dustry differentials with and without employer size controls is .96. In re- gressions (not reported here but available upon request) utilizing the 1979 CPS, I find that estimated industry differentials are on slightly affected by the inclusion of plant size and firms size dummies when nonunion workers are analyzed in isolation. These results correspond to the conclusion of Brown and Medoff Efficiency Wage Theories: A Partial Evaluation 37
(1985) that most of the employer size effect on wages occurs within detailed in- dustries. Percentage of workers covered by collective bargaining in an industry has a strong positive effect on average industry wages.27 Dickens and Katz (1986) find that extent of industry unionization has a strong positive effect on both union and nonunion wages. They also find that regional union density has a strong positive effect on nonunion wages and a much weaker impact on union wages. Dickens (1986) argues that this is the pattern of union density impacts that arises from an im- portant role of a union threat in wage determination. The impacts of industry variables on wages remain a bit of puzzle. The findings of most studies are fairly consistent with some role for union threat effects since product market power and extent of unionization seem to explain a fair portion of inter—industry wage differentials for nonunion workers. Sociological models of the Akcerlof (1984) variety also seem to have some support. The findings of Hodson and England (1985) and Lawrence and Lawrence (1985) that capital in- tensity (capital to labor ratio) has a positive effect on industry wages provides some support for the shirking model since the cost of worker malfeasance is likely to be greater in capital intensive industries. Capital—skilled labor complementarity suggests that the capital—labor ratio finding may simply proxy for unmeasured labor quality. The strong linkages of wages to product market variables even after controlling for a large nunber of individual and locational variables appear difficult to reconcile with a strict unobserved ability inter- pretation of industry wage differentials. 4.1.5. Direct Evidence on the Benefits to Firms of High Wages Efficiency Wage Theories: A Partial Evaluation 38
Efficiency wage models postulate that firms pay wages above the market clearing level because there are cost reducing or productivity enhancing reasons to do so. Some limited empirical evidence exists on the benefits to firms of higher wages. As I noted previously, wage premiums are associated with lower quit rates. Thus, high wages help to economize on turnover costs. The direct cost savings from lower turnover do not appear to be large enough to justify the magnitude of ob- served wage differentials. For example, Freeman and Medoff (1984, p. 109) estimate that the cost savings associated with lower quit rates from the presence of a union is 1 to 2 percent of labor costs. They also find that the impact of unionism on quit rates to be equivalent to the impact of a 40 percent wage differential The indirect gains of enhanced teamwork from continuity in work relationships may be the more important element of the benefits of lower turnover.
You've reached the end of your free preview.
Want to read all 62 pages?