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Conclusions In the twenty years since the publication of What Do Unions Do?, employee benefits and contingent forms of non-wage compensation have increased in importance and scope in human resources and industrial relations practice and policy. Nevertheless, Freeman and Medoff’s (1984) seminal work, and the associated research in Freeman (1981, 1985), has stood the test of time. The theoretical and empirical agenda for research on unions and non-wage forms of compensation established in those works continues to be the leading framework for conceptualizing and analyzing this important issue.
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JOURNAL OF LABOR RESEARCH
Volume XXV, Number 4 Fall 2004
Non-Wage Forms of Compensation*
JOHN W. BUDD
University of Minnesota, Minneapolis, MN 55455
I. Introduction
Non-wage forms of compensation are monetary and non-monetary items used to attract,
retain, motivate, and reward employees above and beyond traditional wage and salary
payments. Monetary, non-wage compensation includes profit-sharing payments, lump-
sum bonuses, stock options, and other forms of contingent compensation. Non-mon-
etary, non-wage forms of compensation are employee benefits — these used to be called
fringe benefits, but as they now represent a substantial fraction of total compensation,
“fringe” benefits has become a misnomer. New York City’s pension funding crisis in
the 1970s and the billions of dollars of unfunded pension liabilities currently faced by
the major U.S. automakers and steel companies further underscore the obsolescence
of the “fringe” descriptor. Major employee benefits include employer-provided health
insurance and pension plans as well as vacation and sick days, life and disability insur-
ance, supplemental unemployment benefits, paid holidays, dental insurance, educa-
tional and legal assistance, and a myriad of other items. With growing concern over
work-family balance, recent attention has also focused on family-friendly benefits such
as parental and family leave, flexible work hours, on-site childcare, job-sharing, and
work-at-home programs.
Issues surrounding non-wage forms of compensation are very important for prac-
titioners, policymakers, and researchers (Butler, 1999). With a U.S. emphasis on pri-
vate rather than public provision of employee benefits — including health insurance,
retirement plans, and family-friendly policies — many employees rely on their
employer for benefits, and uneven coverage leaves some individuals vulnerable. But
escalating benefits costs are a major concern for employers and perhaps an impedi-
ment for improved competitiveness (Broderick and Gerhart, 1997). Conflicts over
employee benefits are sharpened by the fact that social as well as economic issues are
often central — health care, living standards for retirees, leisure time, childcare, and
other complex issues. To further address concerns with labor costs and to provide
greater incentives for employees, contingent forms of monetary, non-wage compen-
sation have also increased in importance in recent decades (Fossum and McCall, 1997).
But this trend can conflict with employees’ preferences for predictability and objec-
tivity. Research on the determinants, effectiveness, and implications of non-wage forms
of compensation, therefore, is an important component of analyses of work and the
employment relationship.
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As with many other aspects of the employment relationship, labor unions can
affect non-wage forms of compensation in ways that have both positive and negative
economic and social consequences. One of the many outstanding and enduring con-
tributions of Richard Freeman and James Medoff’s seminal 1984 book What Do Unions
Do? is demonstrating both theoretically and empirically these positive and negative
aspects of labor unions with regard to employee benefits and other forms of non-wage
compensation. In fact, What Do Unions Do? has largely shaped the last generation of
research on the effects of labor unions on individuals, organizations, and society, and
this continues to be especially true for the area of non-wage forms of employee com-
pensation.
Freeman and Medoff’s (1979, 1984) two faces of unionism — the monopoly
face and the collective voice/institutional response face — both predict that union-
ized employees will have more generous benefit packages than comparable nonunion
workers. But the subject of benefits is an excellent illustration of the differences
between the two faces, because the prediction of greater benefits for unionized employ-
ees stems from very different routes in each face. And this union-induced increase in
benefits has very different implications for aggregate social welfare depending on
whether the increase is because of the monopoly or collective-voice face. In contrast,
to the extent that monetary forms of non-wage compensation are viewed by employ-
ees as attempts to replace predictable wage payments with uncertain, contingent com-
pensation such as profit-sharing payments or bonuses, unions are predicted to be
associated with a reduced incidence of these items. Union policies favoring objective,
standard-rate wage policies over subjective policies with managerial discretion also
suggest that profit-sharing payments and bonuses will be less likely in unionized sit-
uations (Slichter et al., 1960; Freeman, 1980, 1982; Freeman and Medoff, 1984). As
with employee benefits, however, the differences between union and nonunion patterns
of monetary forms of non-wage compensation can stem from both the monopoly and
collective-voice face of labor unions.
Union-nonunion differences in non-wage forms of compensation that can be
explained by the monopoly face are called “monopoly effects” while differences that
result from the collective voice/institutional response face are called “collective voice
effects.” Areview of the research since the publication of What Do Unions Do? affirms
the importance of this conceptual framework, but also reveals the need to add a third
effect which I label the “facilitation effect.” To fix ideas, consider a typical survey
that asks individual employees whether they are covered by an employer-provided pen-
sion plan. Research on the monopoly and collective-voice effects assumes that a pos-
itive response to this question indicates that the employee is covered by a pension
plan whereas a negative response implies that they are not. In other words, these
responses are assumed to indicate true availability of employee benefits.
But there is an alternative possibility: A negative response can result from an
employee who is ignorant or unaware that he or she is covered by or eligible for a
specific benefit. By increasing awareness of employee benefits programs and provid-
ing representation when necessary, labor unions can facilitate receipt of employee ben-
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efits — holding actual availability constant. As such, if unionized workers report being
covered by various benefit plans more frequently than nonunion workers, this differ-
ence may stem from a combination of the monopoly and collective-voice effects in
raising availability and of the facilitation effect in raising awareness. Freeman and Med-
off’s monopoly power and collective-voice effects, along with the facilitation effect,
provide the organizing framework for the remainder of this reassessment of the effects
of labor unions on non-wage forms of compensation.1
II. Monopoly Power, Collective Voice, and Union Facilitation
In the neoclassical economics textbook model of the labor market, competition among
individuals for jobs and competition among organizations for workers yields market-
clearing compensation packages and employment levels in which individuals are
rewarded with the value of their marginal contribution to the organization. Moreover,
compensation packages (and working conditions) reflect the preferences of the mar-
ginal worker — individuals on the margin of accepting a job or quitting in response
to small changes in the compensation package or working conditions. In the neoclas-
sical model with labor market competition, the theoretical basis for differences in
employee-benefit packages across firms is compensating differentials (Brown, 1980;
Montgomery and Shaw, 1997; Rosen, 1974). Workers with stronger preferences for
benefits will take jobs at firms that offer more benefits but to compensate for this richer
package of benefits, they must accept a lower wage.
Now consider what happens if the employees at one organization are represented
by a labor union. In the textbook model, a union is a monopolizing agent. Monopoly
power, derived from the threat of imposing costs on the organization through a strike,
can be used to increase the compensation package above the market-clearing, com-
petitive level.2In fact, the average wage premium for union relative to nonunion work-
ers in the United States is typically thought to be around 15 percent (Lewis, 1986). The
same bargaining power that underlies the union wage premium can be used to win more
generous benefits packages. This is the monopoly component of Freeman and Med-
off’s (1979, 1984) two faces of unionism model. In the monopoly face, labor unions
are predicted to increase the receipt of employee benefits, such as health insurance and
pension plans, relative to nonunion situations because of monopoly power rooted in
the strike threat. Actual increases in unionized benefits levels that stem from this
monopoly power represent the “monopoly effect” of labor unions on benefits.
This same monopoly power can be used to win additional monetary forms of non-
wage compensation, or to resist the imposition of forms perceived as unfavorable to
workers. In particular, to the extent that workers prefer predictable, noncontingent com-
pensation payments, the monopoly effect predicts that unionized workplaces will be less
likely to have contingent compensation schemes such as profit-sharing or bonus sys-
tems. The monopoly effect of labor unions on non-wage forms of compensation —
whether in increasing benefits or decreasing contingent compensation — has neg-
ative consequences for economic efficiency and aggregate welfare — if labor mar-
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kets and the employment relationship work according to the textbook neoclassical
model.
By definition, the monopoly effect stems from monopoly power which distorts
competitive outcomes. Since competitive outcomes maximize efficiency and aggre-
gate social welfare in standard neoclassical economic theory, any deviations — whether
caused by a union’s strike threat or the monopoly power of a company or the imposi-
tion of regulations by a government — are harmful. Increased levels of employee ben-
efits or resistance to contingent compensation both make unionized labor more
expensive than the market-clearing, efficiency-maximizing compensation package.
Unionized companies will then employ less-than-optimal amounts of labor which
causes unemployment or excess supply in the nonunion sector and also raises prices
for unionized products. Unionized workers in the standard neoclassical economics the-
ory, therefore, benefit at the expense of investors, nonunion labor, and consumers. Free-
man and Medoff (1979, 1984) refer to this as the monopoly face of unionism.
In contrast, consider what might happen if the assumptions of the neoclassical
economic model are not fulfilled. Suppose externalities create workplace public goods
— such as safety provisions, heating, lighting, grievance procedures, or pensions (Free-
man, 1976; Freeman and Medoff, 1984). With self-interested agents, there is a free-
rider problem and too little of these beneficial public goods will be provided. Or
suppose that asymmetric information, mobility costs, or other complications make labor
markets imperfectly competitive, as emphasized by John R. Commons and other early
institutional labor economists (Kaufman, 1993, 1997). Under these conditions, employ-
ees might not be willing to express their true preferences for various forms of com-
pensation (Freeman, 1981, 1985). With collective voice in the form of a labor union,
the free-rider problem can be overcome, and better information about individual worker
preferences can be collected (Freeman, 1976; Freeman and Medoff, 1984). And as
unions are political institutions with contract ratification and leadership selection done
by majority voting, a median voter model implies that unions will negotiate compen-
sation packages to reflect the preferences of the average worker, not the marginal
worker as in the nonunion case.3
As the average worker is generally older and less mobile than the worker on the
margin of joining or quitting the firm, they are more likely to prefer benefits (Freeman,
1981, 1985; Freeman and Medoff, 1984). As such, Freeman and Medoff’s (1979, 1984)
collective-voice face of unionism predicts that unionized workplaces will have higher
levels of employee benefits than nonunion workplaces.4Note carefully, however, that
this prediction differs significantly from the monopoly effect in that the collective voice
effect on benefits is a re-arranging of the total compensation package towards more
benefits and lower wages to reflect the preferences of the average worker. In the col-
lective-voice effect, total compensation is held constant. Consequently, the collective-
voice effect is not necessarily harmful to efficiency and, by countering market
imperfections, can actually increase aggregate economic welfare.
Freeman and Medoff’s (1984) seminal research focuses on the possibilities of
unions winning additional benefits by using monopoly-based bargaining power or by
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using collective voice to promote average rather than marginal worker preferences. But
there is a third dimension: Labor unions can facilitate workers’ knowledge and use of
existing benefit packages. For example, unions can provide information to employees
about benefit plans through union newsletters and other communication channels.
Workshops and training sessions can further help employees learn about various ben-
efits programs. Representation by shop stewards in a union-negotiated grievance pro-
cedure can help ensure that employees are able to use the benefits to which they are
entitled. In the case of mandated benefits such as workers’ compensation and unem-
ployment insurance, unions can also facilitate benefits receipt through assistance with
employer challenges to employee claims and through protection against unjust dis-
missal in retaliation for filing a valid claim. In this “facilitation effect,” labor unions
do not increase the actual incidence or availability of employee benefits plans, but
increase the effective coverage by increasing employee awareness and utilization. Sur-
vey results in which unionized individuals are more likely than nonunion workers to
respond that they have health insurance or a pension plan are assumed by the monop-
oly and collective-voice effects to mean increased actual availability while the facili-
tation effect highlights the possibility that these survey responses reflect differential
awareness rather than availability.
In theory, then, a balanced scorecard of the effects of labor unions on non-wage
forms of compensation is mixed. The monopoly effect in which unions increase
employee benefits and decrease contingent compensation distorts optimal competi-
tive outcomes and is therefore economically and socially harmful if labor markets are
competitive. The collective-voice effect — in which unions also increase benefits and
perhaps decrease contingent compensation — occurs in the context of market imper-
fections and can therefore be economically and socially beneficial. The facilitation
effect allowing employees to utilize their legitimate benefits programs is also eco-
nomically and socially beneficial. But what happens in practice is an empirical ques-
tion.
III. Results from What Do Unions Do?
It is a testament to the enduring quality of What Do Unions Do? that the pioneering
empirical analyses in chapter 4 (“Fringe Determination under Trade Unionism”) and
in the underlying articles by Freeman (1981, 1984, 1985) continue to be among the
most thorough and significant empirical contributions on unions and non-wage forms
of compensation.5Awide range of questions using a variety of individual and estab-
lishment-level data sources and standard econometric methods are addressed in these
works. The one theme that is repeatedly revealed in these analyses — across various
questions and data sets — is that observed patterns of benefits can only be partially
explained by the monopoly face of unions; the collective-voice effect of labor unions
on employee benefits is significant and must not be overlooked.
The results clearly show that unionized workers and workplaces are significantly
more likely than comparable nonunion workers and workplaces to have (or express
awareness of) major benefit items. In establishment-level data, workplaces with at least
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50 percent union members have total expenditures on nonmandatory benefit items 25
to 35 percent higher than similar nonunion workplaces (Freeman, 1981). Holding total
compensation constant, the union effect is still significant, but smaller, ranging between
15 and 20 percent. As such, the union effect on employee benefits appears roughly
equally split between a monopoly and a collective voice effect.6The union effect is
particularly large for lower paid establishments and for small establishments. For spe-
cific items, the union effect is also particularly strong for health insurance, pension
plans, and vacation and holiday pay, and is negative for bonuses. This pattern is con-
sistent with the collective-voice orientation to the preferences of the marginal worker
as they presumably desire health insurance, pensions, and vacations as a function of
being older and having greater seniority. These results are also robust to instrument-
ing for total compensation and for using a paired analysis of blue-collar and white-
collar workers in the same establishments to control for an establishment-level fixed
effect (Freeman, 1981).
In individual-level data, the standard question is whether the individual respon-
dent has a specific benefit. Freeman and Medoff (1984) show that in the Current Pop-
ulation Survey (CPS), the National Longitudinal Survey of Older Men, the Panel Study
of Income Dynamics, and the Quality of Employment Survey (QES), unionized work-
ers are 24 to 32 percentage points more likely than similar nonunion workers to report
having a pension plan. The CPS and QES also ask about health insurance and the esti-
mated union effect is 14 to 18 percentage points. Finally, the QES also asks about a
wide range of plans, and unionized workers are less likely to report contingent forms
of non-wage compensation such as profit sharing and stock options. As a check against
unobserved selectivity bias, the analysis of longitudinal data reveals that employees
who move into unionized jobs significantly gain employee benefits compared to those
who stay in nonunion jobs or move out of union jobs (Freeman, 1984, 1985).
An additional dimension to these pioneering results that further reinforces the
importance of the collective-voice aspect is the effect of unions on the nature of
employee-benefits programs. The strongest evidence pertains to pension plans (Free-
man, 1985). Relative to nonunion plans, pension plans for unionized employees are
significantly more likely to be defined-benefit rather than defined-contribution plans.
This favors workers who stay at the firm longer — the average rather than marginal
worker. Eligibility requirements further favor average employees as predicted by the
collective-voice face of unionism. Freeman and Medoff (1984) also note that a much
higher fraction of union than nonunion disability-insurance plans include age and years
of service eligibility requirements which again reflects greater attention to older, less
mobile workers.
In sum, the seminal work of Freeman and Medoff (1984), and the more detailed
supporting analyses of Freeman (1981, 1984, 1985), support the two faces of union-
ism model. In the standard neoclassical economics framework, the monopoly effect on
employee benefits is a social cost. But the collective voice aspect — which in this early
work was revealed to be roughly half of the overall union effect on non-wage forms
of compensation — brings social benefits because a more preferable package of ben-
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efits is provided at no extra cost. These results provide the context for much of the sub-
sequent research on unions and non-wage forms of compensation.7
IV. Health Insurance and Pension Plans
Since the publication of What Do Unions Do?, two benefit items have received the
bulk of the attention in the research literature: employer-provided health insurance and
pension plans. Given the importance of these two items — for both the social welfare
of individuals and retirees as well as the large fraction of employers’ benefits costs
accounted for by these plans — this importance in the research literature is not inap-
propriate, even if it has been driven by data availability.8And in a variety of data sets,
the research continues to find that labor unions are associated with greater levels of
health insurance and pension benefits.
Using the National Longitudinal Survey of Youth (NLSY), Wunnava and Ewing
(1999) find that union representation increases the probability of medical insurance
and retirement plans. As in Freeman (1981) and Freeman and Medoff (1984), the union
effects in the NLSY are also largest for smaller firms. Unions are also associated with
greater pension benefits in the Survey of Consumer Finances (Montgomery and Shaw,
1997). In a focused study of local government employment, Zax (1988) finds support
for the monopoly and collective voice effects: Municipal employees represented by a
union have increased benefits (the monopoly effect) and a greater weighting of the
entire compensation package towards benefits (the collective-voice effect). Also in
the public sector, in a national sample of U.S. cities, police receive higher employee
benefits payments when covered by a collective bargaining agreement (Feuille et al.,
1985). As in Freeman (1981) and in support of a combination of monopoly and col-
lective-voice effects, there is still a positive union effect after controlling for total com-
pensation.
These results are also reinforced by empirical studies of workers in other coun-
tries. Using Canadian data on wages and total compensation, Renaud (1998) estimates
a union-nonunion wage gap that is smaller than the total compensation gap, which
implies a significant union effect on benefits packages. In a different Canadian data
set, unionized workers are around 20 percent more likely to have a pension plan than
nonunion workers, even after controlling for unobservable personal characteristics
using longitudinal analyses similar to Freeman (1984) (Swidinsky and Kupferschmidt,
1991). In Australian longitudinal data, Kornfeld (1993) also finds that unions positively
effect the probability of a pension plan. Lastly, in an analysis that closely parallels
that of Freeman (1981) and Freeman and Medoff (1984), Miller and Mulvey (1992)
find both monopoly and collective-voice effects of Australian unions on total benefit
expenditures.
Freeman’s (1981) analyses have not been without criticism, however. Belman and
Heywood (1991) assert that researchers should distinguish between direct and indi-
rect effects of unions on employee benefits where the indirect effect is the increase in
benefits that comes through an income effect. It’s not clear, however, how this differs
from the monopoly power and collective voice framework. Increased union member
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income stems from monopoly power, so this indirect effect is simply capturing the
extent to which unions channel their monopoly power into benefits rather than wage
and salary payments. Belman and Heywood (1991) estimate the direct effect by hold-
ing compensation constant — but this is the collective-voice effect. By instrumenting
for the hourly wage and using predicted values to distinguish direct from indirect
effects, they find significant magnitudes for both union effects on the incidence of
health insurance and pensions. This reinforces, not undermines, the two faces of union-
ism model of What Do Unions Do?
By focusing on the role of fixed costs for benefits (such as administration costs)
in generating union-nonunion differences in benefits, Fosu (1993) tries to distinguish
a model distinct from the collective voice model of What Do Unions Do? However,
this distinction seems artificial as union-nonunion differences in Fosu’s (1993) frame-
work stem from differences in preferences between average and marginal workers,
from public goods aspects of benefits, and from the possibility that unions are more
efficient at reducing average fixed costs — all of these elements are consistent with
Freeman’s (1981) and Freeman and Medoff’s (1984) collective voice model.
Methodologically, Belman and Heywood (1991) and Fosu (1993) emphasize the
need to use econometric methods appropriate for distinguishing between union effects
on the likelihood that a benefits plan exists and on the level of expenditure or type of
plan conditional upon its existence. Using probit and tobit models on the same
employee expenditure data used by Freeman (1981), Fosu (1993) finds positive union
effects on both health insurance plans and pension benefits, but stronger results for
pensions compared to health insurance. Fosu (1993) also finds an interesting
dichotomy: The union effect for health insurance appears to be related to improving
the nature of the plan whereas for pension plans the union effect appears to be focused
on increasing the chance that a plan exists. Note, however, that these conclusions come
from analyses of employer expenditures, not from information about the nature of spe-
cific plans. Lastly, Fosu (1993) claims that this dichotomy undermines the collective-
voice model, but this overreaches because the validity of the collective voice model
does not require equal differences in marginal versus average worker preferences across
all types of benefits.
Better analyses of the value of pension plans are Freeman (1985), discussed above,
and Allen and Clark (1986) who use U.S. Department of Labor data on employer-pro-
vided pension plans to calculate the actual value of pension benefits at retirement. In
these data, unionized workers receive significantly higher pension benefits at retire-
ment and also retire a year earlier, on average, than nonunion workers. Moreover,
unionized retirees were more likely to receive a post-retirement increase in their pen-
sion benefits, especially for individuals who had been retired longer. When these three
effects — higher annual benefits, earlier retirement ages, and greater post-retirement
increases — are put together, Allen and Clark (1986) estimate that total pension wealth
is 50 to 100 percent higher for unionized individuals than for nonunion individuals.
Buchmueller et al. (2002) similarly analyze differences between union and
nonunion health insurance plans in greater detail than most studies that either analyze
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only whether health insurance is offered or the total employer monetary contribution.
In Current Population Survey data from five years between 1983 and 1997, union rep-
resentation is significantly related to increased coverage by employer-provided health
insurance benefits, and this increase is larger in smaller firms. Retired workers who
were covered by a union contract are also significantly more likely to be covered by
an employer-provided health care plan for retirees. Using firm-level survey data, Buch-
mueller et al. (2002) also find that unionization increases the average amount of the
health insurance premiums that are paid by the employer and increases the probabil-
ity that the employer fully pays the premiums. Among indemnity plans, deductibles
for unionized employees are significantly lower than for nonunion employees.
An issue that has not received as much attention as it should, however, is aware-
ness versus availability. Nearly all analyses of individual-level survey data on whether
or not a worker has employer-provided health insurance or pension benefits assume
that workers have perfect information about their benefit plans (Belman and Heywood,
1991; Buchmueller et al., 2002; Freeman and Medoff, 1984, Table 4–3; Miller and
Mulvey, 1992; Swidinsky and Kupferschmidt, 1991; Wunnava and Ewing, 1999). A
worker who indicates that he or she is not covered is assumed to be truly uncovered
rather than covered but ignorant. But in individual survey data, differing response pat-
terns between union and nonunion individuals regarding employee benefits might
reflect differential awareness rather than differential availability. To wit, Leigh (1976)
reports that unionized employees were more knowledgeable about their pension plans
than nonunion employees whereas Luchak and Gunderson (2000) find that even among
union workers, workers’ knowledge about their pensions is low on average.
These findings suggest that in addition to a monopoly effect and a collective-voice
effect, labor unions might also have a facilitation effect that boosts awareness and use
of existing benefit plans. Three sets of findings further suggest the presence of a facil-
itation effect. One, union members are more likely than covered nonmembers to indi-
cate that they have health insurance and pension plans, even though by law they should
be equally covered by existing collective bargaining agreements (Budd, 1998). Two,
in linked manager-employee data from Britain, individual employees are significantly
less likely than managers to indicate that certain family-friendly policies are available
(Budd and Mumford, 2004). Three, research on mandated social insurance benefits,
such as workers’ compensation and unemployment insurance, finds that unionized
workers take up these benefits more readily than comparable nonunion workers (Budd
and McCall, 1997; Hirsch et al., 1997). These three issues are discussed in the next
three sections.
V. CPS Results, 2002
This section presents the union-nonunion coverage rate differentials for the most
recently available survey of the Current Population Survey (CPS) with two goals in
mind.9One, these results document the most up-to-date union and nonunion coverage
rates in the United States for health insurance and pension benefits. Two, among those
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covered by union contracts, the differences between union members and nonmem-
bers will be revealed.
The CPS is a monthly survey of approximately 60,000 households that includes
labor market information representative of the U.S. noninstitutional population aged
16 and older and is probably the most widely-used U.S. data set in labor economics.
The March 2002 survey includes demographic information as well as questions on
union status, employer-provided health insurance, and pension plans. Construction of
a sample of private and public sector employed individuals with complete informa-
tion on the questions of interest yields 15,019 individuals. Of these, 13.6 percent are
covered by a union contract. Table 1 shows that these union workers are significantly
more likely than nonunion workers to report that they are in their employer’s health
insurance plan (82.9 percent versus 58.5 percent for nonunion) and pension plan (75.7
percent versus 45.9 percent).
As shown in Table 2, these union-nonunion differences are statistically signifi-
cant when controlling for the standard demographic and job-attribute control vari-
ables in a probit model. These models do not control for total compensation so these
estimates should be considered as the total union effect, not as the monopoly, collec-
tive-voice, or facilitation effect singly. The results confirm that the earlier findings of
Freeman (1981, 1985) and Freeman and Medoff (1984) are still important in the U.S.
labor market of the early twenty-first century. Controlling for demographic and job-
attribute differences, workers covered by collective bargaining agreements are pre-
dicted to be 16.4 percentage points more likely than nonunion workers to be covered
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Table 1
Health Insurance and Pension Coverage Rates By Union Status, 2002
[sample sizes in brackets]
Included in a Pension or
Included in a Health Insurance Retirement Plan Offered
Plan Offered by Employer by Employer
(1) (2)
Full Sample 0.622 0.504
[15,019] [15,019]
Covered by a Union Contract 0.829 0.757
[2,271] [2,271]
Union Member 0.838 0.765
[2,043] [2,043]
Covered Nonmember 0.746 0.684
[228] [228]
Nonunion 0.585 0.459
[12,748] [12,748]
Source: Current Population Survey, March 2002.
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by their employer’s health insurance plan, and are 18.8 percentage points more likely
to be included in their employer’s pension plan. Relative to the sample means, these
translate into union effects of 20 percent and 37 percent for health insurance and pen-
sion plans, respectively. Tables 3 and 4 document that the significant union effects are
present within a wide range of demographic groups, industries, and occupations. Non-
trivial union-nonunion differences are documented for both health insurance and pen-
sions for both men and women, white and nonwhite, all age categories, nearly all
educational categories, and many industries and occupations. For health insurance,
the union-nonunion differential is slightly greater among smaller firms, but there is
no obvious pattern for pensions.
Returning to Table 1, note further that of the 2,271 workers covered by union con-
tracts, 2,043 (90 percent) are union members whereas 10 percent are covered non-
members. By law, unions and employers cannot discriminate against covered nonmembers
so they are equally entitled to all of the contract’s wage, benefit, work rule, and admin-
istrative policies and protections (Budd and Na, 2000). But consistent with Budd’s
(1998) findings using the April 1983 CPS, Table 1 shows that covered nonmembers
are less likely than union members to report that they have employer-provided health
insurance and pension plans. When controlling for demographic and job-attribute char-
acteristics (Table 2), there is still a significant difference between the two groups of
workers. This might reflect differences in awareness rather than actual availability since
JOHN W. BUDD 607
Table 2
Probit Analysis of Employer-Provided Health Insurance and Pension Plans,
March 2002 CPSa
Employer-Provided Employer-Sponsored
Health Insurance Pension Plan
(1) (2) (3) (4)
Covered by a Union Contract 0.164* — 0.188*
(0.013) (0.014)
Union Member — 0.175* 0.197*
(0.013) (0.015)
Covered Nonmember — 0.068* 0.108*
(0.033) (0.038)
Additional Controls?bYes Ye s Yes Yes
Sample Size 15,019 15,019 15,019 15,019
Source: Current Population Survey, March 2002.
Notes: aEach entry contains the marginal effect and robust standard error (in parentheses) from a probit model. The depend-
ent variables are indicators for whether or not the employee has health insurance or a pension plan provided by
their employer. bEach probit model also includes control variables for gender, marital status, ethic background (4
categories), education (6), potential labor market experience, part-time, hourly, employer size (5), public sector (3),
industry (19), occupation (11), and region (8). *denotes statistical significance at the 0.05 level, two-tailed test.
597-XXV-4_Budd 10/1/04 9:53 AM Page 607
608 JOURNAL OF LABOR RESEARCH
Table 3
The Union Effect on Health Insurance Coverage: Subgroup Differences, 2002
Health Insurance Unadjusted
Coverage Rate Union – Adjusted Differenceb
Sample Nonunion Marginal Standard
Size UnionaNonunion Difference Effect Error
(1) (2) (3) (4) (5) (6)
Full Sample 15,019 0.829 0.585 0.245* 0.164* 0.013
Gender
Male 7,557 0.859 0.639 0.220* 0.154* 0.015
Female 7,462 0.793 0.531 0.262* 0.167* 0.020
Ethnic Background
White 12,778 0.827 0.586 0.241* 0.155* 0.014
Nonwhite 2,241 0.837 0.577 0.261* 0.211* 0.026
Marital Status
Not Married 6,244 0.841 0.546 0.295* 0.222* 0.022
Married 8,775 0.823 0.613 0.210* 0.131* 0.015
Age
16–24 2,007 0.525 0.248 0.277* 0.146* 0.052
25–34 3,283 0.804 0.630 0.174* 0.127* 0.027
35–44 4,091 0.838 0.632 0.206* 0.157* 0.021
45–54 3,502 0.871 0.672 0.198* 0.122* 0.020
55+ 2,136 0.861 0.639 0.223* 0.140* 0.028
Highest Grade Completed
Less Than High School 1,659 0.774 0.293 0.482* 0.392* 0.061
High School Diploma 4,577 0.804 0.559 0.245* 0.160* 0.023
Some College 4,509 0.835 0.580 0.255* 0.166* 0.023
College Degree 2,835 0.853 0.729 0.124* 0.107* 0.023
Graduate Degree 1,439 0.865 0.776 0.089* 0.044 0.029
Private or Public Sector
Private Sector 12,410 0.814 0.569 0.245* 0.185* 0.016
Public Sector 2,609 0.847 0.696 0.151* 0.101* 0.020
Industry
Agriculture and Mining 303 0.688 0.439 0.248 0.240 0.132
Construction 843 0.811 0.507 0.303* 0.271* 0.042
Nondurable Manufacturing 1,310 0.876 0.773 0.103* 0.033 0.033
Durable Manufacturing 834 0.888 0.750 0.138* 0.126* 0.030
Transp., Commun., Utilities 1,088 0.891 0.692 0.199* 0.126* 0.030
Wholesale and Retail Trade 3,037 0.675 0.447 0.228* 0.224* 0.046
Finance, Ins., Real Estate 943 0.696 0.686 0.010 –0.060 0.109
Bus. and Personal Services 1,576 0.762 0.479 0.283* 0.305* 0.056
Educ. and Health Services 4,288 0.805 0.594 0.211* 0.131* 0.022
Public Administration 797 0.903 0.815 0.088* 0.055 0.026
continued
597-XXV-4_Budd 10/1/04 9:53 AM Page 608
nonmembers might not receive union publications or help from a union representative.
On the other hand, this difference might reflect (illegal) employer or union discrimi-
nation, or unobserved differences between the two groups (Budd, 1998; Budd and
Na, 2000). This issue does not affect a large number of workers (less than two per-
cent), but further research might reveal additional insights into what unions do.
That the importance of unions for the provision of employee benefits is not lim-
ited to the U.S. merits reinforcing. Table 5 therefore presents unadjusted and adjusted
differences between unionized and nonunion workplaces for four types of employee
benefits in a sample of 1,987 workplaces from the British Workplace Employee Rela-
tions Survey 1998 (WERS98) (Department of Trade and Industry, 1999).10 The
WERS98 allows one to identify whether the largest occupational group in the work-
place has private health insurance benefits, an employer-provided pension plan, sick
pay in excess of the legally-mandated minimum, and at least four weeks of paid vaca-
tion per year. Workplaces in which pay for the largest occupational group is determined
by collective bargaining are less likely to provide private health insurance. This under-
scores the importance of the institutional environment: Britain has a vast public health
care system and less than 20 percent of workplaces report having private health insur-
JOHN W. BUDD 609
Occupation
Executive and Managerial 2,249 0.847 0.769 0.079* 0.040 0.035
Professional 2,486 0.853 0.702 0.151* 0.099* 0.024
Technicians and Sales 2,151 0.734 0.552 0.182* 0.166* 0.049
Administrative Support 2,226 0.822 0.574 0.248* 0.167* 0.035
Services and Farming 2,411 0.766 0.334 0.432* 0.190* 0.041
Craft and Repair 1,513 0.846 0.632 0.214* 0.143* 0.030
Operators 726 0.882 0.630 0.251* 0.124* 0.046
Transportation and Laborers 1,257 0.848 0.498 0.350* 0.265* 0.038
Firm Size (Number of Employees)
Less Than 10 1,881 0.562 0.297 0.265* 0.212* 0.070
10 – 24 1,541 0.630 0.428 0.202* 0.226* 0.066
25 – 99 2,124 0.791 0.579 0.212* 0.179* 0.038
100 – 499 2,329 0.819 0.655 0.164* 0.145* 0.027
500 – 999 881 0.794 0.719 0.075* 0.034 0.042
1,000 or More 6,263 0.867 0.692 0.176* 0.125* 0.014
Source: Current Population Survey, March 2002.
Notes: aCovered by a union contract. bAdjusted differences are the marginal effect and standard error from a probit
model that includes the control variables listed in Table 2. *denotes statistical significance at the 0.05 level,
two-tailed test.
Table 3 (continued)
Health Insurance Unadjusted
Coverage Rate Union – Adjusted Differenceb
Sample Nonunion Marginal Standard
Size UnionaNonunion Difference Effect Error
(1) (2) (3) (4) (5) (6)
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610 JOURNAL OF LABOR RESEARCH
Table 4
The Union Effect on Pension Coverage: Subgroup Differences, 2002
Pension Unadjusted
Coverage Rate Union – Adjusted Differenceb
Sample Nonunion Marginal Standard
Size UnionaNonunion Difference Effect Error
(1) (2) (3) (4) (5) (6)
Full Sample 15,019 0.757 0.459 0.298* 0.188* 0.014
Gender
Male 7,557 0.762 0.482 0.279* 0.208* 0.019
Female 7,462 0.751 0.437 0.314* 0.151* 0.022
Ethnic Background
White 12,778 0.772 0.468 0.303* 0.190* 0.016
Non-White 2,241 0.691 0.406 0.285* 0.191* 0.033
Marital Status
Not Married 6,244 0.685 0.351 0.334* 0.209* 0.024
Married 8,775 0.797 0.540 0.257* 0.161* 0.017
Age
16–24 2,007 0.434 0.132 0.302* 0.156* 0.039
25–34 3,283 0.685 0.456 0.229* 0.170* 0.032
35–44 4,091 0.780 0.532 0.248* 0.180* 0.024
45–54 3,502 0.823 0.568 0.255* 0.159* 0.024
55+ 2,136 0.775 0.502 0.273* 0.120* 0.036
Highest Grade Completed
Less Than High School 1,659 0.571 0.163 0.408* 0.228* 0.050
High School Diploma 4,577 0.711 0.415 0.296* 0.175* 0.024
Some College 4,509 0.765 0.458 0.306* 0.188* 0.026
College Degree 2,835 0.794 0.616 0.177* 0.133* 0.030
Graduate Degree 1,439 0.868 0.681 0.187* 0.099* 0.036
Private or Public Sector
Private Sector 12,410 0.684 0.432 0.251* 0.197* 0.018
Public Sector 2,609 0.843 0.655 0.188* 0.139* 0.021
Industry
Agriculture and Mining 303 0.688 0.331 0.356* 0.392* 0.133
Construction 843 0.680 0.332 0.348* 0.310* 0.055
Nondurable Manufacturing 1,310 0.804 0.606 0.198* 0.145* 0.038
Durable Manufacturing 834 0.762 0.590 0.172* 0.193* 0.042
Transp., Commun., Utilities 1,088 0.824 0.535 0.289* 0.230* 0.035
Wholesale and Retail Trade 3,037 0.497 0.315 0.182* 0.133* 0.045
Finance, Ins., Real Estate 943 0.478 0.591 –0.113 –0.076 0.114
Bus. and Personal Services 1,576 0.500 0.327 0.173* 0.144* 0.065
Educ. and Health Services 4,288 0.785 0.503 0.282* 0.157* 0.024
Public Administration 797 0.854 0.754 0.100* 0.092* 0.034
Occupation
Executive and Managerial 2,249 0.799 0.657 0.142* 0.087 0.043
continued
597-XXV-4_Budd 10/1/04 9:53 AM Page 610
ance in the WERS98. In contrast, unionized workplaces are 16.2 percentage points
more likely to have an employer-provided pension, 9.2 percentage points more likely
to have excess sick pay, and 17.6 percentage points more likely to have at least four
weeks of paid leave. These are workplace-level responses provided by a manager, so
they do not reflect a facilitation effect. Based on the research reviewed above, these
affects are likely to reflect a combination of monopoly power and collective voice,
though a more detailed analysis is warranted. But more significantly, the important
effects of unions on the provision of employee benefits highlighted by Freeman (1981)
and Freeman and Medoff (1984) are not limited to the United States
VI. Family-Friendly Policies
Acategory of employee benefits that has received substantially greater public atten-
tion since the publication of What Do Unions Do? is family-friendly policies that aim
to help employees strike a balance between work and family responsibilities (Bailyn
et al., 2001; Williams, 2000). Examples include paid parental leave, on-site or subsi-
dized childcare, job-sharing arrangements, and flexible work schedules. As these ben-
efits increase in importance, a new question for what unions do to non-wage forms of
compensation is whether labor unions increase or decrease the provision of family-
friendly benefits. Budd and Mumford (forthcoming) is the most explicit analysis of
this question to-date.11
JOHN W. BUDD 611
Table 4 (continued)
Pension Unadjusted
Coverage Rate Union – Adjusted Differenceb
Sample Nonunion Marginal Standard
Size UnionaNonunion Difference Effect Error
(1) (2) (3) (4) (5) (6)
Professional 2,486 0.849 0.619 0.231* 0.137* 0.027
Technicians and Sales 2,151 0.604 0.434 0.170* 0.103* 0.051
Administrative Support 2,226 0.766 0.469 0.297* 0.140* 0.039
Services and Farming 2,411 0.654 0.213 0.441* 0.149* 0.035
Craft and Repair 1,513 0.773 0.454 0.319* 0.234* 0.037
Operators 726 0.763 0.438 0.325* 0.206* 0.052
Transportation and Laborers 1,257 0.701 0.302 0.399* 0.271* 0.041
Firm Size (Number of Employees)
Less Than 10 1,881 0.329 0.181 0.147 0.081 0.050
10 – 24 1,541 0.457 0.267 0.190* 0.222* 0.067
25 – 99 2,124 0.645 0.400 0.245* 0.196* 0.043
100 – 499 2,329 0.759 0.516 0.243* 0.187* 0.033
500 – 999 881 0.735 0.592 0.143 0.037 0.053
1,000 or More 6,263 0.816 0.601 0.215* 0.169* 0.016
Source: Current Population Survey, March 2002.
Notes: See Notes to Table 3.
597-XXV-4_Budd 10/1/04 9:53 AM Page 611
Using the British WERS98 data set, Budd and Mumford (2004) find that British
workplaces with at least one recognized union are more likely to have parental leave,
special paid leave for short-term family issues, job-sharing options, and to a lesser
extent, subsidized childcare. Of additional interest for this review, Budd and Mum-
ford further try to distinguish between monopoly and collective voice effects in the
provision of family-friendly policies. Lacking good measures of total compensation
(the usual method for isolating the collective-voice effect), this study instead analyzes
whether family-friendly policies in unionized workplaces are related to measures of
monopoly power (such as workplace union density) and collective-voice (such as reg-
ular union meetings or workplace demographics). The two benefits that involve paid
leave time (parental leave and special-paid leave) appear driven to be by monopoly
power. In contrast, childcare, job-sharing arrangements, and work-at-home options
— issues with potentially greater integrative rather than distributive aspects — are
more strongly associated with measures of collective voice. While this is only one
study, these first results support the extension of Freeman and Medoff’s (1979, 1984)
612 JOURNAL OF LABOR RESEARCH
Table 5
British Workplaces with Employee Benefits by Union Status, 1998
Employees in Largest Occupational Group Entitled to…
Sick Pay in
Private Employer Excess of At Least Four
Health Pension Statutory Weeks of Paid
Insurance Scheme Requirements Annual Leave
(1) (2) (3) (4)
A. Unadjusted Differences: Sample Means [sample sizes in brackets]
Full Sample 0.179 0.783 0.757 0.897
[1,987] [1,987] [1,987] [1,987]
Largest Occupational 0.086 0.934 0.877 0.974
Group Has Collective [665] [665] [665] [665]
Bargaining for Pay
Nonunion 0.226 0.707 0.697 0.858
[1,322] [1,322] [1,322] [1,322]
B. Adjusted Differences: Probit Marginal Effect [p-values in brackets]a
Largest Occupational –0.058* 0.162* 0.092* 0.176*
Group Has Collective [0.0006] [0.0007] [0.0004] [0.0002]
Bargaining for Pay
Source: Workplace Employee Relations Survey, 1998.
Notes: aEach entry contains the marginal effect and p-value of the union coefficient in a probit model for each of the four
employee benefits. The probit model includes sampling weights and the p-values account for the stratification in
the sampling procedure. Each probit model also includes control variables for employer size, establishment age,
multiple worksites, public sector, workplace demographics (proportion female, part-time, youth, older, and non-
white), presence of a human resources representative, workplace proportion in teams and quality circles, industry
(11), occupation (7), and region (10). The sample size is 1,987. * denotes statistical significance at the 0.05 level,
two-tailed test.
597-XXV-4_Budd 10/1/04 9:53 AM Page 612
two faces of unionism beyond the more traditional benefits emphasized in the bulk of
the literature to newer family-friendly policies.
In addition to the workplace-level data, the WERS98 data set used by Budd and
Mumford (2004) also includes a rich linked component — 25 employees from many
of the establishments were also randomly surveyed so the WERS98 data include both
establishment and employee-level measures. As such, for several family-friendly poli-
cies there is information on both whether a manager indicates the policy is available
in the workplace and whether an individual employee thinks it is available to him or
her. In addition to the monopoly and collective-voice effects, therefore, the facilita-
tion effect can also be analyzed in these data. Among workplaces with a family-friendly
policy (according to the manager), large fractions of employees do not indicate that
this policy is personally available to them. In other words, there appears to be a sig-
nificant discrepancy between availability and awareness. Budd and Mumford (2004)
find that this discrepancy decreases in the presence of a labor union for both parental-
leave and job-sharing programs. This is consistent with the facilitation effect, such as
through union-provided information so that unionized employees have a greater aware-
ness of their benefits programs.12
VII. Mandated Social Insurance Benefits
An aspect of employee benefits that does not receive much attention in What Do Unions
Do? is required benefits — mandated social insurance programs such as social secu-
rity, unemployment insurance (UI), and workers’compensation. But an analysis of this
area is important because it reveals another aspect of what unions do in terms of ben-
efits, and also provides additional evidence for the facilitation effect. As noted by Free-
man (1981) and Freeman and Medoff (1984), expenditures on legally required benefits
are not significantly different between union and nonunion employers. But instead of
employer expenditures, consider the extent to which comparable union and nonunion
employees — who are therefore equally entitled to the social insurance benefits —
are able to use the social insurance programs in practice. Empirical analyses of a vari-
ety of U.S. mandated benefits programs consistently show that labor unions increase
the effective implementation of these programs and help workers access their benefits
(Weil, 1996).
There are several important reasons why unions might facilitate benefits receipt
(Budd and McCall, 1997; Weil, 1996). The complexity of UI, workers’ compensa-
tion, and the Family and Medical Leave Act (FMLA) can create ignorance and uncer-
tainty among workers — raising such questions as: Am I eligible? What are the
benefits? What do I have to do? — and therefore create a barrier to employees exer-
cising their rights. To the extent that these programs are costly to employers, they
have a disincentive to provide information and assistance to employees. But a union
can internalize the costs and provide information through union newsletters, stew-
ards, and training sessions. Because of the costs involved, employers might also object
to requests to take family leaves under the FMLA or to the filing of UI or workers’
compensation claims. Or an employer might (unlawfully) retaliate against individuals
JOHN W. BUDD 613
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who try to exercise such rights. Unions can provide contractual protections — such
as just-cause discipline and discharge requirements backed by a grievance procedure
— as well as technical assistance and representation through administrative dispute
resolution procedures — such as occurs for challenged workers’ compensation and
UI claims.
The empirical research is consistent with this union facilitation effect. Budd and
Brey (2003) find that among hourly employees, unionized individuals are significantly
more likely than nonunion employees to have heard about the Family and Medical
Leave Act. Hirsch et al. (1997) attribute greater levels of workers’compensation receipt
among unionized workers, compared to similar nonunion individuals, at least par-
tially to union-provided information on workers’ compensation systems and to union-
provided help in pursuing workers’ compensation claims. Similarly, hourly unionized
workers are more likely to receive UI benefits than are comparable nonunion individ-
uals (Budd and McCall, 1997, 2004).
The research on workers’ compensation and UI benefits does not directly observe
the facilitating behavior — though the anecdotal evidence is quite strong — but the
research is careful to control for numerous factors in an attempt to make union and
nonunion workers as comparable as possible in the statistical analyses. Moreover, Budd
and McCall (1997) explicitly distinguish between incentive effects (which are ulti-
mately rooted in monopoly power) and rights-facilitating effects (which can be socially
beneficial like the collective-voice effect) of labor unions in increasing UI benefits
receipt. In particular, union-negotiated supplemental unemployment benefit (SUB)
plans provide an additional incentive for workers to apply for UI benefits, so in this
way unions are not facilitating UI benefits receipt via socially-beneficial information
provision and representation. But the union effect on UI benefits receipt is just as strong
in industries without SUB plans. Rather, the empirical results are consistent with a
union facilitation effect. Facilitation of mandated social insurance benefits receipt
should be added to the list of what unions do.
VIII. Monetary Forms of Non-Wage Compensation
Most of the research on unions and non-wage forms of compensation pertains to
employee benefits, but Freeman and Medoff’s (1984) two faces framework can also
be (cautiously) applied to monetary forms of non-wage compensation such as lump-
sum bonuses, profit-sharing plans, or stock options. As in the provision of benefits,
union monopoly power can be used to win additional monetary forms of non-wage
compensation as part of an increased total compensation package. In contrast, if there
is a choice between a package of straight-time wages and lower employment on the
one hand, and contingent compensation and higher employment on the other, the
median worker who is likely not in jeopardy of losing his or her job is more likely to
favor wages over contingent compensation (Kaufman, 2002).13 As such, the collec-
tive-voice aspect of unionism predicts that unions will decrease the presence of con-
tingent compensation.
614 JOURNAL OF LABOR RESEARCH
597-XXV-4_Budd 10/1/04 9:53 AM Page 614
There is an important dichotomy between this situation and employee benefits,
however. In the benefits case, the collective-voice effect can be welfare-enhancing —
total compensation is held constant so the employer is indifferent while workers can
be better off with benefits. In the contingent compensation case, an employer is unlikely
to be indifferent between contingent and noncontingent compensation. As such, the
union might be using its monopoly power to satisfy the preferences of the median
worker for wages rather than contingent compensation. In terms of its effect on aggre-
gate welfare, this should be considered as a monopoly effect rather than a collective-
voice effect.14
Turning to the empirical record, Freeman and Kleiner (1990) compare establish-
ments that undergo a union organizing drive to a nonunion control group that doesn’t
experience any union activity during the sampling time frame. On average, among
the locations that are newly unionized with a first contract successfully negotiated,
the incidence of profit-sharing plans falls by 12 percentage points whereas over the
same period of time, the control group incidence increased by 8 percentage points.
Ng and Maki (1994) also find a negative effect of unions on the incidence of profit-
sharing plans. A survey of Michigan manufacturing firms similarly reveals that union-
ized operations are less likely to have profit-sharing or gainsharing plans than nonunion
facilities (Cooke, 1994). Within a sample of worker incentive plans, Ittner and Lar-
cker (2002) find that union representation increases the frequency of worker-related
measures of performance, such as productivity or safety, relative to nonworker meas-
ures, such as financial performance metrics.
The literature on lump-sum bonuses highlights some of the union resistance to
contingent compensation, but estimates of union-nonunion differences in the relative
frequencies of these plans are difficult to find. Within the U.S. unionized sector, lump-
sum bonuses were rare before the concession bargaining period in the 1980s, but then
increased in frequency as business sought to relieve labor cost pressures (Bell and Neu-
mark, 1993; Erickson and Ichino, 1994). Martin and Heetderks (1994) further docu-
ment negative employee attitudes towards lump-sum payments. These patterns are
consistent with monopoly union power being insufficiently strong to resist the substi-
tution of lump-sum payments for wages in a concessionary environment.
IV. Conclusions
In the twenty years since the publication of What Do Unions Do?, employee benefits
and contingent forms of non-wage compensation have increased in importance and
scope in human resources and industrial relations practice and policy. Nevertheless,
Freeman and Medoff’s (1984) seminal work, and the associated research in Freeman
(1981, 1985), has stood the test of time. The theoretical and empirical agenda for
research on unions and non-wage forms of compensation established in those works
continues to be the leading framework for conceptualizing and analyzing this impor-
tant issue.
Freeman and Medoff’s two faces of unionism is clear and extremely insightful.
The textbook neoclassical economics model considers labor unions as labor market
JOHN W. BUDD 615
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monopolies. The monopoly effect of labor unions on employee benefits predicts that
unions increase benefits because unions can use their monopoly power to extract greater
compensation, including benefits, from employers. Breaking out of the textbook neo-
classical economics model, unions are institutions of collective employee voice. The
collective-voice effect of unions on employee benefits predicts that unions increase
benefits because as a democratic, collective institution, unions will promote the pref-
erences of average rather than marginal workers. As average workers have greater sen-
iority and less mobility, they are widely assumed to desire more benefits and less
monetary compensation. The key insight is that while the monopoly and collective
voice effects both predict that unions increase benefit levels, the aggregate welfare
effects are very different. In a textbook model, the monopoly effect distorts the opti-
mal competitive allocation of workers and resources and is therefore economically and
socially harmful (to all but the unionized employees). But if the world is more com-
plex than the textbook model, the collective-voice effect — which does not increase
total compensation — can be economically and socially beneficial.
The contributions of Freeman (1981, 1984, 1985) and Freeman and Medoff (1984)
to the understanding of unions and non-wage forms of compensation are magnified
by the fact that these works are still among the most careful empirical analyses of this
topic.15 Using a variety of data sources, these works found that unions do in fact
increase benefit levels. Moreover, contrary to the conventional view in the monopoly
tradition, Freeman (1981, 1984, 1985) and Freeman and Medoff (1984) document
that empirically, the monopoly effect is only half of the story. Roughly half of the
estimated union effect on employee benefits in the United States is due to the collec-
tive-voice effect.
Subsequent research — in Australia, Canada, and Great Britain as well as the
United States — has consistently found that unions increase employee benefit levels,
especially for employer-provided health insurance benefits and pension plans. Both the
monopoly and collective-voice effects also continue to be supported by the data. And
new research implies that this framework also applies to the emerging area of family-
friendly benefits. To this catalog of what unions do, however, should also be added
the facilitation of awareness and use of existing benefits, including mandated social
insurance benefits.
The social importance of the interlinkages between labor unions and employee
benefits is underscored by the declining trends in the fraction of workers who have
health insurance and pensions — which has coincided with a decline in U.S. union
density. In fact, Buchmueller et al. (2002) find that the union density decline can explain
approximately 25 percent of the decline in aggregate health insurance between 1983
and 1997. Similarly, Bloom and Freeman (1992) estimate that 20–25 percent of the
decline in pension coverage in the 1980s can be linked to the decline in union density.
The social importance of the nexus between unions and benefits is also apparent in
the problem of unfunded pension liabilities — General Motors’ pension plan, for exam-
ple, was under-funded by $19.3 billion in 2002. The immediate cause of this problem
was the extended bear market for stocks, but one underlying issue is the generous
616 JOURNAL OF LABOR RESEARCH
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defined-benefit pension plans negotiated by unions in autos, steel, airlines, and else-
where. At the extreme, the quasi-governmental Pension Benefit Guaranty Corpora-
tion steps in and covers pension liabilities when companies file for bankruptcy — to
a certain extent, then, the costs of labor unions’ monopoly face pension gains, and of
companies’ funding strategies, are shifted to the public at large.
What Do Unions Do? has perhaps had such a great impact on shaping the eco-
nomic analysis of labor unions because it embraces mainstream economic principles.
Freeman and Medoff (1984) concede the core economic belief that labor unions are
distortionary monopolizing agents, but go on to show that unions can also have posi-
tive welfare effects if there are issues with public goods and externalities. These pos-
itive welfare effects are the basis of the collective-voice face, but the underlying market
imperfections are never used to question the unquestionable — the validity of the neg-
ative monopoly face. In neoclassical economic analysis, the balanced scorecard for
labor unions is therefore a mixture of the negative monopoly face and the positive
collective-voice face. However, scholars have long questioned whether labor markets
are competitive (Kaufman, 1988). With respect to employee benefits, the empirical evi-
dence generally fails to find that benefit levels can be completely explained by com-
pensating differentials that result from competitive market pressures (Montgomery and
Shaw, 1997). If labor markets are not perfectly competitive, even the monopoly face
of labor unions might be economically and socially beneficial.
In particular, the industrial relations model of the employment relationship is
premised on an inherent conflict of interest between employers and employees inter-
acting in imperfect labor markets. The employment relationship is modeled as a bar-
gaining problem between stakeholders with competing interests such that employment
outcomes depend on each stakeholder’s relative bargaining power (Budd, 2004; Budd
et al., 2004). As such, when bargaining power between corporate employers and indi-
vidual workers is significantly unequal, substantial social and economic ills can result:
wages insufficient for a decent life and for sufficient purchasing power to support
economic activity; dangerous working conditions that people should not have to tol-
erate and that impose significant costs on local communities through medical costs,
disability payments, and lost productivity; autocratic methods of supervision that vio-
late standards of human dignity and de-motivate workers (Kaufman, 1997).
In the industrial relations model, therefore, the monopoly face of labor unions can
be socially beneficial as it offsets corporate monopoly power and other labor market
imperfections. In fact, the National Labor Relations Act of 1935 seeks to protect the
formation of labor unions at least partly to promote the monopoly face: Labor union
power that offsets corporate power and raises wages will boost consumer purchasing
and therefore stimulate aggregate demand (Kaufman, 1996). Additionally, if firms have
monopoly power in product markets and therefore earn above-normal profits, the
monopoly wage gains of labor unions look less like a misallocation of resources (which
is unambiguously negative with respect to economic welfare) and more like a redis-
tribution of rents from capital to labor (which has ambiguous effects on economic wel-
fare). Again, the monopoly face of labor unions is not necessarily harmful to aggregate
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welfare, and might be socially beneficial, if the assumptions of the textbook economic
model are not fulfilled.
In conclusion, the effect of labor unions on non-wage forms of compensation is
a microcosm of greater debates over the roles of unions in the economy and society.
What Do Unions Do? demonstrates that unions might benefit some at the expense of
others, but also that unions might serve the greater good, both economically and
socially. The evidence twenty years later continues to support both faces, as well as the
socially-beneficial contribution of facilitating the receipt of existing benefits and man-
dated social insurance programs. Ultimately, therefore, the evaluation of the balanced
scorecard of the effect of unions on non-wage forms of compensation depends more
on personal, subjective beliefs about the appropriate balance between efficiency, equity,
and employee voice. The continuing power of What Do Unions Do? is in providing
the framework for approaching this evaluation from an informed perspective.
NOTES
*I thank Bruce Kaufman for helpful comments and acknowledge the Department of Trade and Industry,
the Economic and Social Research Council, the Advisory, Conciliation and Arbitration Service, and the
Policy Studies Institute as the originators of the 1998 Workplace Employee Relations Survey data, and the
Data Archive at the University of Essex as the distributor of the data. None of these organizations bears
any responsibility for the authors’ analysis and interpretation of the data.
1For a review of the research on employee benefits or contingent compensation more generally, see Brod-
erick and Gerhart (1997) and Fossum and McCall (1997).
2For a more careful discussion of various models of union objectives, including the traditional monopoly
model, see Kaufman (2002) and the references therein.
3See Kaufman (2002) and the references therein for a discussion of the median voter model and its appli-
cations to union objectives. Freeman (1981, 1985) further shows that in addition to the median voter model,
if a union acts as an optimizing cartel to maximize total worker surplus, unionized workplaces will be more
likely to have employee benefits if average workers have a greater preference for benefits than marginal
workers.
4If the median worker prefers predictable, noncontingent compensation rather than contingent compensa-
tion and higher employment, the logic of the median voter model also suggests that collective voice will
lower the incidence of contingent compensation (Kaufman, 2002).
5Other early examinations of unions and employee benefits include Duncan (1976), Solnick (1978), Leigh
(1981), and Feldman and Scheffler (1982).
6The magnitudes of the various effects reported in Freeman and Medoff (1984) are significantly higher
than reported in Freeman (1981), presumably because of differences in the control variables, but the result-
ing conclusion that the monopoly and collective voice effects are roughly equally important holds true.
7Freeman and Medoff (1984) and Freeman (1985) also raise the issue of the investment behavior of union
pension funds. Dorsey and Turner (1990) subsequently found no differences in investments and rates of
return between single-employer union and nonunion funds, but found that collectively-bargained multi-
employer funds had less risky investments and lower returns. No evidence of social investing by union
pension funds was uncovered.
8The studies that have data on other employee benefits often also find a positive union effect on their pro-
vision, such as for employer-provided life insurance (Wunnava and Ewing, 1999). Sheets and Yuan (1988)
find that U.S. firms with a higher fraction of unionized employees are more likely to provide employee ter-
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mination benefits — employee transition assistance, severance pay, and advance notification of upcoming
layoffs. Green and Potepan (1988) find that unions increase paid vacation time among U.S. workers, and
Green (1997) finds a similar result for British workplaces. Family-friendly benefits are discussed sepa-
rately in a subsequent section.
9The CPS is a monthly survey of approximately 60,000 households that includes labor market information
representative of the U.S. noninstitutional population aged 16 and older.
10WERS98 is the fourth in an on-going series of surveys and follows the 1980, 1984, and 1990 Workplace
Industrial Relations Surveys. WERS98 is a nationally representative survey of workplaces with 10 or more
employees containing a vast amount of information on diverse aspects of human resources and industrial
relations. Face-to-face interviews for WERS98 were conducted with a manager (with day-to-day responsi-
bility for employee relations) at 2,191 workplaces between October 1997 and June 1998. WERS98 is a strat-
ified random sample and larger workplaces and some industries are over-represented; the results in Table 5
therefore use workplace sampling weights. For additional details on WERS98, see Cully et al. (1999) and
Forth and Kirby (2000).
11Other studies analyze the determinants of employer-provided, family-friendly benefits, and unionization
is sometimes included as an explanatory variable in statistical analyses, but unionism is not the focus of
attention in these studies (Deitch and Huffman, 2001; Kelly and Dobbin, 1999; Osterman, 1995). Gerstel
and Clawson (2001) investigate union leaders’ views on work-family issues.
12Some degree of caution is warranted because in the WERS98 data, discrepancies between the managers’
and employees’ responses might stem from unequal coverage of family-friendly policies rather than employee
ignorance. Budd and Mumford’s (2004) analyses try to limit this possibility by focusing on workplaces in
which other benefits are equally provided and by excluding part-time and temporary workers. Further
research with more precise questions, however, is warranted.
13Chelius and Smith (1990) investigate profit sharing and employment stability.
14This effect on the incidence of contingent compensation should not be confused with the operational
argument that conditional upon the existence of a contingent-compensation plan, the collective-voice effect
of unions can potentially increase aggregate welfare by making the plan more effective relative to a simi-
lar plan in a nonunion setting (Cooke, 1994; Eaton and Voos, 1994).
15Perhaps the most significant methodological advance occurred very recently. Buchmueller et al. (2002)
apply a semi-parametric decomposition technique to the analysis of union effects on the employer’s share
of health insurance premium payments.
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... For this working paper, we conceptualize an employee benefit as any monetary-or non-monetary thing used to attract, retain, motivate, or reward employees above and beyond their traditional wage or salary (Budd, 2004). These benefits were empirically defined by the 2007 Survey of Business Owners to be a) health insurance, b) contributions to retirement plans, c) profit sharing/stock options, and d) paid holidays, vacation, and/or sick leave. ...
... In fact, non-profit organizations still seek profit in their activities to finance the fund and activities that they are currently operating. Enterprises operating for profit purposes must still ensure the value of social benefit for owners and employees; for their businesses and for the nearby society [57,58]. From very early on, scholars were interested in the welfare of workers. ...
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