar Public sector lower white-collar higher white-collar Non-member Member LO Member YS Member AF Member other Total N Source: Survey of Organizations and Employees 1989.

4 112 UNION-NON-UNION WAGE DIFFERENTIALS and offices, although the final distribution of these adjustments is determined at the centre. Wage increases beyond the collective agreement can also be obtained in more informal ways by means of promotions or redefinitions of occupational positions. By means of such mechanisms some wage drift is common even in the public sector. In particular there has been a widespread tendency toward an 'inflationary' use of job titles. To take one example, in the Norwegian public railways 18 per cent of all engineers had the position of 'head engineer' or 'chief engineer' in 1979, whereas the remaining 82 per cent were in the lower ranks of 'engineer' or 'department engineer'. In 1989 the distribution had changed to 45 per cent at head or chief level and 55 per cent at lower levels. 5 Such changes are not determined at the establishment level, but they nevertheless add considerable flexibility to the public wage system, and make it more likely that local pressures will succeed. Perhaps in part due to the difficulty in determining market wages for public employees, public-sector unions tend to be more concerned about distributional issues than their privatesector counterparts (Hanisch and H0gsnes, 1988). This holds in particular for the dominant public sector LO unions. Probably as a consequence, returns to schooling are markedly lower in the public sector (Barth and Mastekaasa, 1990). SPILL-OVER, STANDARDIZATION, AND UNION STRENGTH: THEORY AND HYPOTHESES Accounting for the individual-level unionnon-union wage differential At the macro-level unions may influence the average wage-level as well as the degree of wage dispersion in an entire national economy (Rubin, 1986). It is often argued that the relatively egalitarian wage distribution in the Scandinavian countries is in part due to the impact of strong and egalitarian unions (see e.g. Hibbs, 1990, 1991). This type of union effect may be the result of centralized collective bargaining at the national level, or national co-ordination of union policies in sectoral or firm-level bargaining. It may also be an unintended outcome of unco-ordinated policies or of spillover effects. However, analysis of economy-wide union effects presupposes data from many countries or many time points, and is beyond the scope of the present paper. At the micro level, union-non-union wage differentials are estimated by regressing an individual's wage on union membership, controlling for other personal and job characteristics assumed to affect wages. As mentioned above, cross-national comparisons of unionnon-union wage differentials do not give entirely consistent results. Nevertheless, both theory and previous empirical research suggest that unionnon-union wage differentials in the Norwegian labour-market are small. Previous research in the United States and Sweden have found larger differences between union members and non-members in the private than in the public sector (Le Grand, 1989; Lewis, 1990). Similar differences can be expected in Norway. As discussed in the previous section, wage-setting is more centralized and the wage system is more standardized in the public sector. The room for variations within as well as between establishments should therefore be smaller. Larger differences are also typically reported for blue-collar than for white-collar workers (Le Grand, 1989; Lewis, 1986). Again, the same pattern is to be expected for Norway. For one thing, blue-collar unions have existed since the 1920s, whereas white-collar unionization is a fairly recent phenomenon. Blue-collar unions therefore have had much more time to build their strength and to influence wage levels. The most straightforward explanation of union-non-union wage differentials is that collective-bargaining agreements secure union members higher wages than non-members. However, negotiated agreements often influence, or 'spill over' to, non-members. In Norway, at least, it seems to be standard practice that people doing the same kind of job in the same firm are paid the same wage irrespective of whether they are union members or not, and there is also considerable standardization across occupations. Spill-over effects are likely to be particularly strong within firms and occupational groups, but may also reduce wage differences

5 between unionized and non-unionized firms and sectors (Goodman, 1974; Gartrell, 1982). As mentioned above, the reason may be reduced transaction costs, or employers' fear of unionization or worker dissatisfaction. There are several reasons for believing spill-over effects to be strong in Norway. Colbj0rnsen and Kalleberg (1988) point to the 'corporatist' character of the Norwegian society. The solidaristic wage policies mentioned earlier may be another important factor. Third, with a generally high level of unionization, employers in non-unionized firms can be expected to be more concerned about the threat of unionization (Podgursky, 1986). Spill-over reduces wage differences between union members and non-members, and is the major reason for expecting small union-nonunion wage differentials in Norway. Since spillover is expected to be particularly strong within firms, one may further hypothesize that whatever union-non-union differential is found will be due to wage differences between unionized and non-unionized firms, and not to differential treatment of unionized and non-unionized workers in the same firm. Specifically, this means that if one controls for the union status of the firm, the estimated effect of individual union membership should disappear. This suggests that the relationship between unions and wages is more appropriately conceptualized and modelled as a contextual effect; it is not the union status of the individual worker that is important, but rather the union status of the individual's 'context' (Boyd and Iversen, 1979). Technically such a contextual effect can be estimated by augmenting a traditional individual-level wage equation by a contextual variable denoting whether or not the firm has entered a collective-bargaining contract for at least some of its employees. Even in a centralized bargaining system, stronger spill-over effects within firms than between firms will produce some wage differences between unionized and non-unionized firms. The differences are likely to be larger if wages are at least in part determined at the firm level. However, a dichotomous distinction between unionized and non-unionized firms is probably too simple. If unionization affects EUROPEAN SOCIOLOGICAL REVIEW 113 wages, the effect is likely to be stronger if 90 per cent of the workers are unionized than if only 10 per cent are union members. In order to take union strength into account, the union status of the firm may be better conceptualized as a continuous variable, i.e. one may distinguish between different degrees of unionization. I use the term 'degree-of-unionization effect' to distinguish the contextual effect from the individual level 'union-membership effect'. If the union-non-union wage differential is due to degree-of-unionization effects, it should disappear when control for the degree of unionization is introduced. However, a union-non-union wage differential does not necessarily reflect any causal impact on unions. An alternative hypothesis is that it could be a result of selection effects. If union jobs are better paid, they are likely to attract better workers, or longer queues of applicants, making it possible for employers to select more productive workers (Lewis, 1986: 46-7). Moreover, when the degree of unionization is very high, employees with peripheral or discontinuous labour-force participation may make up a large proportion of the nonunionized workers. Such positive selection into union status could lead to upward bias in estimates of union-membership effects. However, negative selectivity bias may also be imagined. Employees who receive lower wages than expected on the basis of measured personal and job characteristics (due to low unmeasured productivity, employer exploitation, or whatever other unmeasured reason) could be more likely to unionize. In that case union effects will.be underestimated. If the estimated union-non-union differential is due to positive selection at the individual level, it should not be eliminated by controlling for the degree of unionization of the establishment. Even within establishments, high-wage employees should be disproportionately selected into union-membership status. Control for degree of unionization thus provides an empirical basis for assessing the relative importance of selection and true union effects (combined with spill-over and standardization) in producing the union-non-union wage differential.

6 114 UNION-NON-UNION WAGE DIFFERENTIALS Selection effects also provide an alternative explanation for variations in the union-nonunion wage differential across occupational groups. Negative selection to union status may lead to a downward bias among white-collar employees, and/or positive selection may produce an upward bias for blue-collar employees. Negative selectivity does appear more likely for white-collar (and particularly for higher white-collar) than for blue-collar employees. Inter-individual variations in productivity are probably greater at higher levels of the occupational hierarchy, and sufficient statistical control for such variation may be more difficult to achieve. White-collar employees also have better opportunities for obtaining higher wages by means of individual rather than collective strategies, e.g. by means of promotions. Union membership may serve as an alternative for those who do not expect to benefit from individual advancement strategies, and these employees are also likely to have lower wages. If selectivity is a more important source of (negative) bias for white-collar employees, or if selectivity creates a negative bias for whitecollar employees and a positive bias for bluecollar workers, that could explain a positive union-non-union wage differential for bluecollar workers, and a smaller or even negative wage differential for white-collar employees. Again, control for degree of unionization provides at least an indirect test of this selection explanation against the alternative of true differences in union effects between blue-collar and white-collar employees. If differences across occupational groups in size or direction of the union-non-union wage differential are caused by different selection effects, differences in the wage differential estimates should persist when controlling for degree of unionization. On the other hand, if the differences are produced by true union effects, they should be eliminated once control for degree of unionization is introduced (again under the assumption of complete spill-over and standardization within establishments). Degree of unionization effects So far the discussion has focused on the union member-non-member wage differential under different hypotheses of selection effects and true union effects, and the degree of unionization of the establishment has been treated mainly as a control variable. I now turn to a more detailed discussion of degree-ofunionization effects. If a significant relationship between the degree of unionization of the establishment and individuals' wages is found, one possible explanation is that strong unions are able to affect wage-setting at the establishment level, through local wage negotiations or in more indirect ways. However, other explanations also have to be considered. One alternative explanation is that what appears to be wage effects of union strength at the establishment level are spurious and due to differences in the degree of unionization among industries. For historical and other reasons, heavily unionized firms are likely to be concentrated in particular industries. Moreover, industries are important units in the wagedetermination process, and there are considerable wage differences between industries (Dickens and Katz, 1987; Barth and Zweimiiller, 1991). In order to distinguish between industry and establishment-level union effects, the models are estimated both with and without control for industry (represented by a set of dummy variables). If establishment-level effects are spurious and due to processes at the industry level, they should disappear once control for industry is introduced. As noted above, the union-non-union wage differential has been found to be larger for bluecollar than for white-collar employees. Le Grand (1989), for instance, finds a very small 2 per cent union membership effect for Sweden when bluecollar and white-collar employees are included in the same regression analysis. However, if separate analyses are carried out for blue-collar and white-collar employees, there is a positive union-non-union wage differential of 8 per cent for the former group, and a negative differential of - 6 for the latter. The negative differential could be due to the type of selection effects discussed above. However, if the hypothesis of selection effects is rejected, the alternative hypothesis is that the degree of unionization of

7 the establishment has different effects for bluecollar and white-collar wages. An obvious explanation is that blue-collar unions are generally stronger than whitecollar unions, or that blue-collar interests are more strongly represented within combined blue-collar-white-collar unions. Freeman and Medoff (1984) argue that unions reduce the total wage dispersion in the society in several ways, one of which is to increase wages more for bluecollar than for white-collar employees. But blue-collar and white-collar wages may also influence one another. Positive spill-over from blue-collar to white-collar employees (or vice versa) would probably serve to reduce group differences in the estimated degree of unionization effect. 6 Negative spill-over, on the other hand, would imply that strong blue-collar unions have a negative impact on white-collar wages. Blue-collar dominated unions may have preferences not only about absolute wage levels, but also about relative wages or wage dispersion. In Sweden, the reduction of white-collar-bluecollar wage differentials has been on the union agenda since the mid-1960s (Hibbs, 1991). Similar preferences for relative and not only for absolute wages seem to characterize Norwegian unions as well, particularly in the public sector (H0gsnes, 1989; Hanisch and H0gsnes, 1988). With regard to the United States, Freeman and Medoff (1984: 156-8) conclude that bluecollar unions generally have little effect on white-collar wages. They nevertheless cite anecdotal evidence of negative spill-over effects, i.e. firms rescinding proposed wage increases for white-collar employees due to negative bluecollar reactions. With the more strongly egalitarian ideology of Swedish and Norwegian unions, negative spill-over could be more common in these countries. In discussing Swedish wage determination, Elster (19896) argues that in the 1983 negotiations the metalworkers' union was actively trying to keep white-collar wages down and succeeded in doing so. In Norway officials of the employers' association (NHO) have on several occasions attacked member firms for providing excessive wage increases for higher-level white-collar employees such as engineers; most recently this was done by the managing director of the NHO, EUROPEAN SOCIOLOGICAL REVIEW 115 Mr Glad, in the autumn of The more or less explicit argument is that such increases make blue-collar unions more aggressive. To the extent that negative spill-over occurs, one may find that the degree of unionization has a negative effect on white-collar wages. However, union preferences for a reduced blue-collar-white-collar differential is not strictly necessary for the degree of unionization to have a negative effect on white-collar wages. Even if blue-collar-dominated unions have no interest in white-collar wages as such, whitecollar wage increases could be interpreted as an index of the firm's ability or willingness to pay. If so, a high degree of unionization may make employers work harder to keep white-collar wages down. MODELS AND DATA Model specifications Union-membership effects are estimated by regressing wages on a union membership dummy, controlling for relevant characteristics of the employee, his or her job, and establishment. Since the union effect is expected to differ between blue-collar and white-collar employees, I include interaction terms for occupation with union membership: ln( W) = 0 O + 0, U+ $ 2 L (1) W is wage per hour, U is union membership, L and H are dummies for the lower and medium/upper white-collar groups, and the X\ are control variables. The use of the logarithmic transformation of the wage variable is advantageous on several grounds; it facilitates comparison with other work in the field, gives a direct measure of relative wage differences, and reduces the skewness of the wage variable (Petersen, 1989). In addition to standard human capital variables (years of schooling, labour-force experience, experience squared, and seniority), sex, and big city labour-markets, the set of control variables includes the following job characteristics: managerial or supervisory work, number supervised, night or shift work,

8 116 UNION-NON-UNION WAGE DIFFERENTIALS part-time work, piece-rates, unpleasant working conditions, polluted air, and being responsible for other people's lives (e.g. bus drivers or airline pilots). All these job characteristics can be expected to be compensated by higher wages. With regard to organizational variables there is a clear need to control for establishment size: unionization increases with size, and there is also considerable evidence for a positive relationship between size and wages (Villemez and Bridges, 1988). In the more elaborate model discussed below I also control for industry. Since the wage-determination processes are quite different in the private and public sectors, all analyses are carried out separately for the two sectors. To take degree-of-unionization effects into account, the above equation is augmented as follows: ln( W) = (2) where D is the degree of unionization in the establishment, and the other variables are explained above. According to this model, ln(w) is expected to vary as a function of union membership, and the union-membership effect is allowed to vary among blue-collar, lower white-collar, and medium/upper white-collar employees. Similarly, a degree of unionization effect is specified, and this effect, too, is allowed to differ among the blue-collar and the two white-collar groups. In estimating union-membership effects I have not distinguished between the different union confederations in the Norwegian labourmarket. All confederations are thereby assumed to have the same impact on the wages of their members. 7 It is much more difficult to think of a unitary degree-of-unionization effect. The three union confederations generally represent different occupational groups in a firm, and it is not reasonable to expect a blue-collardominated union and a white-collar-dominated union to have similar effects on blue-collar and white-collar wages. Ideally, one would estimate a separate degree-of-unionization effect for each of the three confederations. Due to the limited sample size this specification is not used here. I focus instead on the impact of the dominant union confederation, the LO. The degree-ofunionization variable is defined as the proportion of the employees that are members of this confederation. 8 The inclusion of organizational characteristics in an individual-level model raises some methodological issues. This type of contextual analysis has met severe criticism (Hauser, 1974; see also Erbring and Young, 1979). The main argument seems to be that the mechanisms by which the dependent variable is influenced by the contextual variable are not properly specified. In Hauser's (1974) words, 'social telepathy' seems to be needed. I have no difficulty in agreeing that mechanisms are often poorly specified, but this is not fundamentally different in a model with only individual-level variables. The mechanisms creating wage differences between men and women are not inherently easier to specify than the mechanisms leading to wage differences between workers in establishments with weak and strong unions. In the present context, however, the inclusion of organizational level variables raises another problem. There is much less theory to guide the selection of organizational level variables. Obviously, the choice of establishment size, proportion unionized, and industry rests on no firm theoretical footing, and the danger of seriously mis-specifying the model is considerable. The inclusion of industry dummies can be seen as a basically atheoretical approach to dealing with this problem: we do not know enough to develop a good structural model of organizational effects on wages, but many potentially important variables are likely to correlate with industry. Controlling for industry should therefore reduce potential biases. (As argued above, control for industry also has more direct theoretical relevance, since it provides an indication of the relative importance of establishment-level and industry-level degree-ofunionization effects.) The analyses are carried out in three steps. First, equation (1) is used to provide estimates of the individual-level union member-nonmember differentials which are directly comparable to previous work in the field. Second,

9 equation (2) is estimated, giving degree-ofunionization estimates as well as showing the member-non-member differential when the degree of unionization is controlled. In the third step, control for industry is added, thereby making it possible to see whether estimated degree-of-unionization effects are due to differences between industries. Data Data are taken from the 1989 Survey of Organizations and Employees. Using public registers, a sample of establishments with two or more employees was first drawn, stratified by sector (private and public), industry (2-digit ISIC), and size. Within each establishment, a sample of employees was then randomly selected. Employees were sampled with probability proportional to the square-root of establishment size. Interviews were carried out with the sampled employees and with the TABLE 2 Variable definitions and descriptive statistics Continuous variables: LWAOE: Ln(wage per hour) EXP: Labour-force experience, years SENIOR: Firm-specific seniority, years SCHOOL: Schooling, years beyond compulsory LNNOSUP: Ln(number supervised) 1 LNSIZE: Ln(establishment size) UNPRO: LO members as proportion of establishment work-force Dummy variables: SEX: Female =1 LWC: Lower white-collar = 1 UWC: Medium/upper white-collar = 1 SUPER: Supervisor/manager = 1 NIGHT: Night work (including shift work) PART: Part-time (less than 30 hours per week) PIECE: Piece-rate =1 CEN'l'K: Six major cities with surrounding areas = 1 WC0ND1: Exposed to polluted air at work = 1 WC0ND2: Other forms of poor working conditions = 1 RESPON: Job errors may put others in danger = 1 UNIONM: Union member = 1 EUROPEAN SOCIOLOGICAL REVIEW 117 establishment's Chief Executive Officer (CEO). With response rates of 87 and 77 per cent, respectively, interviews were obtained with 883 CEOs and 4494 employees. 9 Variable definitions and descriptive statistics for all variables (except industry) are given in Table 2. Industry codes are based on register data. Information on establishment size and degree of unionization is based on the CEO interview. All other variables are based on the employee interviews. 10 THE INDIVIDUAL-LEVEL UNION-NON-UNION WAGE DIFFERENTIAL Results for the private and public sectors are presented in Table 3. In the private sector there is a significant, but very small 4 per cent unionnon-union differential for blue-collar workers. The wage differential differs significantly by occupational category, and for lower and particularly medium/upper white-collar Mean Private sector St.dev Mean Public sector St.dev Mean and standard deviation for those supervising at least one person.

10 118 UNION-NON-UNION WAGE DIFFERENTIALS TABLE 3 Ln(wage) as a function of union membership, human capital, job characteristics, and establishment size CONSTANT SEX EXP/10 (EXP) 2 /100 SENIOR/10 SCHOOL SUPER LNNOSUP NIGHT PART PIECE CENTR WCOND1 WCOND2 RESPON LNSIZE LWC UWC UNIONM LWC UWC R 2 N b 1 Private! sector s" O3O5 c c.0249 t b' Public sector s b "Unstandardized regression coefficient. "Coefficient's standard error. 'Interaction of occupational category with union membership is significant at.05 level (F-test, 2 df). employees the effect of union membership seems to be close to zero or even negative. In the public sector the union-non-union wage gap does not vary significantly between the occupational categories, although the estimated interaction effects suggest a smaller union effect for the white-collar groups. The estimated union effect for blue-collar workers is 9 per cent or about twice as high as in the private sector, however, the difference between sectors is not significant. These results confirm the expectation of small union effects in Norway. With regard to its overall magnitude, the union-membership effect is consistent with the Swedish estimates reported by Le Grand (1989). However, the results diverge considerably from Colbj0rnsen and Kalleberg (1988). There is no single, obvious explanation for this divergence. The data were collected seven years apart, but it is hard to believe that the union effect has changed that strongly during these years. Differences in model specification is another possibility, but experimentation with different specifications (including most of the variables used by Colbj0rnsen and Kalleberg), indicates that the results are not strongly dependent upon the particular specification chosen. Sampling error could at least in part be responsible for the divergence. By far the strongest union effect in Colbj0rnsen's and Kalleberg's study was found for women (29 per cent versus 10 per cent for men), but the number of women analysed was only 484. The present study confirms the hypothesis that the union-membership effect is stronger for blue-collar than for white-collar employees, at least as far as the private sector is concerned. However, the expectation of stronger effects in the private sector is not confirmed. Possible explanations are discussed below. In both sectors the coefficients for the other variables generally have the expected signs and most are significant. It may be noted that the coefficient for the lower white-collar category is negative; this is not surprising since this group includes low-paid service workers. The indicators of poor working conditions also have wrong-signed coefficients, and provide no support for theories of 'compensating differentials' (cf. Brown, 1980; Leigh, 1991). DEGREE-OF-UNIONIZATION EFFECTS Table 4 shows the results obtained when the degree of unionization is added to the wage equation. In the private sector, the unionmembership effects are reduced by more than half, and are no longer significant. This is consistent with the hypothesis of strong spillover and standardization effects within establishments. In the public sector, however, the degree of unionization has little impact on the estimated individual-level membership effects. Persistence of the individual-level effects contradicts the spill-over and standardization hypotheses, but is consistent with theories of selection effects.

11 EUROPEAN SOCIOLOGICAL REVIEW 119 TABLE 4 Lnfwage) as a function of union membership, extent of unionization, human capital, job characteristics, and establishment size Private sector Public sector Model A Model B Model A Model B b" s b b" s b b' s b b" s b CONSTANT SEX EXP/10 (EXP)V1OO SENIOR/10 SCHOOL SUPER LNNOSUP NIGHT PART PIECE CENTR WCOND1 WCOND2 RESPON LNSIZE LWC UWC UNIONM *LWC UWC UNPRO *LWC UWC R 2 N = C c C C C MJnstandardized regression coefficient. 'Coefficient's standard error. 'Interaction of occupational category with union membership/degree of unionization is significant at.05 level (F-test, 2df). Note: Model A: without control for industry; Model B: with control for industry. For the higher white-collar group the degree of unionization effect is significantly less than zero.'' Although the effects are slightly weaker, the same pattern of results is found in the private sector. The significant interaction effect means that in establishments with strong unions, blue- collar workers get a relatively larger share of the wage bill. The positive degree-of-unionization effect for blue-collar workers is not significantly different from zero. However, the negative In both the public and the private sectors, including the degree of unionization and interactions between the degree of unionization and occupation adds significantly to the fit of the model (/?=.02 andp=.01 respectively). In the public sector, union strength has a significant, positive effect for blue-collar workers. Consistent with the hypothesis of negative spill-over effects, there is a strong interaction effect, so that for the two white-collar groups the estimated degree of unionization effect is negative,

12 120 UNION-NON-UNION WAGE DIFFERENTIALS effect of the degree of unionization on higherlevel white-collar wages is clearly significant. 12 Controlling for industry reduces most of the estimated coefficients, but only slightly. The interaction effects remain significant in both the public and private sectors. The degree-ofunionization effect seems to operate mainly within industries: among establishments engaged in much the same kind of production, establishments with a high degree of unionization tend to redistribute wage payments away from medium and upper white-collar employees towards blue-collar workers. There seems to be a true establishment-level (or firm-level) effect. 13 The private-sector results provide considerable support for the standardization and spillover hypotheses. The individual-level union member-non-member differential more or less disappears when controlling for the degree of unionization of the establishment. And the establishment-level effect does not seem to be due to differences between industries. There is also evidence of negative spill-over effects. The degree of unionization has a positive, but not significant effect on blue-collar wages. The effect on higher white-collar wages, however, is significantly negative. In other words, not only is the wage difference between blue-collar and higher white-collar employees smaller in strongly unionized establishments; the wage level of the latter group is also lower in absolute terms. Controlling for industry confirms that this is not due to differences between industries. The public-sector results are less consistent with the theoretical framework outlined previously. First, and contrary to what has been found in some other countries, the union member-non-member differential tends to be larger in the public than in the private sector. Second, and contrary to the within-establishment spill-over and standardization hypothesis, the differential is not markedly reduced by controlling for the degree of unionization at the establishment level. Third, the degree of unionization seems to have at least as strong effects on wages in the public as in the private sector. The next section discusses possible explanations for these unexpected findings. THE PUBLIC SECTOR: SELECTION EFFECTS AND EGALITARIANISM? The persistence of the union-membership effects when controlling for the degree of unionization could be taken as evidence that withinestablishment spill-over and standardization effects are weaker in the public sector. At least two factors speak against this interpretation. For one thing, wage bargaining is more centralized in the public sector, and the opportunities for the determination of wages at the establishment level are more restricted. Second, overall wage differences between establishments are smaller in the public sector (Barth and Mastekaasa, 1992). An alternative explanation for the both relatively strong and non-disappearing individuallevel union-non-union differential is that selection effects are stronger than in the private sector. One indication that the selection process might differ between the sectors is the fact that the overall level of unionization is so different: 85 per cent of employees are union members in the public sector, only 50 per cent in the private sector. As shown in Table 1, the differences for white-collar employees are even more dramatic. Further evidence is provided by the fact that in the public sector supervisory or managerial responsibility is positively associated with union membership (93 per cent of supervisors/ managers are union members, 80 per cent of other employees), whereas there is a weak trend in the opposite direction in the private sector (46 versus 51 per cent; results not shown). These observations show that in terms of observed personal and job characteristics, there is a stronger positive selection for union membership in the public sector. However, this is only indirect evidence of the stronger positive selection in terms of unobserved characteristics needed to account for the persistence of the member-non-member differential in Table 3. Selection effects nevertheless provide a logically consistent and reasonable explanation of two of the unexpected findings mentioned above, a relatively large public-sector union-non-union differential, and the non-disappearance of this differential when controlling for the degree of unionization within the establishment.

13 However, other explanations are needed to account for the third anomalous finding, i.e. the relatively strong degree-of-unionization effects in the public sector. Centralization, spill-over, and standardization effects should be stronger in the public sector and serve to reduce not only individual-level union-non-union differentials, but also establishment-level degree-ofunionization effects. It may be noted that the estimated standard errors are fairly high in the public sector; the estimates are considerably less reliable here than in the private sector. This is partly due to the smaller sample size, but also to the more uneven occupational distribution and lower variance in the extent-of-unionization measure. Nevertheless, it is extremely unlikely that the observed pattern is mainly due to random errors. As noted previously, there is some wage drift even in the public sector, operating through socalled 'adjustment bargaining', the redefinition of jobs, and similar mechanisms. Nevertheless, there is clearly less wage drift in the public than in the private sector. In particular, there is no formal system of local wage-bargaining like that found in the private sector, although publicsector unions may be able to influence wagesetting at the establishment level in more informal ways. Public-sector unions thus probably have less opportunity to influence wage dispersion at the establishment level, but they may take a greater interest in doing so. Public-sector unions seem to be more egalitarian; at least they tend to rely more strongly on relative wage arguments and group comparisons in wage negotiations (H0gsnes, 1989). Strong preferences for relative positions could be one of the main factors behind the seemingly strong negative spill-over effects in the public sector. CONCLUSIONS AND IMPLICATIONS The analyses presented in this paper confirm the widespread belief that the union-non-union wage gap is small in Norway, and the privatesector results support the hypothesis that withinestablishment spill-over and standardization effects remove more or less completely the EUROPEAN SOCIOLOGICAL REVIEW 121 union-non-union differential. I interpret the larger differential in the public sector as being due to selection effects. Strong unions seem to reduce wage differences between blue-collar and white-collar workers, not only or even primarily by raising blue-collar wages, but also by restricting whitecollar wage drift. The unexpected finding that the degree-of-unionization effect is equally strong in the public as in the private sector could be due to stronger feelings about relative wage positions in public-sector unions. The analyses also provide additional insight into why smaller positive or even negative union-non-union wage differentials are found for white-collar employees. Selection effects do not seem to be the main reason. Unionized white-collar employees tend to work in establishments with a high degree of unionization, and may therefore suffer from negative spill-over effects. There is still a possibility that the degree-ofunionization effects could be due to some unobserved organizational characteristic. In particular, I have not been able to control for the occupational composition of the establishment. Irrespective of the degree of unionization, blue-collar interests could be more influential when blue-collar workers make up a large proportion of the total number of employees of an establishment. If that were true, however, it is surprising that the estimated unionization effects are so little affected by control for industry, since there is strong variation in occupational composition between industries. All in all the results presented here provide considerable support for the idea that unions do affect within-firm wage distributions, and that the union influence is not limited to firms with local-level wage bargaining. More detailed examination of such degree-of-unionization effects is needed, but would require larger sample sizes than were available for the present study. In this paper I have concentrated on the relationship between occupational categories and wages. Occupational position is, however, closely related to level of schooling. One implication of these results, therefore, is that the extent of unionization must also affect

14 122 UNION-NON-UNION WAGE DIFFERENTIALS returns to education. Union influence at the firm level is therefore likely to be one of the reasons why returns to schooling are comparatively low in Norway (Westergard-Nielsen et al., 1992). NOTES 1. Blanchflower and Freeman (1992) argue that the causal influence runs mainly in the opposite direction. If the union-non-union wage differential is large, employers have a stronger incentive to fight unionization. 2. Union-non-union wage gaps are generally estimated by the following type of equation: ln(w) = /3 0 + /3,t/+Ea 1 A' 1 +v, where W is hourly wage, U is a dummy for union membership, the A", arc a set of control variables, and v is an error term. The percentage difference between unionized and non-unionized workers can then be calculated as [exp (0,) - 1 ] * The survey data on which Table 1 is based is described below. For the sample as a whole the percentage of union members is 61. Calculations based on membership registers in the various organizations yields a percentage of 57 (Fennefoss and Stokke, 1991). In view of the fact that the sample survey is limited to establishments with at least two employees, the discrepancy between these numbers seems moderate. 4. A higher degree of unionization in the public sector is found in all six countries analysed by Blanchflower and Freeman (1992). They also report a fairly small difference between manual and non-manual employees; the unweighted six-country averages are 53 and 40 per cent, respectively. Averaging numbers for lower and higher white-collar employees and for the public and private sectors in Table 1, yields 65 per cent for blue-collar and 61 per cent for white-collar employees. 5. Ministry of Consumer Affairs and Government Administration, Directorate of Personnel, Wage Statistics 1979 and This would be true if spill-over leads to similar relative wage increases for blue-collar and white-collar employees. On the other hand, similar absolute wage increases would reduce relative wage differences. 7. Since the effect of union membership is allowed to vary between occupational groups dominated by different union confederations, some variation in the effects of the various union confederations is indirectly included in the model. 8. I also estimated models including measures of the strength of the two other confederations, as well as models with all three degree-of-unionization variables included simultaneously. There was no indication that these additional variables had any effects. 9. In the present study establishments are defined by having a specific owner, belonging to a specific industry, and being located in a single municipality. With a few exceptions, mainly in the public sector, an establishment thus corresponds to a physical location. Whether firms or establishments are the most important organizational units in studies of wage determination is not obvious (Granovetter, 1984; Villemez and Bridges, 1988). In the present data, 63 per cent of the sampled privatesector establishments are single-establishment firms, and a further 16 per cent are main establishments in multi-establishment firms. Variables defined at the establishment and firm levels are likely to be highly correlated, and the empirical results would probably be similar if firm-level variables had been used instead of establishment-level variables. However, when both levels are not studied simultaneously, we are not able to decide whether empirical relationships are due to processes at the establishment or firm levels. 10. The occupational classification into blue-collar, lower white-collar, and higher white-collar is a simplification of the standard Norwegian socio-economic classification (Central Bureau of Statistics of Norway, Standard Classification of Socio-Economic Status, 1984). In the original classification white-collar occupations are grouped into four categories mainly determined by statistics on the average occupational training of the employees in the 1980 census. In the present analysis the 'lower medium', 'upper medium', and 'higher' white-collar categories are collapsed into a single medium/higher category. The two workingconditions variables (WCOND1 and WCOND2) are based on a series of items inquiring about various hazardous or unpleasant working conditions. WCOND1 and WCOND2 distinguish between employees mentioning at least one problematic working condition and those mentioning none. 11. The f-value for the hypothesis that the sum of the coefficients for UNPRO and UNPRO*HWC is zero, is The t-value for the hypothesis that the sum of the coefficients for UNPRO and UNPRO*HWC is zero, is As an additional check on the robustness of the results, I estimated separate models for blue-collar and lower and medium/upper white-collar employees; i.e. allowing not only the effects of union membership and degree of unionization but also the effects of all other independent variables (including industry) to be different for blue-collar and white-collar employees. The main results are virtually unchanged. The estimated extent of unionization effects are.030 (s.e..035) and (.021) for blue-collar and white-collar employees, respectively. The difference between the estimates is significant at the.05 level (f = 2.13). ACKNOWLEDGEMENTS I am grateful to Geir Hpgsnes, Hege Torp, and to ESR reviewers for useful comments on earlier drafts. REFERENCES Adams J S. 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