What do unions do? - Springer Link

What Do Unions Do ?aEvaluation and Commentary BRUCE E. KAUFMAN*

Georgia State University, Atlanta, GA 30303

I. Introduction To conclude this symposium, we (the editors) thought it useful to have several people from diverse backgrounds take the preceding papers as input, add to them their own perspectives, and provide a broad-ranging review and evaluation of Freeman and Medoff's What Do Unions Do? (WDUD, 1984). Toward this end, the papers in this part of the symposium provide, respectively, an academic, a management, and a labor perspective. The positions taken by each author, of course, are their own and do not necessarily represent the views of others. Ending the symposium is a paper by Richard B. Freeman in which he assesses how the theory, findings, and policy recommendations of WDUD look after 20 years and also a response to points made by the various contributors to this symposium. My paper assesses WDUD from an academic perspective. As noted in the Introduction article to this symposium (Bennett and Kaufman, 2004), WDUD is a widely acclaimed work on trade unions and, in our view, the most influential book on the subject written in several decades. Having re-stated this important accolade, the remainder of my paper reviews and evaluates WDUD. I start with issues of theory, then I review empirical evidence on what unions do, and finally, I consider national labor policy regarding unions. The most important conclusions I reach are fourfold: Freeman and Medoff (F&M) are correct that unions have both pluses and minuses on the social balance sheet, but in WDUD they tend to overstate the former and understate the latter; the economic environment since WDUD was written has changed in ways that on net increase the minuses and reduce the positives for unions; the theory and evidence in WDUD (and later research by Freeman) provides a relatively weak case for a substantial expansion of union density through policy reform but, paradoxically, provides a much stronger case for a substantial expansion of alternative forms of employee representation and voice; and in theorizing about unions the more narrowly economic and orthodox (neoclassical) the framework the more inevitable is a negative verdict on unions. II. Theory The most novel and path breaking aspect of WDUD is the detailed empirical estimation of the non-wage effects of unionism (Freeman, 1992: 45). But also noteworthy is the JOURNAL OF LABOR RESEARCH

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new theoretical model of unionism presented by F&M who call this model the "two faces of unionism." One face is the negative monopoly side of unionism; the second face is the positive voice/institutional response side. Neither are analytically developed but are used more as a conceptual framework for generating implications and structuring the empirical work. Nonetheless, the two faces theory is widely cited and utilized (Turnbull, 2003; Blanchflower and Bryson, 2004). The thesis of WDUD is that the positive voice/institutional response face outweighs the negative monopoly face, implying unions on net contribute positively to economic and social welfare. Nissen (2003) describes this as a theory of "value-added" unionism and distinguishes it from "social movement" unionism. Intellectual Context and Constraints'. A fair and informed evaluation of the theory in WDUD is facilitated by brief consideration of the intellectual context and constraints within which it was written. This review also provides an entr6e to establishing my fourth point listed in the introduction. First, it must be recognized that WDUD was developed largely in a North American context and from the disciplinary perspective of economics. Although at a broad level both the theory and empirical analysis in WDUD are relevant to other types of industrial relations systems, in main outline the book is about American-style business unions in an institutional framework of Wagner Act legislation and decentralized bargaining. Likewise, both authors are economists, and thus the intellectual orientation of the book, while broadly conceived, is toward economic questions, models, and methodology. As Freeman (1992) has noted, the book is also largely a-historical. Second, one must appreciate that F&M took on a very difficult intellectual mission in WDUD. Their task was twofold: first, to present theoretical arguments showing that labor unions can on net promote economic efficiency and, second, do so in a way that is respectable and credible among mainstream economists. This is not an easy needle to thread, In building a positive theoretical (and empirical) case, F&M were not starting out de novo. The institutional economists of the Wisconsin School and neo-institutional economists of the 1940s-1950s (e.g., Dunlop, Kerr, Lester, Reynolds, and Ross)--a group Johnson (1975) in a well-known review article on unions refers to as comprising the "old labor economics"--had written extensively on unions for over eight decades (Kaufman, 1988, 2005a). This literature, while largely non-formalized, put forward three propositions that support the major thesis advanced by F&M. The first proposition advanced by the old labor economists is exactly what F&M claim in WDUD: that unions have not one face but t w o - - a n economic bargaining face and a political voice face. Sumner Slichter (1939: 122), a predecessor of F&M at Harvard, observed for example, "Collective bargaining has two principle aspects. First, it is a method of introducing civil rights into industry; that is, of requiring that management be conducted by rule rather than by arbitrary decision. Second, it is a method ofprice-fixing--fixing the price of labor." Earlier, John Commons (1913: 121) described

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the economic goal of unions as wealth redistribution, aggrandizement, and protection and the political function as constitutional government in industry. The second proposition advanced by the old labor economists that seems to promote F&M's cause is that labor markets are not appropriately modeled as competitive (in the neoclassical sense). John Dunlop, a colleague of F&M at Harvard, declared for example (quoted in Kaufman, 2002: 338), "I reject out of hand any argument that the economy would be better off without unions. Unions do not come into the picture and distort some 'perfect' wage structure, because there is no such thing. In the real world there are all kinds of distortions and inequities built into the wage structure, as any person who has set wages knows. To assume in a model that wages are 'competitive' is to assume away a large part of the problem." The third proposition the old labor economists advanced was that because nonunion labor markets are imperfectly competitive one cannot assume a priori that unions have a negative effect on resource allocation and firm performance. Conclusions, therefore, have to be based on detailed empirical analysis. Thus, in The Structure of Labor Markets (1951: 223) Reynolds concludes from his empirical research that competitive forces are "weaker and less effective [in labor markets] than they are in most commodity markets," leading him to observe (p. 256) "the effects of collective bargaining (and other labor market institutions) can be discovered only by patient investigation of concrete situations" and (p. 260) "Whether the results of collective bargaining are better or worse than those of unilateral wage administration by e m p l o y e r s . . , is basically a problem for empirical study." One must conclude from these quotations that there is a long line of work in labor economics not only consistent with the position taken by F&M in WDUD but in fundamental respects antecedent to it. F&M chose to downplay these connections, however. They make occasional reference to supporting arguments by "industrial relations experts" and in several places in the text and endnotes cite individual authors or works from the old labor economics. In general, however, WDUD is positioned independent from this older tradition and, indeed, independent of nearly any historical context regarding unions. Perhaps of equal or greater substantive importance for their argument, F&M also in large part abandon one of the three central propositions of the old labor economics. That is, F&M start from page one with the assumption that labor markets are competitive, at least regarding the wage (monopoly) face of unions. To the uninitiated it might seem strange for proponents of greater unionism to immediately cede half the argument to the critics. This is particularly so since around the time WDUD was written Freeman also wrote two lengthy reviews of the old labor economics literature (Freeman, 1984, 1988) and concluded in the first (with specific reference to Reynolds' book) that it was "on target in its picture of the labor market" (p. 219). But this puzzle introduces one of the major constraints facing F&M: presenting a positive case for unions that is credible to and respected by mainstream economists. As Johnson (1975) observed, the labor economics field at that time was in the midst of transitioning from the old labor economics to what he called the "new labor

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economics." The new labor economics had its intellectual home at the University of Chicago and found its theoretical inspiration in neoclassical microeconomics and the work of economists such as Friedman, Stigler, Lewis, and Becker. The hallmark of the Chicago approach is a thorough and uncompromising application of the tools of microeconomic theory to any and all issues. At its core, in turn, is the presumption that markets are highly competitive, prices are parametric to individual economic agents, and resources are efficiently allocated (Reder, 1982; Lazear, 2000; Kaufman, 2004b). Also part of the Chicago approach is a strong strain of disciplinary imperialism that permits inclusion of nonmarket concepts and behaviors only as long as they are nested within the maximizing benefit/cost framework. Freeman taught at Chicago, and when he and Medoff were writing WDUD, the new labor economics had largely displaced the old version. The latter's decline is traceable to a number of factors but, according to Johnson (1975), the most important is methodological. He states (p. 23), for example, "the resultant theory of wages and income distribution was not very satisfactory, and perhaps more importantly, it [the old labor economics] could not be readily integrated into the mainstream of the discipline." The mainstream of the discipline, in turn, is microeconomic price theory with competitive markets at its core. The upshot is that if F&M wanted WDUD to get a serious hearing in the seminar rooms at Chicago and Harvard and among the readers of the Journal of Labor Economics, they had to largely disassociate the book from the old labor economics, which by now carried a significant intellectual discount, and present a theoretical model that had solid microeconomic foundations. At this point, however, the intellectual needle becomes very difficult to thread for F&M want on one hand to develop a positive efficiency rationale for unions but on the other are heavily constrained to do so by a theory that starts with the null hypothesis that resources are already efficiently allocated. How can this be done? Here is where F&M creatively, perhaps even brilliantly, get out of the intellectual handcuffs and rescue unions from an otherwise certain "guilty" verdict. Probably estimating (correctly) that a direct assault on the Chicago position is futile, F&M cede to the opposition the claim that unions are labor market monopolies that distort an otherwise competitive wage structure. This becomes the negative monopoly face of unions in their two faces theory. But they then do an end-run on the Chicago position and bring in Hirschman's (197 l) exit/voice model to provide the theoretical core for the positive voice/response face of unions. Hirschman's exit/voice model is a marriage of modern economics and political science in the mold of public choice theory. Using basic microeconomic principles, Hirschman explores the conditions under which organizational mal-performance is most efficiently corrected by market adjustment through exit (e.g., quitting one restaurant and patronizing another) versus an organizational adjustment through voice (e.g., staying at the restaurant and complaining to the chef). Under certain conditions (e.g., positive mobility costs, when quality is important relative to quantity), the voice option is superior to the exit option. With the Hirschman model, F&M can thus allow that unions have negative monopolistic wage effects and yet still win (or neutralize) the efficiency argument by demonstrating in a way that

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passes the "respect and rigor" test among economists that they also have a compensating positive voice effect. So, given these constraints and intellectual crosscurrents, the question is: How does F&M's two faces theory perform as a tool of understanding and prediction with regard to the role and impact of labor unions? My conclusion is that F&M's theory is on balance both innovative and insightful and, more importantly, captures well many facets of union function and performance. Yet, at the same time, it also suffers from some shortcomings and omissions. Here is my evaluation.

The Monopoly Face. F&M do not formally develop the monopoly face of unions. One can reasonably surmise, however, that the baseline model they have in mind is the standard "on the demand curve" model depicted in Figure 1 of my theory paper (Kaufman, 2004a). The basic idea is that in the absence of a union firms pay workers a competitive wage determined by demand and supply in the labor market; when the workers form a union, the union has bargaining power that induces the company to pay workers a higher wage and to also improve other terms and conditions of employment. The main predicted results are higher wages for union workers, a decline in employment and profits in unionized firms, higher prices for consumers, lower wages and employment prospects for nonunion workers, and a misallocation of resources and loss in economic efficiency. In effect, the union wage increase is like a tax that both distorts relative prices and redistributes income with a consequent gain in welfare for organized workers but a more than compensating loss in welfare for other groups and the nation as a whole. F&M accept this picture of the monopoly face of unions without significant amendment. My judgment is that it captures a large and important core of truth. In their economic function unions operate akin to a cartel in the labor market and raise the price of labor through the exercise of market power gained from the strike threat and various other pressure tactics and restrictions. The fact that California janitors recently unionized and increased their pay from (roughly) $8.00 to $11.00 an hour testifies to this fact, as does the fact that unionized senior commercial airline pilots earn an annual salary in excess of $200,000 a year for a flying time of 40 hours a month. The crucial question is whether this rise in the price of labor and the methods used to bring it about benefit or harm the economy and social welfare. Based on the standard "union as a monopoly" model, F&M reach a negative verdict. I believe as a first approximation they are probably correct. But I also believe in the short run they overstate the harmful monopoly effect and, conversely, understate it for the long run. These are important qualifications to any account of what unions do. F&M want to present a more balanced and favorable portrayal of unions, but they largely neglect several considerations regarding the monopoly face that could have significantly aided their cause. F&M cannot, of course, include everything in one book but even modest attention to these considerations could have helped shift the scorecard for unions in a more positive direction. The most important of these factors are the following.

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*Countervailing Power. F&M assume labor markets are competitive and thus employers have no market power over individual employees. Firms are wage-takers; workers can easily quit one job and find another; and the labor market is at a demand/supply equilibrium ("full employment"). But these assumptions may not be true in many circumstances even as a central tendency. Most firms set wages on a take-it-or-leave-it basis and many have significant discretion in pay rates; employees face substantial constraints on mobility due to prospective loss of health care benefits, pensions, and seniority (tenure); and in most years there are more job seekers than job vacancies. Under these conditions, market forces do not fully protect workers, and the terms and conditions of employment may be substandard relative to the competitive ideal of economic theory (Manning, 2003; Turnbull, 2003). In an earlier era this situation was labeled "labor's inequality of bargaining power" and provided the classic public policy rationale for encouragement of trade unions (Commons and Andrews, 1936; Kaufman, 1989, 2005a). That is, collective bargaining is a form of countervailing power that balances the wage determination process ("levels the playing field") and thereby promotes improved economic efficiency and social welfare. In this role union wage increases, at least initially, are not "monopolycreating" but "monopsony reducing," where monopsony is defined very broadly to include any factor that limits competition for labor (Kaufman, 2004a). When F&M portray in WDUD that labor markets are competitive they assume away this classic rationale for unions. *Social Cost of Labor. Union monopoly power can also promote efficiency by ensuring that employers pay the full social cost of labor (Stabile, 1993). Due to market imperfections and tilted legal rules employers may be able to shift some of the cost of labor to workers, their families, and the community. Examples include inadequate compensation for workplace injuries and illnesses, laying-off workers during recession so families and society bear the upkeep and maintenance expense of labor (while employers keep and maintain their capital input), and an intense work pace or long hours that leads to the rapid depreciation of labor but with no obligation on the employer for ongoing financial support after the worker is used up and discharged. *Macroeconomic Stability~Growth. A third way unions can promote efficiency is by stabilizing and expanding aggregate demand in the economy, thereby promoting macroeconomic stability and growth. Unions stabilize aggregate demand by taking wages out of competition and preventing a deflationary downward spiral of wages and conditions during recessions and depressions; they expand aggregate demand in recessions and depressions by redistributing income from employers and shareholders with a lower propensity to consume to workers with a higher propensity to consume (Mitchell and Erickson, 2005). *Threat Effect. Unions may also promote greater efficiency by using the threat of organization to induce nonunion firms to bring labor standards up to a competitive level. Unions in this function are a form of positive externality. F&M mention the threat effect of unions but could have given it more emphasis as a positive contribution of the monopoly face.

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*Labor Is Not a Commodity. On purely social welfare grounds union monopoly power may also yield benefits in a way that F&M do not address. Competitive market theory treats labor as a commodity input such as steel or coal, albeit with a utility function. Although society has no vested interest in whether coal or steel receives a low price, is utilized 24 hours a day in a hot temperature, or is harshly treated by the firm, labor is embodied in people and thus carries a much higher moral significance (Budd, 2004; Kaufman, 2005b). Thus, although competitive trading in labor may promote efficiency and be consistent with a demand/supply equilibrium, from a social viewpoint it is unacceptable and injurious to the public interest to permit child labor or less than living wages or, alternatively, to require that workers "buy" basic human rights (e.g., a measure of job security, respect from the boss) by agreeing to work for a lower wage (Gross, 2003). Because free markets and the quest for efficiency are likely to lead to an under-supply of these social goods and a concomitant over-emphasis on consumers' interests at the expense of workers' interests, a certain degree of labor market regulation and protectionism by unions and other institutions gains social legitimacy.

All of these positive rationales for unions involve their wage-raising function and suggest that the monopoly face of unions may promote rather than harm efficiency and social welfare. Indeed, it was precisely these kinds of arguments that Senator Wagner and a number of well-regarded labor economists (including two from the University of Chicago) used to support increasing union density through passage of the National Labor Relations Act (NLRA, or Wagner Act) in 1935 (Kaufman, 1996, 2005a). Also, union monopoly power seems essential in today's economy if they are to achieve one of F&M's social goals: reducing income inequality. Counterbalancing these positive rationales for the union monopoly face are several negative blemishes that F&M also omit or downgrade. While several of the positive factors operate primarily in the short run, these negative blemishes operate more in the long run. They include the following. * Upward Creep in Wages~Benefits. The standard monopoly model of unions that underlies WDUD predicts that unions lead to a one-time mark-up in the level of wages and benefits (other things equal). But incorporating the median voter model into the monopoly lace suggests the combination of majority voting and layoff by seniority in unions may lead to a gradual upward movement in the union/nonunion labor cost differential as unions nibble their way up the firm's labor demand curve in response to the senior majority's pressure for "more" in each contract negotiation. This upward ratchet may be particularly true for benefit costs because the senior majority of members have a greater preference for benefits and firms may have less resistance to giving them since the costs are often back loaded. Amplifying the upward creep in union labor cost is the fact unions also only give concessions, according to the median voter model, when potential job loss is so large it threatens a majority of the membership. *More Elastic Labor Demand. F&M give considerable attention to the wage impact of unions but relatively little to the employment impact. Had F&M considered employment in more depth they would have had to consider something largely omit-

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ted: the tendency of labor demand curves to become more elastic over time. The issue of labor demand elasticity receives surprisingly modest attention in WDUD, particularly in light of economic events that have undoubtedly made labor demand curves considerably more wage sensitive. Examples include industry deregulation, the globalization of product markets, greater capital mobility, the information/computer revolution, and greater financial market pressure. Some of these developments were already well in sight at the time F&M wrote WDUD but their negative implication for the employment impact of the union monopoly face were not much considered.

*Capital Investment and Productivity Growth. F&M also give relatively little theoretical attention to two other important determinants of long-run economic performance: capital investment and productivity growth. Microeconomic theory suggests that a union wage increase may lead a firm to either increase or decrease capital investment, depending on the size of the scale and substitution effects. However, two other considerations suggest the union impact on capital investment is more likely to be negative (Hirsch, 2004). The first is that the union wage premium acts as a tax on the returns from capital investment; the second is that organized firms are deterred from making long-term capital commitments fearing that the union will appropriate the rents and quasi-rents. Even if unions do not lower the total amount of capital expenditure, they are likely to cause firms to re-direct it toward lower-cost nonunion production facilities in other parts of the country or overseas. For these reasons theory would suggest that unions may well have a negative effect on productivity growth as well, particularly in the union sector. The Voice~Response Face. The second dimension of unionism is what F&M call the voice/institutional response face. The monopoly face is where the undesirable features of unionism reside, the voice/response face is the countervailing positive side of unions. Union voice is exercised at two places: internal firm governance and the national polity. The former is examined here. F&M generate the voice/response face of unions by grafting onto the monopoly model a second channel through which unions affect firm and worker behavior. They call this the exit/voice model, adapted from Hirschman's book Exit, Voice and Loyalty (1971). The central idea is that when workers feel dissatisfied with some aspect of employment they have two modes of adjustment: quit the firm and find a new job that provides superior conditions (the exit option) or stay with the firm and try to solve the problem by talking it over with the employer (the voice option). Two questions may be asked about F & M ' s voice/response model: first, does it provide new and interesting predictions/implications?; and, second, does it provide an accurate and balanced account of what unions do? My assessment is that the scorecard is mixed but on net significantly positive. As with union monopoly power, however, F&M both understate and overstate the benefits and costs of union voice. An earlier reviewer of WDUD observed that part of the explanatory power of F&M's exit/voice theory comes from the median voter model (Mitchell, 1985). He pointed out

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that if the median voter objective function is incorporated into the standard monopoly model, many of F&M's voice/response predictions are just as easily interpretable as union monopoly effects. An example is the hypothesis that collective bargaining will shift labor compensation from wages to benefits. The force of this observation is that the independent contribution of the exit/voice model may be modest. This point is well-taken but I nonetheless think the exit/voice model does make a substantive net addition to the theory of union behavior. The important insight from the exit/voice model is that there is not one mode of coordination and allocation but two----exit into markets and voice through organizations. With two modes of adjustment it becomes both a theoretical and empirical question to assess which mode is the most efficient. As F&M note (p. 8) in the first chapter of WDUD, for example, "The basic theorem of neoclassical economics is that, under well-specified conditions, the exit and entry of persons (the hallmark of the freemarket system) produces a situation in which no individual can be made better off." Viewed from the perspective of institutional economics, these well-specified conditions boil down to a condition of zero transaction cost. With zero transaction cost, using markets is the most efficient way to coordinate and allocate resources since all other governance mechanisms are by implication a higher cost alternative. With positive transaction cost, on the other hand, it pays firms to develop an employment relationship and internal labor market (Williamson et al., 1975). But now labor becomes to some degree immobile, and the exit option thus loses a portion of its effectiveness as a coordinating and allocating device. Furthermore, positive transaction cost also leads to other contracting problems that the market exit option cannot effectively resolve, such as principal-agent problems, contractual opportunism, moral hazard, and adverse selection. And yet another problem, caused by poorly defined and nonseparable property rights, is public goods and externalities in the workplace--the former being particularly emphasized by F&M. Thus, as the exit option loses effectiveness and efficiency another coordinating and allocating device is needed, with the voice option providing such a substitute. Viewed through the lens of transaction cost theory, F&M's two faces theory seems to provide a valuable and illuminating insight. That is, when unions are examined only in standard neoclassical terms of a competitive labor market and the "firm as a production function" it is a near-inescapable conclusion that they harm efficiency. When these assumptions are relaxed in a direction that surely better matches the real world, markets work imperfectly and voice may yield superior results to exit, giving rise to the possibility that unions improve rather than diminish economic (and social) performance. Correlatively, if exit from employment relationships is to some degree a blunt instrument, F&M may well be on solid ground to argue that by reducing quits unions promote efficiency. F&M (p. 164) also cite two other ways unions and collective voice may increase firm efficiency through the voice/response face: "more rational personnel policies" and "reducing organizational slack." These union effects are often omitted in stan-

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dard microeconomic studies of unions on grounds they are either theoretically ad hoc or empirically insignificant. Transaction cost theory again suggests that F&M may well be on the right side of this issue, although they do not analytically develop it in WDUD. The key insight is that with positive transaction cost the labor contract is incomplete and thus subject to the principal-agent problem. Also, labor is not taken to be a commodity, as in the core version of neoclassical theory; rather, labor is distinctly human because it is embodied in people and thus inseparable from the seller. This fact means that the workers' labor power (effort) that goes into the production function is variable, rising and falling with factors such as morale, wage level, job satisfaction, fairness of treatment, and quality of working conditions. Another implication is that the motivation of managers to exert effort and attention to maximizing profit and minimizing cost is also variable. The incomplete nature of the labor contract implies, therefore, that the amount of labor power contributed to production by workers and to maximizing profits by managers can never be treated as a contractual datum determined ex ante to production by supply and demand but, rather, is the variable outcome of a continuous bargaining game within the firm (Malcomson, 1999). Seen in this light, the existence of organizational slack within firms is fully consistent with economic theory and is to be expected in most cases since the interests of managers are seldom fully and completely aligned with or served by the goal of maximum profit. As long as the firm's profits are above the survival level for the firm or managers, they will satisfice with respect to profit by pursuing other valued goals, such as empire building through mergers and acquisitions, rewarding themselves with exorbitant salaries and stock options, and tolerating various inefficiencies and organizational slack. When the workers form a union and collectively bargain, the resulting increase in labor cost may reduce profits to the point where the firm's survival (or managers' career survival) are imperiled, causing management to tighten up and in various ways reduce other areas of cost and improve efficiency (Altman, 2001; Kaufman, 1999a). Earlier called the shock effect in the old labor economics, the net effect may well be that productivity rises enough to offset the increase in union labor cost, resulting in higher wages for workers and more efficient firm performance at the expense of managers who now must forgo discretionary perquisites and concentrate more fully on the difficult job of maximizing shareholders' returns. Similar theoretical support can be adduced for F & M ' s claim about the positive productivity effect of union-induced improvements in firms' human resource management (HRM) practices. The presumption of the standard price theory model of the firm is that the drive to maximize profit causes managers to adopt the most efficient array of HRM practices, leaving no route for unions to improve economic performance. But at least two theoretical reasons suggest this viewpoint is challengeable. The first again stems from the principal-agent problem. A competitive labor market will not have principal-agent problems because of the perfect information and perfect contract enforcement assumptions. But the existence of an employment rela-

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tionship and set of HRM practices implies the existence of positive transaction cost and, hence, the likelihood of principal-agent problems in the firm. With principalagent problems, in turn, managers presumably will in various ways design and enforce the "web of rules" governing the system of workforce governance (of which HRM practices are a subset) so that their self-interest is advanced at the expense of both shareholders and workers. A union, therefore, may well promote efficiency if it uses collective bargaining to change the workplace rules toward a more efficient configuration. The second reason has to do with fairness and workplace morale. The monopoly view of unions F&M criticize provides no analytical room for fairness and morale, at least in the price theory version most economists use to evaluate unions (Rees, 1993). Efficiency is independent of distributional fairness by the fundamental welfare theorem, while the link between fairness, morale, and work effort is typically obviated by the assumption that labor supply is a commodity-like service of a certain determinate quality/quantity. It has long been recognized among practitioners and the old labor economists, and more recently captured in modern behavioral and efficiency wage models by Akerlof (1990) and others, that fairness, morale, and efficiency in the workplace are tightly linked both theoretically and empirically. When employees feel distributive justice has been violated, they deliberately cut back on work effort and shirk on the job in order to re-establish an equilibrium in the wage/ effort bargain. Similarly, when norms of procedural justice are violated, morale falls and dispirited employees exert less work effort. Unions can thus improve workplace productivity, as F&M's voice/response model predicts, by reducing the morale and effort-sapping effects of unfairness and injustice, achieved in part by better HRM policies and practices--including more formal and balanced dispute resolution procedures. So far the thrust of the argument suggests that the positive union voice/response effect on productivity does have a sound theoretical basis. But closer analysis also reveals that the union effect on management and productivity is for other reasons far less likely to be positive. These dimensions of the voice/response face are largely omitted by F&M. The most important concerns the adversarial nature of collective bargaining and its corrosive effect on trust, cooperation, and commitment in the workplace. A central tenet of management thought is that organizations achieve higher performance when, first, the goals of the employer and employees are aligned (a "unity of interest") so all organizational energy is directed toward a common end and, second, when each side has a high degree of trust in the other, thus overcoming prisonerdilemma problems and fears of opportunistic behavior (Miller, 1991; Kaufman, 2003a). Collective bargaining, however, emphasizes divergent interests, creates a conflictive "we versus them" environment, and is prone to communicate to the workers the message that management is frequently not competent or trustworthy. A large question exists, therefore: Is collective bargaining compatible in the general case with a mutual gains, high-performance work model? Framed in terms of Hirschman's model, the question is: Does collective bargaining tend to create or perpetuate what he calls a

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"deteriorated relationship"? One reason for concern is a key construct in Hirschman's theory that F&M largely neglect: employee loyalty. Hirschman posits that workers who feel greater loyalty to the employer will use voice more often and to more constructive effect, yet greater job dissatisfaction and adversarialism in union firms arguably works to corrode employee loyalty (Lincoln and Kalleberg, 1996; Boroff and Lewin, 1997; Luchak, 2003). Heightening these concerns is the political process in unions where competition tbr office may lead candidates to accentuate criticism of the employer and take a militant position toward future bargaining demands, while cooperation with management can quickly become tagged as a sell out (Kleiner and Pilarsksi, 2001). Going further, unions introduce a third party into the employment relationship that may pursue organizational goals counterproductive to firm performance. For example, union locals may have a self-interest in promoting or perpetuating animus and distrust of management in order to maintain membership loyalty and militancy, while at the industry level a national union may insist on a uniform pattern of wages and benefits even if this means certain plants or companies go out of business. F&M omit all of these negative features of union voice. Not only do F&M omit most of these negative aspects of union voice, but they also appear to put management in a contradictory, no-win situation. On one hand, F&M (p. 12) say that it is management's responsibility to say "no" when the union monopoly quest for "more" threatens the economic viability of the firm, yet they also say (pp. 11, 176) that it is management's responsibility to make union voice a "plus" for the firm's economic performance by creating a labor-management climate that is cooperative and relatively conflict free. But are these mandates consistent and mutually attainable, or will cooperation purchase short-term peace at the cost of long-term economic decline? The attention to this point has been on the interaction between worker voice and firm performance. But voice also has other rationales. A central one is to protect and promote workers' interests and, more generally, provide a more democratic form of workforce governance. Although F&M gave this factor more weight than many economists, they arguably could have gone further given their desire to construct a positive case for unions. Viewing firms as production functions and markets as competitive, neoclassical economists typically do not accept the argument that workers need protection from managerial abuse of power or greater democratic rights and channels for voice. Illustratively, Alchian and Demsetz (1972: 777) remark, It is common to see the firm characterized by the power to settle issues by fiat, by authority, or by disciplinary action superior to that available in the competitive market. This is delusion. It has no power of fiat, no authority . . . . Telling an employee to type this letter rather than file this document is like telling a grocer to sell me this brand of tuna rather than that brand of bread. I have no contract to continue to purchase from the grocer and neither the employer nor the employee is bound by any contractual obligations to continue the relationship.

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This is one view (also see Reynolds, 1984). Viewed from the perspective of institutional economics, however, a different conclusion emerges. This theory models the firm not as a production function but as a form of industrial government (or workforce governance). Both the law and operation of markets, in turn, give firms and their owners/managers a power advantage over individual workers. Although the firm and worker are legal equals when bargaining the employment contract (both free to accept or reject), once the contract is consummated the employee is legally mandated to follow the orders and accept the policies of the employer. The law of the employment relationship thus sets up an asymmetrical authority relation in the firm where the employer is the order-giver and the worker is the order-taker. But, as Alchian and Demsetz argue, employers are restrained in their use of this power by competitive market forces and reputational concerns, implying the authority advantage given to the employer by the law may be empty of substantive content. But for an employment relationship to exist there must be positive transaction cost, implying labor markets are imperfectly competitive. Market forces and the threat of quitting are thus imperfect protectors of workers' rights and interests--especially so when in many years involuntary unemployment exists and firms have an excess supply of job seekers. In such a situation, and without government or union regulation, the workplace can become a form of industrial autocracy with only weak checks and balances, no forum for voice by the worker "subjects," and modest or no protection of due process for employees in disputes over termination, discipline, and other such matters. Of course, for business and philosophical reasons some (perhaps many) employers exercise their power with some enlightened paternalism and professionalism, but others-more pressed by economic survival pressures or less constrained by humanitarian ethics--manage employees in an oppressive, unjust, and inhumane manner. To correct this power imbalance, institutionally oriented labor economists have favored unions as one method to bring greater democracy to the workplace (Turnbull, 2003; Budd, 2004; Kaufman, 2005a). Doing so, they believe, leads (within bounds) to more of both efficiency and fairness, given the complementary link between the two as previously described. A relevant example is the decision of Harvard clerical workers to unionize because they lacked voice and influence and their use of collective voice to generate win-win outcomes for workers and the employer (Hoerr, 1977). F&M fall somewhere in the middle of these two viewpoints, but their model of and justification for voice are in certain respects heavily neoclassical. In places F&M cite the positive role of unions in democratizing the workplace and protecting workers from arbitrary management authority. These aspects involve a shift of power and rights from capital to labor. But these considerations are secondary to their argument. Instead, as pointed out earlier, F&M justify union voice on other grounds: correcting a public goods problem in the supply of workplace conditions, employment terms that better match majority preferences in the workforce, and a reduction in wasteful employee quits. What all three have in common is that the positive function of voice originates from improved communication and information in the workplace.

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I personally find all three explanations insightful and to some degree persuasive. But there are also several problems with this scenario. The first is that F&M largely treat union voice and union power as separable constructs and, further, portray the former as good and the latter as bad. With respect to separability, one may ask: Can union voice be effective without some collective power to force the employer to not only listen but also act? For example, is it not through the exercise of power that unions gain the accoutrements of voice cited by F&M, such as seniority and grievance systems, and is it not union power that prevents the employer from unfairly firing or disciplining workers? More generally, can industrial democracy be more than an empty slogan if unions do not have the power to force the firm to give workers new rights, representation, and due process? And, if it is granted that unions need power to effectuate voice, then how is it possible conceptually or practically to separate the exercise of power to improve wages from the exercise of power to improve treatment? Finally, the thrust of my remarks in the previous section was to argue that F&M paint an unduly negative portrait of unions' short-run monopoly face by assuming a priori that it always harms economic efficiency. My contention here is that they sin in the opposite direction with the union voice face. F&M portray union voice as an almost unambiguous plus for economic/social welfare. But just as union wage raising can be good for welfare (rather than uniformly bad), so too can union voice be bad (rather than uniformly good). For example, F&M assert that union voice benefits efficiency by lowering quit rates. But this argument is far from ironclad. A problem is that F&M do not address what is the optimal level of quits in the labor market, but without knowing this datum it is impossible to determine the plus or minus effect of unions. Furthermore, they assume that the level of quits in a nonunion labor market is excessive, but this is by no means self-evident. After all, if labor markets are competitive, is not the quit level already at its efficient level? Equally serious, F&M do not consider that unions could reduce the quit rate below the optimal l e v e l - - a n omission exacerbated by their tendency to emphasize the benefits of reducing quits but neglect the costs. In this regard, unions may lower quits but they may do so by making it very difficult for firms to induce the "deadwood" to voluntarily leave. Firing the deadwood also becomes more difficult. Similar considerations apply to other dimensions of the union voice face. If union seniority systems are good for efficiency, one must ask: Why do most nonunion firms not adopt them voluntarily and, once unionized, why do they resist putting them in place? Or, contra F&M, are these systems another form of monopoly tax levied on the firm's profits in which unions through a form of price discrimination extract additional rents for senior workers (Kuhn, 1988)? It is also far from self-evident that union arbitration and grievance systems are on balance a plus for efficiency or, more broadly, bring more social benefits than costs, particularly relative to alternative systems of dispute resolution (Lewin, 2005). Unions, for example, can use the grievance system, not for voice, but as another source of bargaining power to pressure the employer and extract monopoly rents (e.g., by flooding the system with grievances, which the

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employer settles by "buying them o f f ' through a better contract settlement). Even if used purely for voice, these systems can be relatively expensive and time consuming, requiring months to reach a settlement and often thousands of dollars in fees for lawyers and arbitrators. One also finds the same ambiguity about another dimension of union v o i c e - giving workers democratic voice in the workplace. On one hand, nonunion workplaces can be quite oppressive when workers are exposed to the unilateral, arbitrary, and unfair decisions of managers and supervisors. Instructive evidence, for example, comes from a recent case study of work in a poultry processing plant (Striffler, 2002). Setting the tone, a sign hangs prominently on the wall of the small classroom where new hires go for orientation and says in English and Spanish "Democracies depend on the political participation of its citizens, but not in the workplace." The author then details how the old supervisors were laid-off, new supervisors brought in with instructions to reduce headcount and increase production, and workers either submitted to "intolerable and economically unsound" decisions or quit (p. 310). Unions help protect workers from this kind of abuse and give them a voice in the rules and operation of the workplace, quite possibly improving both equity and efficiency. But not all unions are themselves democratic and some are significantly corrupt and dictatorial (Strauss, 2001). F&M downgrade union blemishes in this area, but the nation's oldest and most knowledgeable observer of union democracy recently stated, "The reality is that in wide sections of the American labor movement, crudely or subtly, democratic rights are suppressed, or in peril, or viewed with contempt. No discussion of union democracy can be taken seriously unless it faces up to these facts" (Benson, 2002: 73). Monopoly and Voice: The Political Sphere. The interplay of the monopoly and voice faces in WDUD largely takes place in the labor market (wage determination) and the performance and governance of the firm. In Chapter 13, however, F&M examine the role of unions in the political arena. The monopoly and voice faces of unions are modestly reconfigured in this chapter. F&M accept that unions have political power and pose the issue as: first, how much political power do unions have?; and, second, do they use this power to promote their narrow organizational interests in greater membership and collective bargaining power or, alternatively, do they use this power to promote a broader social and economic agenda benefiting a wide cross section of workers, consumers, environmentalists, and other groups? If the former, F&M treat this as a manifestation of the negative monopoly face; if the latter they treat it as part of unions' positive voice face. Thus, in this formulation the distinction is not between alternative forms of union influence (power versus voice) but alternative uses of this influence. On my theory scorecard are three substantial pluses from this part of WDUD and also several significant minuses or missed opportunities. The first plus is that F&M bring into the analysis the political dimension of union activity, a dimension typically neglected by economists; the second is that they again highlight the co-existence of a positive and negative side of unions; and the third is that the monopoly characteriza-

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tion usefully captures the aggrandizing economic side of union political action and the voice face usefully captures unions' role as a representative and spokesman for the broad social/class interests of workers. But there are also drawbacks and shortcomings. Space allows me to discuss only what I consider is the most important (for more detail, see Kaufman, 2005a). A basic insight of institutional economics is that the labor market and the employment relationship are embedded in a legal and social system and their operations and outcomes thus reflect the endowments and "rules of the game" established by national political leaders. While neoclassical labor economics typically takes these endowments and rules as a given, institutional economics notes the following: first, the rules and endowments determine the labor market outcomes (wages, hours, conditions) by influencing the structure of the market and the position and slope of the labor demand and supply curves; second, the rich and powerful (e.g., employers, property owners, the social elite) have preponderant influence in establishing these rules and endowments; and, third, self-interest will lead the political rulers to structure these rules and endowments to maximize the monopoly rents of the dominant groups (e.g., capitalists, white native-born men) at the expense of the excluded and marginalized groups (e.g., workers, women, blacks). What this perspective usefully highlights that F&M miss is that part of the historical function of trade unions is to act as a labor (working class) movement and exert political power in order to change the rules and endowments so that labor as a class shifts from being an oppressed/marginalized outsider to a justly treated, listened-to insider living in a progressive welfare state where workers have economic security and opportunities for personal self-actualization and self-development (Boeri et al., 2001; Hyman, 2001; Turnbull, 2003; Kaufman, 2004c). In this respect, the labor movement is no different from other social "liberation movements," such as the civil rights, feminist, and gay/lesbian movements. Thus, a well-known refrain of nineteenth century English trade unionists was (Thompson, 1964: 822) "From the laws of the few have the existing inequalities sprung; by the laws of the many shall they be destroyed," while Sidney and Beatrice Webb (quoted in Dickman, 1987: 104) observe, "What the workers are objecting t o . . . is a . . . feudal system of i n d u s t r y . . , of the domination of the mass of ordinary workers by a hierarchy of property owners." This kind of social domination and oppressive economic conditions represents "institutional exploitation." Examined this way, a labor market can be highly competitive in the neoclassical sense yet institutionally structured so that employers as a group earn very high profits and workers get very low wages, long hours, and sweatshop conditions (e.g., if the labor supply curve is shifted far to the right along an inelastic labor demand curve by, say, an open immigration law). Furthermore, the entire judgment about the "monopoly face" of unions changes. Given a competitive labor market, neoclassical economists and F&M are prone to view unions as a negative force that undesirably raises wages and causes a welfare loss to society. From an institutional perspective, however, the erstwhile competitive wages and conditions are artificially depressed by monopolistic

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political and social rules, and unions thus simultaneously perform two useful functions: First, they use collective bargaining to directly raise wages and conditions to what would be the competitive level with balanced rules and endowments (an institutional form of monopsony-reducing wage increase) and, second, they use political power to level the playing field and win expanded social welfare protection by changing the rules and endowments in workers' favor through legislation and electoral politics. The gist of the foregoing is that union monopoly power in the political realm, just as in the economic realm, cannot on an a priori basis be put on the minus side of the social balance sheet, at least if one gives any weight in the social welfare function to providing workers with humane, balanced, and just wages and conditions (Budd, 2004; Kaufman, 2005b). But it is also true that unions in their quest for "more" can also cross the line in the political sphere and use their power for purposes that unduly tilt the playing field in favor of their narrow organizational interests, as F&M claim. At some point, for example, one can surmise that the labor movement accomplishes its historic purpose of integrating labor into the polity and leveling the political playing field. To some degree unions may remain necessary as a political counterweight to employers' political power. But one can also imagine that a strong labor movement will use political power to increasingly tip the rules and endowments in labor's favor, increasing the share of economic rents going to union labor at the expense of profits, consumers, and economic growth. Indeed, unions can use political power to gradually strangle capitalism in their quest for greater control and economic rents. In Europe, for example, many unions in the twentieth century promoted plans of "economic democracy," the central idea being to "euthanize capitalism" by using labor control of the government to pass legislation transferring corporate control from shareholders to unions (Kaufman, 2004c). U.S. unions have not gone this far in their political agenda but they do, nonetheless, seek to protect their monopoly gains through various political stratagems and regulatory measures that may well harm the public interest. Opposition to free-trade agreements, promotion of "industrial policy," a wide variety of restrictive labor laws, and getting taxpayer bail-outs of bankrupt union pension and health care programs are examples (Bierhanzl and Gwartney, 1998; Masters and Delaney, 2005). Summary. My conclusion is that at a fairly high level of abstraction, or when used as a heuristic device, the two faces theory in WDUD performs relatively well in framing important issues about unions and informing our priors about expected empirical effects. This is largely what F&M intended it to do, so on these grounds they well succeeded. Examined more closely, however, the theory needs further conceptual development: In some cases it omits important dimensions of what unions do, and in some respects the model overstates and understates the benefits and costs of unions. The most important places for improvement in the theory are twofold. First, the issue of power is key to any theoretical analysis of the pros and cons of unions and a convincing case for greater collective bargaining has to demonstrate that efficiency or social welfare is advanced by giving workers greater collective power. F&M do not do this. Second, the monopoly and voice faces are not uni-dimensional constructs but

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both have beneficial and harmful sides that capture two alternative union functions: a "protection/improvement" face (beneficial) and an "aggrandizement/restriction" face (harmful). Thus, a useful extension of the two faces theory would be to re-frame it in terms of a 2 x 2 matrix with the monopoly and voice faces along one dimension and the protection/improvement and aggrandizement/restriction faces along the other. The four cells (the four faces of unions) would better capture the diverse roles and effects of unions. When these different faces of unions are considered, the combination of theory and real world developments (e.g., globalization of markets, greater geographic labor mobility, a transition from demand-side to supply-side economic growth) leads me to think that some of the pluses on the union scorecard have diminished since WDUD was written and some of the minuses have become larger. But this leads to the next section. III. Empirical Evidence The empirical part of F&M's book remains quite impressive for the breadth and depth of topics covered and the sophisticated statistical analysis of numerous data sets. When WDUD was published, union wage effects had been studied in some detail, most particularly by Lewis (1983). The non-wage effects of unionism were also starting to receive attention (see Table 1 in Freeman and Medoff, 1981), but the empirical literature was relatively spotty and not well integrated. F&M stepped into this situation and, in a major tour de force, raised the entire plane of empirical knowledge about unions, including challenging and unexpected results and an integrated portrait of what it all means. In the introduction to WDUD F&M frame the empirical analysis with this observation (p. 19): "Since, in fact, unions have both a monopoly and a voice/response face, the key questions for understanding the impact of private-sector unionism in the United States relate to the relative importance of each. Are unions primarily monopolistic institutions, or are they primarily voice institutions that induce socially beneficial responses?" Striking a similar theme in the conclusion, they state (p. 246), "The central question is not, 'Who in principle is right?' but rather, 'Which face is quantitatively more important in particular economic outcomes?'" And what is the grand picture of unionism that all of these empirical findings paint? F&M provided this summary statement (p, 19): "On balance, unionization appears to improve rather than harm the social and economic system. In terms of the three outcomes in Table 1.1, our analysis shows that unions are associated with greater efficiency in most settings, reduce overall earnings inequality, and contribute to, rather than detract from, economic and political freedom." In this paper I cannot cover all the separate empirical findings presented in WDUD. But provided below is modest commentary and assessment on those findings I consider most important. Wages. The statistical portrait of private sector union wage effects presented by F&M is largely an accurate one (Blanchflower and Bryson, 2004). The aggregate union

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wage premium, according to their results, seems to fall in the 15-20 percent range. Calling for remark, however, is the slow downward drift of the aggregate union wage premium since the mid-1980s, despite a substantial decline in density, and a concomitant increase over time in the public sector union premium in the face of largely stable density. One could interpret this as evidence of a median voter mechanism at work, leading to an asymmetric pattern of wage changes (widespread wage rigidity with selective concessions in response to leftward labor demand curve shifts, an upward wage creep with stable or rightward demand curve shifts) and an upward tendency in the wage premium over time. But interpretation is tricky since density and the union premium are jointly determined and, furthermore, observed trends in aggregate wage differentials can reflect underlying changes in the population of unionized firms. Nonetheless, if this hypothesis is accurate, it suggests that F&M modestly understate the long-run harm of the negative monopoly face. More seriously (discussed below), F&M also probably understate the degree to which union wage gains come at the expense of long-run employment, capital investment, and growth.

Benefits. The statistical portrait of the union effect on benefits presented by F&M is also largely confirmed by subsequent analysis of more recent data (Budd, 2004a, 2005). Unions raise employer compensation on benefits by as much as 70 percent in the United States, with a portion of this increase representing a redistribution of labor cost from wages to benefits (the voice effect) and the other portion representing a net add-on to wages (the monopoly effect). Both theory (the median voter model) and recent evidence (the increasingly onerous pension and health care obligations of a number of union companies) suggests, however, that F&M again understate the longrun negative impact of the union monopoly effect. Earnings Inequality. Also accurate is F & M ' s conclusion that unionism reduces inequality in the distribution of labor market earnings and that the decline in unionism is a significant contributing factor to the rise in overall earnings inequality in the United States and other countries in the last several decades (Card et al., 2004). A partial exception, however, is that the inequality reducing effect of unions appears to largely apply to men but not women (ibid.). Whether this equalizing effect is good or harmful to the economy and social welfare is a largely unanswered question, although Pencavel (2005) suggests a definite cost in reduced employment growth. Quits and Tenure. Addison and Belfield's analysis (2004a) for this symposium suggests that F&M also accurately captured the overall union effect on employee quits (negative) and job tenure (positive). They also find, as F&M report, that the voice effect on quits and tenure is larger than the monopoly wage effect. F&M conclude the reduction in quits and lengthening of job tenure is a significant plus for firm performance and efficiency. I suspect, however, that they overstate the case. Some empirical research finds that union voice contributes very little to lower quits (Delery et al., 2000). Also, F&M do not, as previously pointed out, provide evidence that the nonunion level of quits and tenure is suboptimal, or by how much. Furthermore, union wage leveling, promotion-by-seniority, and restrictions on termination

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may well reduce quits the greatest amount for the least productive workers but increase quits for the most productive (Bishop, 1990). In addition, a recent study shows that it is not unionism p e r se that reduces quits but, most importantly, the provision of health insurance benefits and the presence of job ladders, seniority provisions, and other features of internal labor markets (Fairris, 2004). Union firms have more of both variables, as F&M note, but, nonetheless, omitting them from the quit regressions is likely to overstate the union effect and the voice component thereof. And, finally, is it correct to infer, as F&M do, that lower quits from seniority clauses and grievance systems are, on net, a positive voice effect or, alternatively, do these factors have a predominantly negative monopoly effect on quits to the extent they represent, like higher wages, a source of additional rents for union workers? Macroeconomic Effects. W D U D does not provide much coverage of the macroeconomic effects and consequences of unions. The cyclical adjustment of labor cost is considered in Chapter 7, and Chapter 3 briefly discusses how unions affect inflation. F&M conclude that union wages are a negligible contributor to inflation for three reasons: the union wage premium has little long-run trend; the share of union labor cost in total cost is modest; and union wage changes do not have significant spillover effects on nonunion wage changes. I believe, however, this interpretation is too optimistic.

Simply eyeballing the data from 1950 to the present, in countries with a decentralized bargaining system, one sees a link between union density and macroeconomic performance that is hard to slough-off as all correlation and no causation. Is it coincidence, for example, that in the United States the inflation rate gradually ratcheted upward during the period of strong unionism (1950-1980) or that government policy makers felt compelled to resort to various forms of wage controls to restrain union settlements, while in the period of declining union power (1980-present) the nation has enjoyed a remarkable period of strong job growth and price stability? Furthermore, inflation behavior in Britain, Canada, and Australia shows much the same time-series pattern. Thus, is it coincidence that in the era of strong unionism in the United Kingdom the economy was the inflation-prone "sick man of Europe," while in the postThatcher years of much-weakened unionism Britain has enjoyed the best record in Europe of robust employment growth and price stability? Obviously, many other factors play a role in explaining this pattern, but to argue that unionism had a zero effect seems a stretch. In a Phillips curve framework, unionism may either affect the slope or intercept of the inflation/unemployment trade-off. For median voter reasons, unions may exert some upward cost-push pressure on wages and prices at any given unemployment rate (steeping the slope). As F&M argue, however, the direct quantitative effect is likely to be modest and, furthermore, structural change since 1980 appears to have weakened the linkage between union wages and inflation (Budd and Nho, 1997). F&M ignore, on the other hand, the potential indirect union effect which operates through pressure on the central bank to accommodate union wage push through monetary expansion. Mitchell and Erickson (2005) suggest that this channel was well recognized by the U.S. Federal Reserve Bank, and Flanagan (2003) notes that a major argu-

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ment for European-style centralized bargaining is that it better contains union wage settlements and thus relieves pressure on the central bank to choose between low unemployment/rising inflation and high unemployment/low inflation. In an American context, a good case can be made that high union density, when combined with decentralized bargaining and business unionism, is likely to shift rightward the intercept of the Phillips curve, leading to a higher NAIRU (non-accelerating inflation rate of unemployment). Several time-series studies fi nd that the NAIRU increased in the 1960s and 1970s and then fell in the 1980s and 1990s, mirroring the trend in union membership and power (Gordon, 1997; Ball and Mankiw, 2002), whereas cross-sectional studies find a positive relationship between union density and the unemployment rate across cities, states, and regions (Pantuosco et al., 2001). In their calculations of the economic balance sheet of unionism, F&M ignore this macroeconomic source of welfare loss. A back-of-the-envelope calculation suggests, however, that it could easily swamp the positive voice effect. For example, a one-half percentage point increase in the NAIRU implies, via Okun's law, an approximate $100 billion loss of GDP in order to maintain price stability.

Job Satisfaction. F&M find that union workers report, on average, a lower level of job satisfaction than nonunion workers and that the bulk of this dissatisfaction comes from unhappiness with supervisors and working conditions. They also note an (alleged) paradox: If union workers are more dissatisfied with their jobs, they should quit more often, but in fact quit rates are considerably lower. So, F&M argue that the dissatisfaction union workers feel is not a genuine, objectively accurate unhappiness but a perceived, subjective unhappiness that arises from greater use of voice ("complaining loudly") and the feeling of politicization that accompanies it. Subsequent empirical research, surveyed by Hammer and Agvar (2005), supports F&M's finding on the negative union effect on job satisfaction. As they note, however, the cause and interpretation of this finding is complex and not in all respects in agreement with F&M. There is, first, a sample-selection problem since union workplaces tend to come from the bottom-end of the job satisfaction distribution. One reason is that the characteristics of union jobs tend to be undesirable, such as assembly line work and jobs involving higher safety risks. But also pertinent is F&M's observation (pp. 146-48) that the most important reason unorganized workers seek a union is significant dissatisfaction with the employer, and Hammer and Agvar's conclusion that a negative industrial relations climate is a major cause of low job satisfaction. In terms of Hirschman's model, the employment relationship is already often deteriorated when the union enters the picture. One must then question, given this deteriorated situation, what effect the introduction of collective bargaining will have on workers' job satisfaction. Even if it rises, satisfaction may not rise to the level of well-managed nonunion companies with a positive (non-deteriorated) industrial relations climate. And, paradoxically, the quit rate among the dissatisfied union employees can still be lower if mobility costs, such as a union-negotiated health plan, lock them into jobs with the firm--suggesting that the behavioral response to dissatisfaction may then appear in

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other less functional and possibly negative-sum ways, such as surly relations with supervisors and a "work to rule" mentality (Luchak, 2003; Lewin, 2005). One also must ask the question whether it is in the self-interest of unions as institutions to have satisfied workers? The answer would seem to go both ways. Unions presumably attract new members and retain existing members by "delivering the goods" and presumably doing so leads to more satisfied workers. But, on the other hand, if unions eliminate the sources of employee dissatisfaction, will the workers continue to see a reason to pay monthly dues? Or, is part of the adversarial dynamic of collective bargaining a certain penchant on the part of unions to "manufacture" discontent in order to maintain worker militancy and solidarity against the employer? The conclusion I reach is that the issue of job satisfaction is a complicated one with multiple interpretations, but that on net the reduced job satisfaction reported by union members is more real than F&M suggest and arises in significant part from an adversarial, low-trust employee relations climate that is more likely to exist in organized firms both ex-ante and ex-post to the union. Productivity, Employment, and Capital Investment. F&M conclude that (p. 180), "productivity is generally higher in unionized establishments than in otherwise comparable establishments that are nonunion [and] higher productivity appears to run hand in hand with good industrial relations and to be spurred by competition in the product market." Because the positive productivity advantage of union firms remains after controlling for differences in capital intensity, educational skills of the workforce, and other such factors (monopoly face responses as firms substitute physical and human capital for higher cost union labor), F&M conclude that the positive union productivity effect comes from the voice/response face. F&M note in WDUD that their findings on productivity are (p. 180), "probably the most controversial and least widely accepted result in the book." Twenty years later this remains an accurate statement. The papers by Hirsch (2004), Addison and Belfield (2004a), and Gunderson (2005) in this symposium survey the evidence for, respectively, the United States, Great Britain, and the North American public sector. Hirsch concludes (p. 430), "Overall, the evidence produced since What Do Unions Do? suggests that the authors' characterization of union effects on productivity was overly optimistic . . . . [M]y assessment of existing evidence is that the average union effect is very close to zero, and as likely to be somewhat negative as somewhat positive." Likewise, Addison and Belfield report that the evidence for Great Britain shows a negative union effect on productivity up to the 1980s but since then a diminution of this effect, due, they suggest, to the fact the conservative Thatcher government enacted legislation that considerably weakened union bargaining power. For Germany they find that works councils have a neutral (zero) effect on productivity, leading them to conclude that collective worker organizations have "an average productivity effect near zero" (p. 573). Gunderson reaches similar conclusions for the public sector, observing that the empirical evidence (p. 409) "does not support the notion that unions have positive effects and certainly not large enough to offset any wage cost effects." He

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further notes that since management opposition, and perhaps union bargaining power (due to restrictions on the right to strike), are less in the public sector one could reasonably hypothesize that positive union voice effects would be more noticeable, yet such evidence is lacking. A fair conclusion based on these studies, as well as others (Metcalf, 2003), is that F&M likely overstated the positive union effect on productivity, with the actual effect being approximately zero. They appear on solid ground, however, in arguing that productivity varies with the industrial relations climate. After a review of the evidence, Hirsch concludes that union plants with cooperative labor relations and high-performance HRM practices have above-average productivity, whereas union plants with adversarial relations and traditional "job control" HRM practices have below-average productivity. The problems, however, are threefold: first, only a distinct minority of union establishments are in the cooperative, high-performance category; second, this configuration may be a difficult equilibrium to attain and maintain since it appears to depend on a high degree of union organizational security; and, third, other forms of workforce governance may yield even better results (Pencavel, 2001). Productivity is a static indicator of firm performance; also important is the time path of firm performance. Three key indicators are productivity growth, employment growth, and capital investment growth. F&M examined productivity growth and concluded the union effect is zero, but they largely did not cover employment and capital investment. In his survey article, Hirsch examines the subsequent evidence from the empirical literature on productivity growth. He concludes (p. 431, emphasis in original), "There exists no strong evidence that unions have a direct effect on productivity growth." This result is in agreement with F&M. But Hirsch inserts and emphasizes the important caveat "direct effect." Most empirical studies of the union effect on productivity growth control for differences in levels or changes in factor-input usage. But most studies find that unionism has a statistically significant negative effect on capital investment (Hirsch, 2004; Metcalf, 2003). Hirsch concludes this negative effect arises from two sources: higher union-induced labor cost reduces the return to capital and the incentive to invest; and higher union labor cost also reduces firm profits and thus raises the cost of investment funds. Thus, in this respect unionism does have an indirect negative effect on productivity growth through the channel of reduced capital investment. A modest body of empirical research also suggests that a second indirect negative effect comes from union resistance to organizational and technological change (Lieberman, 1997; Schwarz-Miller and Talley, 2002) and, at least for North America, lower corporate spending for research and development (Menezes-Filho and Van Reenen, 2003). F&M did not empirically examine the union effect on employment growth. Subsequent research finds that unionism is associated with slower employment growth in both the United States and other countries (Hirsch, 2004; Pencavel, 2005). A study of UK firms between 1990 and 1998, for example, finds that employment grew 29 percent slower in private sector union firms and 18 percent slower in unionized public sector

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organizations, while an Australian study reported union employment grew at a 2.5 percent slower annual rate (Addison and Belfield, 2004b; Wooden and Hawke, 2000). These results suggest that the union sector gradually loses competitive advantage over time due to a combination of higher costs and lower capital investment and innovation, reflected in a shrinking employment base in relative terms and, often, absolute terms. The most notable exception to this rather bleak picture is provided by Freeman and Kleiner (1999). Their empirical analysis finds that firms with a union actually have a lower "death rate" relative to comparable nonunion firms, although this relationship is contingent on the percent of the firm's workforce organized, and past a moderately high density level unionized enterprise death rates are greater. They interpret these conclusions to mean that unions reduce profitability but, in general, not to the point firms are driven from the industry. As Hirsch observes, however, this result is significantly at odds with the substantial body of negative evidence on capital investment and employment growth.

Profitability. F&M examine the effect of unionism on profits and find (p. 190) "the evidence on profitability shows that, on average, unionism is harmful to the financial well-being of organized enterprises or sectors." As they note, however, the economic and social consequences depend greatly on the source of the profits that unions capture. That is, are unions capturing large-sized monopoly rents that otherwise accrue to shareholders as above-normal returns or, alternatively, are they capturing profits that represent part of the competitive rate of return on capital needed to keep the enterprise a going concern? They conclude it is much more the former than the latter, stating (p. 186): "These data suggest that unionism has no impact on the profitability of competitive firms . . . . What unions do is to reduce the exceedingly high levels of profitability in highly concentrated industries toward normal competitive levels." Research conducted in the 20 years since WDUD also finds consistent evidence that unionism reduces profitability. Hirsch (2004: 432), for example, concludes, "The finding of lower profitability from unionization is not only invariant to the profit measure used, but also holds regardless of the time period under study and holds for analyses using industries, firms, or lines-of-business as the observation unit." He estimates that union firms earn on the average 10-20 percent less profits than comparable nonunion firms. Addison and Belfield (2004a) examine the research literature for Britain and Germany and also find fairly clear evidence of a negative profit effect, in the case of Germany for works councils. The more controversial and less determined part of the issue concerns the source of the unions' encroachment on profit: competitive returns or monopoly rents? Hirsch concludes in his survey paper that unions most likely capture both; that is, part of their bite on corporate profits comes out of monopoly rents but another part comes out of competitive returns on long-lived capital investments. He argues, therefore, that part of the decline of the union sector stems from the negative effect unions have on profits (the combined effect of higher union wages and a zero productivity differential), but that the verdict is still out on the size and importance of this effect.

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HRM Practices. The union effect on specific aspects of enterprise operations and human resource management (HRM) practices receive very modest empirical investigation in WDUD. Theoretically, F&M argue that one of the channels through which unions promote higher productivity is by causing management to professionalize, formalize, and standardize employment practices. They note, for example, that after successful union organizing campaigns the plant management is frequently replaced, while econometric analysis indicated that any reductions in management flexibility from unionism has a negligible effect on productivity,

Verma's (2005) review of the research literature on this subject provides evidence on both the plus and minus columns of the union scorecard. On one hand, unions are associated with more employee training, longer lasting employee participation systems, and more formalized rules and procedures for discipline and discharge. Whether these are voice effects or monopoly effects is unclear, however. On the other hand, unions also impose numerous restrictions on management that arguably hurt productivity, such as inflexible work rules, limits on transfer and termination, strict promotion by seniority, and inability to base pay on individual performance. The net outcome is theoretically ambiguous, and no empirical study has provided conclusive, broad-based evidence. However, since F&M's argument rests heavily on unions' hypothesized positive effect on productivity, it is worrisome that the empirical evidence does not reveal a significant and quantitatively important transmission mechanism between unionism, HRM practices, and productivity. The Political Arena. F&M came to three broad conclusions about the union political effect. The first is that unions are quite successful in mobilizing resources and exerting power in the political process. The second is that this exercise of union power leads to a mixed, but generally significant, amount of success in securing legislation that promotes a progressive or liberal social agenda. The third is that the union movement is mostly unsuccessful in using its political power to gain new legislation that promotes its own interests, such as expanded legal immunities, stronger protections of the right to organize, and enhanced bargaining power, but seems able to rally enough support to defeat efforts to weaken this type of legislation. Masters and Delaney (2005) re-examine these findings and conclude that they continue to describe the American situation, but with important caveats. They observe that since WDUD was published the union movement has shifted more of its efforts and resources to political action, reflecting a constellation of developments: a decline in its bargaining reach and effectiveness, a severe erosion of membership and threat to organizational survival, and a stronger and more assertive political attack by conservative social/business groups on unions in particular and the New Deal social welfare state in general. Masters and Delaney find that despite investing greater resources in the political arena the yield for unions is disappointing. That is, the ability of unions to enhance and protect both the broad corpus of social/employment legislation and the more narrow body of union-related legislation has discernibly declined over time. The reason, they cite, is "labor fails at the critical test: it simply does not inspire . . . . Unions must seek progress, not regress, if they are to inspire people to action." I conclude this evidence supports F&M in broad

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outline but also indicates that over time unions have lost political influence and persuasiveness along a broad front. If unions are on net good for the social balance sheet, as F&M claim, one has to wonder why the public and its political leaders seem increasingly out-of-step with this fact? Management Resistance and Union Decline. Chapter 15 of WDUD is devoted to "The Slow Strangulation of Private Sector Unionism." F&M note that while union membership from 1950 to 1980 had grown in absolute terms when looked at relative to the size of the nonagricultural workforce it had declined by one-third. They call this drop in density "unprecedented," claim that it "contrasts sharply with increases in unionism in most other Western countries," and note that if this pattern continues "the American labor movement will experience a precipitous decline in the next decade." F&M then examine the causes of this decline. They note that changes in membership and density are a function of the net difference between inflows and outflows of workers from union membership. They estimate the annual outflow to be about 3 percent (implying if density is one-third it will fall by a percentage point in three to four years). They then look at the inflow and see that it dropped in half from the 1950s to the late-1970s-early 1980s--from 0.6 to 0.3 percent. The conclusion they reach is that the much larger size of the outflows from membership relative to the inflows portends a further substantial decline ("slow strangulation") in density until a point of stability is reached at about 10 percent. F&M do not explicitly examine the outflow side of the equation and give very modest attention to possible causes of the attrition of union membership. Rather, they focus on the inflow side, with one partial exception. The first candidate for union decline they consider is structural economic change, a factor that likely affects both inflows and outflows. They conclude that structural change probably accounts for a modest portion of the decline in density. Focusing on the inflow side, they note that declining union organizing success could reflect diminished worker interest in unions. This factor is not empirically examined, however. Rather, much of the chapter is devoted to reasons the inflow of workers into unions through the NLRB (National Labor Relations Board) election process has shrunk so much. They conclude that part of the explanation is a decline in resources devoted to organizing by unions but that the most important factor is the interactive effect of much-heightened management opposition to unions and increasingly ineffective labor laws protecting workers rights to organize and collectively bargain. They buttress this conclusion by observing, first, that Canadian labor law provides stronger protection of the right to organize and Canadian union density was twice as high and rising and, second, that management opposition was much weaker in the American public sector and public sector density was also much higher and stable. I believe F&M correctly capture part of the explanation for union decline but omit or misinterpret other parts. As they claim, the breadth and depth of management opposition to unions has increased since the 1960s and 1970s. This trend was remarked upon by management specialists in the 1980s (e.g., Mills, 1981) and has

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continued as "union-free" status has become both more acceptable and attainable. The statistical picture is admittedly mixed but data on workers fired during NLRB campaigns and unfair labor practices per NLRB election support this long-run trend (Commission on the Future of Worker, Management Relations, 1994; Flanagan, 2005). My own research on this matter (Kaufman and Stephan, 1995) also leads me to believe that these statistical series significantly understate the upward trend in the breadth, depth, and effectiveness of management opposition. The labor law has over the years been interpreted in ways that on balance tip the advantage to employers; a growing share of organizing now takes place outside the NLRA election framework; a number of unions have given up filing NLRA charges in the belief that doing so is futile; employers' tactics have grown far more sophisticated; and over time employers and their consultants learn how to cloth illegal anti-union actions in ways that avoid legal sanctions. Anyone familiar with the world of work recognizes that the forces of weak labor law, determined employer opposition, and sometimes weak administrative enforcement makes successful organizing and winning first contracts a very difficult task (Hurd and Uehlein, 1994; Bronfenbrenner, 2001; Kleiner, 2002). This fact is reflected, in turn, in the significant long-term decline in new workers organized and represented by unions. On the inflow side, therefore, I believe F&M are correct to attribute a significant (but far from complete) portion of union decline to the interactive effect of employer opposition and weak labor laws. But there are also important caveats to this conclusion and other factors to consider. For example, evidence indicates that sometimes management opposition actually increases worker commitment to seek union representation (Koeller, 1992; Fiorito, 2002). Also, one has to ask: Why has management opposition increased so much? F&M (p. 239) recognize this issue and tie it (in part) to the increase in the union wage premium in the 1970s and early 1980s. But the union wage premium has fallen since the mid-1980s so the logic of their argument suggests management resistance should follow. But most union supporters (Levin, 2001) claim that it is greater than ever. To reconcile this discrepancy I put forward this hypothesis: The cost penalty of being unionized has actually worsened in the last two decades, since the degree of competition in product markets has increased faster than the union wage premium has fallen, so management resistance continues to increase. Unions and their supporters may decry this heightened opposition, but one can argue that their monopoly gains are partly responsible and, furthermore, that firms are serving not only the interests of shareholders but also the larger public by signaling unions that these monopoly gains are increasingly noncompetitive. As Troy (1999) and Flanagan (2005) note, another likely factor behind the smaller inflow of new union members is a long-term decline in worker demand for union representation. F&M almost completely bypass this consideration, and it remains seriously under-researched. On one hand, strong reasons exist to think that part of the lackluster success unions have in gaining new members is because fewer workers find unions an attractive option. American workers join unions, for example, largely

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because they are dissatisfied with job conditions and treatment and believe that unions can improve these. But over the years unions have lost part of their appeal because of the incorporation of significant parts of the working class into the middle class, improvements in the quality of jobs and remuneration, and the growth of substitute solutions to labor problems. Three examples of the latter (Bennett and Kaufman, 2002) are more competitive, full-employment labor markets ("good markets"), more professional and effective human resource management practices ("good bosses"), and far more extensive legal regulation of the economic and social dimensions of the employment relationship ("good laws"). Union decline, therefore, may be more tied to "union substitution" than "union suppression." A prime example is the negative relationship between worker desire for union representation and the existence in nonunion firms of some form of employee involvement plan or formal dispute resolution program (Belfield and Heywood, 2004). Then, compounding the problem is that unions have also lost a good deal of bargaining power and effectiveness in raising wages and improving conditions for newly organized workers due to more competitive markets, the greater threat of striker replacement, and other such factors, This story, while having considerable common-sense appeal and some empirical support (Farber and Krueger, 1993), nonetheless also faces problems: The major problem is that surveys find that between 31 and 48 percent of nonunion workers in America say they would like union representation, particularly if their companies did not oppose it (Freeman and Rogers, 1999; Lipset and Meltz, 2004). In addition, some evidence suggests worker interest in unions is increasing (Freeman and Rogers, 2001). These pieces of evidence strongly suggest that the demand for unions remains quite robust, but a large part of it is a "frustrated demand" in the sense workers are not able to actually to obtain representation. This shortfall may arise from employer opposition, weak labor laws, lack of resources and commitment to organizing by unions, or some combination of these factors. F&M emphasize a low inflow into unions as the principle source of the "strangulation." A recent study by Farber and Western (2002) suggests, however, that it is actually the outflow side that is the far more important explanation. They state (p. 53), "The striking finding of this analysis is that the decline of the union organization rate in the U.S. over the last three decades is due almost entirely to declining employment in union workplaces and rapid employment growth in nonunion firms." Likewise, Pencavel (2005) points out that union decline is not unique to the United States (which, if true, would point the finger of blame at American employers and laws) but has been proceeding for two decades or more in a number of the major economies of the world. Thus, the implication is that the long-term decline in union density arises far more from the shrinkage of the existing base of union jobs due to plant closings, downsizings, and layoffs than from blocked organizing. This conclusion implies, in turn, that F&M significantly misidentify the source of the union strangulation. Employer opposition remains a significant factor, but it primarily arises as a profit reaction and takes the form of capital investment decisions that favor nonunion facilities in the United

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States and other countries. Unions also play a role in their demise by raising labor costs to noncompetitive levels, leading to lower capital investment and shrinking employment in union firms. And, finally, part of the strangulation of unions comes from more competitive, globally inter-connected product markets; increased capital mobility; and heightened financial pressures on companies for rising earnings and stock prices. In a case study of the Southern paper industry (Kaufman, 1997), I find clear evidence that it is these factors, coupled with union resistance to high performance work practices, that were primarily responsible for greater management opposition and the marked decline of the union sector.

Summary, Many of the empirical findings reported in WDUD have held up quite well over the subsequent two decades. This is an impressive accomplishment, particularly since the world has changed in some significant ways that F&M could not fully anticipate. Several empirical conclusions in WDUD, however, appear with the benefit of hindsight and better data to be off-target. The three most important areas of adjustment, in my opinion, are: a downward revision of the union productivity effect to zero; a downward revision of the macroeconomic effect of unions from neutral to harmful; and a shift from attributing the principal cause of union decline to a combination of "suppression" forms of management opposition and weak labor laws to the poor growth performance of union firms and, possibly, a decline in worker demand for unions. I conclude that the bottom line for unions on the economic balance sheet has to be given a minus sign, not a neutral or positive mark as F&M suggest, and that the direction of change is on balance toward the negative side. They are certainly correct, however, that the record on unions is mixed with significant pluses and minuses. Whether inclusion of the noneconomic effects of unions, e.g., industrial democracy, shifts the bottom line to a neutral or positive sign is difficult to answer given the more overtly normative character of the issues at stake and the lack of quantifiable evidence. Certainly some respected economists besides F&M believe so (Rees, 1989), and I shall offer reasons below in support of this argument. IV. National Labor Policy In WDUD's concluding chapter F&M summarize the implications of their work for national labor policy. They state (p. 251), "the ongoing decline in private sector u n i o n i s m . . , deserves serious public attention as being socially undesirable . . . . " and (p. 250) "While we are not sure what the optimal degree of unionization is in this country, we are convinced that current trends have brought the union density below the optimal level." F&M then provide three suggestions for changes in labor policy: strengthen the voice/response face of unions by encouraging more innovative and cooperative forms of labor-management relations; weaken the negative monopoly face by fostering greater product market competition and encouraging unions to be more cognizant of the long-run harm of always seeking "more;" and strengthen and better protect the ability of workers to join unions and collective bargain by expediting the NLRB election process and increasing the penalties for antiunion discrimination and refusals to bargain.

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When F&M wrote WDUD, union density was 22 percent. They claimed that the optimal level of density was higher than this figure. In a later article Freeman (1992: 167) suggests the optimal density number is somewhere between the American and Scandinavian levels. As a rough and conservative approximation, this translates into a union density figure of 35-40 percent, or roughly equivalent to density in the U.S. public sector. Twenty years after WDUD density stands at 13 percent in the American economy, nearly one-half the level existing in 1984, and has fallen all the way to 8 percent in the private sector. If density was sub-optimal in 1984, as F&M claim, then is it several times more sub-optimal today? And, if so, would the nation really be better off by changing national labor policy to substantially raise union density? These are difficult questions to answer. My judgment, however, is that neither theory nor empirical evidence support such a conclusion. The kernel of the argument in WDUD is that worker voice in nonunion firms is under-supplied due to market failure. This argument was given much publicized and widely cited empirical evidence in a later study by Freeman and Rogers (F&R, 1999). They document from a large-scale survey the existence of a large "participation/ representation gap" in the American workplace, indicating that workers want significantly more voice and influence in the workplace than they currently have. Although F&R probably over-state the size of the gap, theory suggests there are indeed good reasons to think competitive labor markets fail to provide the socially optimal amount of employee voice (Kaufman, 200 l). Nonunion firms provide voice only to the extent that it adds to profit. Freeman and Lazear (1995) and Kaufman and Levine (2000) show that for several reasons nonunion firms will undersupply voice relative to the efficient social optimum. Freeman and Lazear emphasize the divergence between private and social marginal benefit of additional collective voice. That is, employers stop short of the optimal level of collective employee voice because more voice also gives workers more leverage to capture some of the additional profits. Kaufman and Levine also point out other reasons voice is likely to be undersupplied, such as prisoner-dilemma problems, principal-agent problems, and adverse selection. If voice is undersupplied in nonunion labor markets, is more collective bargaining the best solution to the problem? F&M say yes. Their suggested approach (or my interpretation of it) is to expand voice through greater unionism but then neutralize the negative monopoly face of unions by promoting greater competition in product markets (e.g., through reduction of trade barriers) on the belief that unions will be effectively constrained from raising labor cost lest they force organized firms out of business. This idea, I note, has a long heritage. It was espoused, for example, in the 1940s by Chicago libertarian economist Henry Simons (1948: 60) who, in a spirit similar to F&M, argued "If trade-unions could somehow be prevented from indulging in restrictive monopolistic practices, they might become invaluable institutions." I question, however, whether this approach is either workable or the best solution.

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For example, why would millions of additional workers want to join unions if unions have no effective bargaining power to win gains at the negotiating table but, rather, largely function to make firms more efficient by solving free-rider and preference revelation/aggregation problems inside the enterprise? Likewise, it is unlikely that unions will forgo raising labor cost even in very competitive product markets. One reason is because their members may have shorter time horizons than capital owners (or national union leaders may follow a wage policy that promotes their organizational interests at the expense of members' employment) and are therefore willing to milk the quasi-rents even at the cost of eventual demise of the enterprise (a possibility recognized by Simons, 1948:131); a second reason is because with sufficiently high density in local/regional markets unions are able to take labor cost out of competition and raise wages with only modest short-run employment loss. And, finally, one must ask if adversarial collective bargaining is really the most effective form of employee voice for fostering higher productivity and competitive advantage for American firms in global competition'?. This last thought raises the more general question of whether there is some alternative way to remedy the voice shortfall but avoid the negative side of collective bargaining. The answer appears to be a potential yes. If the goal is greater collective voice for workers but without the negative monopoly effect of unions, the most obvious and direct solution would be more "company unionism" (broadly defined), such as nonunion employee involvement/representation programs, joint plant councils, alternative dispute resolution programs, or perhaps some variant of European works councils. These devices give employees a negligible-to-relatively-modest increase in power, thus leaving undisturbed the (presumed) competitive wage structure and overall workforce governance regime, but at the same time solve the voice shortfall by giving workers a formal mechanism for collective voice. Furthermore, because they lack the power and adversarialism of a trade union, and arguably contribute more to firm performance and profit (or subtract less), these forms of collective voice engender a smaller amount of employer opposition and may be more effective for workers. But critics of these nonunion voice schemes, at least of the type that are voluntary and employer-created, reject them because they do not give workers power and influence and, as with some nonunion dispute resolution systems, can have procedurally unfair rules that favor the employer. F&M are in this camp. In WDUD, F&M (p. 108) say these schemes "lack power to affect decisions," are frequently "mere window-dressing," and fail to provide adequate voice because of workers' "fear of retaliation." Other critics condemn these nonunion devices because they give workers little power to affect wages, hours, and terms of employment; have no market reach and thus cannot raise and standardize wages in labor markets (take wages out of competition and equalize the earnings distribution); do not challenge the core of unilateral management authority in the firm; and give workers no voice in the political process. Although all of these criticisms have varying degrees of truth, the empirical evidence suggests a blanket condemnation of employer-created nonunion forms of representation is far too negative. Indeed, modern research suggests these nonunion

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bodies can yield (with considerable variance) a variety of gains for both workers and firms (Kaufman, 2000, 2003b; Pencavel, 2003; Bryson, 2004). Possibly even better results could be obtained from some hybrid form of enterprise-level employee representation that combines the best of North American-style company unionism and European-style works councils. Both theory and evidence suggest, however, that relatively independent and legally mandated works councils along European lines are an inefficient "one size fits all" approach to voice that likely entails many of the negative costs of unions (Kaufman and Levine, 2000; Addison et al., 2004). I conclude that F&M appear inconsistent on the subject of employee voice and seem to draw the wrong conclusion. If the exit/voice model and negative monopoly face of unions are taken at face value, the implication seems to be that the voice shortfall would be better served not by more trade unionism but by an expansion of nonunion forms of voice (Kaufman, 2001). This conclusion is buttressed by the survey findings of F&R that the majority of Americans want a form of employee representation that de-emphasizes power bargaining, adversarialism, and independence from the employer in favor of closer cooperation and win-win problem-solving and communication. This shift would require, however, a major change in American labor law since provisions of the NLRA (the "company union ban" in Sections 2.5 and 8.a.2) currently severely limit the ability of nonunion companies to operate worker representational committees (Kaufman, 1999b). F&M are silent on this matter but the inference is they did not then support it, nor did the Dunlop Commission of which Freeman was a member, nor did Freeman and Rogers in What Workers Want. Rather, F&M (and the Dunlop Commission and, less clearly, F&R) instead recommend changes in labor law to promote more trade unionism. I note, in this regard, that the most vociferous opponents of removing the company union ban in the NLRA are American trade unions, in part I speculate because the law preserves their near-monopoly in the supply of formal employee voice. American unions thus have two monopoly faces, one in wage determination and another in the supply of voice. Paradoxically, therefore, unions both expand and restrict voice and, contrary to the hypothesis of F&M, the net effect could be negative. The bottom line is that if F&M are to give a convincing argument in favor of substantial labor law reform and greater unionism they must address the power issue and, in particular, show that society would be better off by augmenting workers' collective power in wage determination in external labor markets, workforce governance in internal labor markets, and political participation in the national polity. They reject nonunion forms of representation because they lack power but do not adequately make the case that independent unions are a superior option for voice in internal labor markets. Then, with respect to external labor markets, F&M contend that unions already have too much power, while they take a somewhat ambiguous position about the optimal degree of union power in the national polity. In my view this position does not add up to a clear and compelling case for greater unionism. My personal belief is that a compelling, but limited, case can be made for public protection and encouragement of unionism in each of the three arenas just cited. In

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the short run, labor markets are often imperfect and a combination of limited jobs, costly mobility, imperfect information, and externalities can lead to various labor problems for workers that individual action and competitive market forces cannot fully resolve. In other cases, labor markets are highly competitive and lead to other serious labor problems for workers, such as long hours, greater work intensity, and job insecurity. Some form of protective institutional mechanism, such as unionism or labor law, thus gains social legitimacy. This conclusion is buttressed by three other observations, The first is that societies work best when economic outcomes are regarded as fair and balanced (Kitson et al., 2000; Budd et al., 2004); the second is that on ethical grounds workers should not be treated as commodities (Kaufman, 2005b); the third is that promoting consumers' interests over workers' interests is not distributionally neutral since the largest consumers also happen to be the wealthy who own considerable capital and property (according to Krugman, 2002, the wealthiest 13,000 families in America have almost as much income and thus consuming power as the poorest 20 million families). Likewise, theory and evidence readily show that employers often have a power advantage over the individual employee and sometimes exercise it in ways that range from petty and arbitrary to oppressive and unjust. Again, a social rationale exists for some form of protective device such as a trade union. And, finally, a stable, democratic society requires that all major stakeholder groups have effective interest representation and voice in the creation and enforcement of the rules of the game. Without unions it is difficult to see how labor will be adequately represented or what political counterweight will exist to balance the substantial influence of the wealthy and business class. These are all classic arguments in favor of unions and continue to have merit, albeit on a smaller and more circumscribed scale (Kaufman and Lewin, 1998). It is hard to convincingly demonstrate but I surmise for the reasons just given that the "optimal" level of unionism in the private sector is probably modestly higher than the current level (8 percent). Much easier to demonstrate is the proposition that the nation's labor law does not adequately protect workers' right to organize and collectively bargain. On these grounds a primafacie case exists for selective reforms to strengthen the NLRA, such as a somewhat shorter election period, higher and speedier penalties for anti-union discrimination, and some method to end first-contract impasses. Having laid out the positive case for unions and labor law reform, I must also note that there is a substantial negative case that strongly suggests substantially higher union density is not in the nation's best interest--at least in the current social and economic milieu. First, a growing portion of employment problems are not well addressed by traditional collective bargaining because of the increasingly diverse nature of the workforce, the changing nature of jobs and employment, and the limited reach of collective bargaining to many sectors of the economy. In addition, many workers simply do not want collective bargaining. Second, the bulk of the evidence suggests that over the long run unions unduly raise labor cost and harm firm performance, leading to capital flight, poor productivity growth, and declining employment.

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The idea that the U.S. economy would perform better and gain competitive advantage with significantly higher union density in a decentralized bargaining system and a supply-side driven global market place cannot be given serious credence. Third, there remain serious and even growing labor problems for workers, particularly for the tens of millions in the lower end of the job market, due to the globalization and commodification of labor markets and erosion of the social safety and privatization of economic risk. It is not evident, however, that more collective bargaining is in many cases the best solution to these problems, at least absent a worldwide union movement that can once again take labor cost out of competition. Better would be measures such as immigration reform, improved school systems, more responsible corporate governance, and expanded labor law protection. Above all of these measures stands one other: full employment. If the labor market can remain close to full employment the case for expanded unionism is significantly reduced; to the degree labor markets are dragged down by unemployment workers will want and need greater protection. And fourth and finally, there also appear to be more efficient and effective ways to solve some of these labor problems at the workplace than collective bargaining. Examples include nonunion alternative dispute resolution systems, legally binding employee handbooks, and expanded employee involvement plans This last thought leads me to my final conclusion. The most significant implication coming from the two books What Do Unions Do? and What Do Workers Want? is that the American labor market suffers from a significant shortfall of employee voice. Although I question the magnitude reported by F&R, the existence of a participation/representation gap seems eminently plausible. What is the best solution'? I counsel a two-pronged approach. It has the advantage of substantially increasing the supply of employee voice in a way that is balanced toward unions and employers, is cost effective and easily implemented, and moves in the direction that American workers say they want. One prong is modest strengthening of the right to organize and collectively bargain, as outlined above. The second is to significantly encourage more nonunion and hybrid forms of employee participation, representation, and dispute resolution by dropping the company union ban in the NLRA and providing incentives for the parties to use in-house methods of joint consultation, mediation, and arbitration. The net effect is an increase in employee voice of all types and greater competition among the suppliers of voice. This proposal, I note, is exactly in the spirit of the one that F & M ' s Harvard predecessor Sumner Slichter recommended in Congressional testimony seven decades ago Slichter, 1935; Kaufman, 2000). V. Concluston

Most books in the social sciences quietly slip into oblivion soon after publication. Very few remain frequently cited 20 years later and only a handful merit a retrospective symposium. One of these books is Freeman and Medoff' s What Do Unions Do ? When it was published, a reviewer (Mitchell, 1985: 253) labeled the book "a landmark in social science research." Two decades later this verdict still rings true. The authors of WDUD should be justifiably proud.

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The thesis of W D U D is that unions have both beneficial and harmful effects on the social balance sheet but that the f o r m e r o u t w e i g h s the latter. F & M first d e v e l oped a new "two faces" theory of unions to provide intellectual support for this proposition; they then subjected each facet o f union behavior to empirical scrutiny through detailed statistical analysis of numerous data sets. The theory and empirical evidence spoke with one voice: unions are neither entirely saints nor sinners but on b a l a n c e make a positive contribution to our e c o n o m y and society. No b o o k gets everything right and certainly no set o f authors can e s c a p e criticism from their peers. F & M and W D U D are no exception. Each paper in this symposium has in various ways pinpointed weaknesses in the theory, gaps in the evidence, and conclusions that in hindsight appear off-target. In this paper I have taken m y turn and have suggested a number of p l a c e s w h e r e F & M c o u l d have s t r e n g t h e n e d their argument, brought in different perspectives, or reached different conclusions. In particular, F & M might have presented a more c o n v i n c i n g a r g u m e n t for unions i f they had more broadly challenged and gone beyond the standard neoclassical model. Also, I believe in certain respects F & M understate the positive contribution o f unions; in others they understate the harm of unions; and that their overall scorecard is modestly too optimistic. Also, in the two d e c a d e s since p u b l i c a t i o n o f W D U D the e c o n o m i c and political e n v i r o n m e n t has shifted in w a y s that are adverse to both unions and F & M ' s empirical work and policy conclusions. M y judgment, however, is that while all of these criticisms and unforeseen events have dented the b o d y o f W D U D the b o o k ' s central message, evidence, and scholarly contribution still stand tall.

NOTE *1 acknowledge with appreciation the helpful comments of Richard Freeman, Barry Hirsch, Morris Kleiner, and John Pencavel.

REFERENCES Addison, John, Claus Schnabel, and Joachim Wagner. "The Course of Research into the Economic Conseuences of German Works Councils." British Journal of Industrial Relations 42 (June 2004): 255-8 I. - -

and Clive Belfield. "Union Voice." Journal of Labor Research 25 (Fall 2004a): 563-96. -."Unions and Employment Growth: The One Constant?" Industrial Relations 43 (April 2004b): 30523.

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