ILR Review

This essay on labor economics examines neoclassical theory's rise to ascendancy following the second World War, with a secondary focus on the relative decline but continued influence of institutionalist economic theory. The authors describe the evolution of institutional and neoclassical theory from the late nineteenth to mid-twentieth centuries, examine some early intellectual debates between the two camps, briefly describe the work of neoclassical labor economics pioneers, and look at major developments over the past 30 years. They argue that neoclassical economists' increasing intellectual breadth and influence in public policy have led them to pay closer attention to issues that have long been of concern to institutionalists and “neoinstitutionalists.”

The authors use unique panel data on American Economic Association members to test for gender differences in promotion in a profession with a well-defined promotion and job hierarchy and in which men and women exhibit similar labor-market attachment. The results suggest that over the period from the 1960s through the early 1980s, female economists had lower levels of professional attainment and career advancement than did their male colleagues with similar attributes. These gender differences remain in evidence despite controls for unobserved heterogeneity and self-selection between academic and non-academic jobs. There is evidence, however, that promotion prospects for female economists significantly improved during the 1980s, not only at all ranks, but also within both Ph.D.-granting institutions and non-Ph.D.-granting institutions. In fact, the results reveal no unexplained gender-specific differences in promotion by the end of the 1980s.

Using data from their own 1994–96 survey of human resource managers in Alabama establishments, the authors investigate what determines the use of flexible staffing arrangements in core jobs and how such arrangements affect the job security provided to regular core employees. They find that union representation deterred in-house flexible arrangements, but not subcontracting; the likelihood of subcontracting was positively related to core employees' wages, relative to wages of other similar workers in the industry; and the use of flexible staffing arrangements was positively associated with two factors: core employee hiring costs, and a business strategy emphasizing low-cost production (versus, for example, market specialization). They also find evidence that regular core employees gained enhanced employment stability through their employer's use of flexible staffing arrangements to vary labor inputs in core jobs.

Prevailing wage laws, which require that construction workers employed by private contractors on public projects be paid wages and benefits at least equal to those “prevailing” for similar work in or near the locality in which the project is located, have been the focus of an extensive policy debate. The authors, analyzing Current Population Survey data and Census data, find that the relative wages of construction workers decline slightly after the repeal of a state prevailing wage law. However, the small overall impact of law repeal masks substantial differences in outcomes for different groups of construction employees. Repeal is associated with a sizable reduction in the union wage premium and an appreciable narrowing of the black/non-black wage differential for construction workers.

Using the Current Population Surveys, the authors investigate whether sanctions against employers for hiring undocumented workers, a provision of the 1986 Immigration Reform and Control Act (IRCA), adversely affected the hourly earnings of Latino workers in the southwestern United States. The analysis exploits the fact that agricultural employers were exempt from the sanctions and from employee-verification requirements for the first two years following IRCA's passage. The authors find substantial pre-post IRCA declines in the wages of Latino non-agricultural workers relative to Latinos in agriculture. They do not observe similar shifts in the relative wages among non-Latino white workers. When using non-Latino black and white non-agricultural workers as alternative control groups, they find that Latino wages declined relative to black wages but not relative to white wages. Finally, they find that the pre-post IRCA inter-sectoral and inter-ethnic relative wage declines for Latino non-agricultural workers do not reflect longerterm trends.

This study uses Current Population Survey micro data for 1973–74 and 1993 to evaluate the effect of changing union membership on trends in male and female wage inequality. Unionization rates of men fell between the two sample periods, with bigger declines among lower skill groups. These trends account for 15–20% of the rise in male wage inequality. Union membership rates of low-wage women also declined, while unionization increased among higher-wage women. On balance, shifting unionization accounts for very little of the rise in female wage inequality. Economy-wide trends in unionization mask a sharp divergence between the private sector, where unionism was declining, and the public sector, where it was rising. Comparisons across sectors suggest that unionization substantially slowed the growth in wage inequality in the public sector.

The authors empirically evaluate how the provision of an arbitration statute affects police officers' wages by comparing wage levels across political jurisdictions and over time using a sample of states. Two complementary data sources are used: panel data for the years 1961–92 on state-level wages of police officers, and individual-level data on police officers from the 1970, 1980, and 1990 Decennial Censuses. The empirical results from both data sets are remarkably consistent and provide no robust evidence that the presence of arbitration statutes systematically affected overall wage levels. On average, the effect of arbitration was approximately zero, although the authors find substantial heterogeneity in the estimated effects across states.

The author documents four facts regarding NLRB-supervised representation election activity over the period 1952–98: (1) election activity fell sharply and discontinuously beginning in the mid-1970s, after a two-decade rise; (2) unions' election win rate declined less sharply, though continuously, over the entire period; (3) a “size gap” characterized unions' win rates throughout the period, with a lower win rate in larger units; and (4) the size gap widened substantially after 1952. A simple optimizing model of the union decision to hold a representation election can explain (1)–(3). The author describes two possible explanations for (4), one based on differing behavior by employers in different size classes, and one purely probabilistic. Results of empirical tests using NLRB election data for 1952–98 suggest that the optimizing model of the union decision to hold an election combined with the purely probabilistic explanation can largely account for the observed patterns.

Using data for 1995, the authors estimate union wage premia of about 20% for African workers and 10% for white workers in South Africa—roughly similar to estimates reported for other countries, including the United States. African nonunion workers who were covered by industrial council agreements received a premium of 6–10%; the premium was positive but not statistically significant for whites. Although the union/nonunion wage gap was smaller inside the industrial council system than outside it for Africans, the total union premium for union members covered by an industrial council agreement was similar to the union premium outside the industrial council system. Among Africans, the industrial council and union wage gaps were largest among low-wage workers. These findings, the authors conclude, do not support the common claim that a high union wage premium and the industrial council system are the primary causes of high unemployment in the South African labor market.

Using data from extensive on-site interviews conducted in 1997, 1998, and 1999, the authors examine trends in job content and earnings in selected jobs in two American banks. Firm restructuring and technological changes resulted in higher earnings for college-educated workers. The banks followed different strategies in implementing these changes for lower-skill jobs, with different effects on bank tellers in particular. The authors conclude that technological change can provide opportunities for workplace reform but does not determine its effects on jobs and earnings; these effects are contingent on managerial strategies. This focus on organizational processes and managerial strategy provides a complement to accounts of growing inequality that center solely on the role of individual skills and technological change.

This study examines factors related to within-occupation wage inequality among service and sales workers in the telecommunications industry. The author draws on a 1998 survey of a nationally representative sample of 354 service and sales centers in the industry to examine the importance of management practices and union institutions in shaping wage variation. The results strongly indicate that business strategies of customer segmentation and human resource practices explain variation in wages over and above that explained by the human capital of the work force. In addition, despite extensive deregulation and de-unionization of the industry, the union wage premium is 22%.

Using case study data gathered between 1993 and 1996, the authors investigate how automation of information handling and materials handling affected employment distribution, skill acquisition, work activities, and compensation in 23 semiconductor plants in four countries. Information handling automation is skill-biased technical change, which leads to use of relatively more technicians and engineers. In the sample studied, it widened the skill gap across occupations, and coincided with higher initial wages for all employees and shorter career ladders for engineers. Materials handling automation also widened the skill gap, but coincided with employment of relatively more operators and with lower pay across all occupations. Although technological change widened the skill gap between occupations and was biased toward employment of high-skill workers in the sample, the authors do not find that it led to increased wage inequality in the semiconductor plants they examine.

The empirical analysis in this paper, which draws on Current Population Survey data, indicates that structural decline in the steel industry during the 1980s markedly affected the distribution of wages both in the industry and in steel-producing communities. The steelworker wage distribution experienced both a drop in the mean and an increase in the variance, becoming very similar to the distribution of wages in other durable goods manufacturing industries. Declines in steel employment substantially increased wage inequality in steel-producing communities, even among workers not employed in steel.

Using Current Population Survey data supplemented with data from other sources, the authors analyze changes in the wage distribution in the U.S. grocery stores industry between 1984 and 1994. They find that in this industry, unlike in many others, wage inequality did not increase. Instead, real wages declined across the entire distribution, as the net effect of changes in markets, institutions, and technology was to erode the earnings of low-wage, middle-wage, and high-wage workers alike. Although there were drastic increases in grocery store size, hours of operation, and the use of scanners over the sample period, changes in labor market institutions explain most of the overall wage distribution change. Skill-biased technological change does not appear to have had appreciable effects on the wage distribution.

The earnings of truck drivers fell by 21% between 1973 and 1995. Using Current Population Survey data, the authors find that deregulation accounted for one-third of the decline in drivers' wages, with a larger negative effect for non-union workers. Economic forces that broadly affected the blue-collar economy, proxied by the manufacturing wage, accounted for more than two-thirds of the decline. Finally, using unique survey data, the authors explore the effects of factors frequently cited as sources of blue-collar wage decline. This analysis indicates that only one new technology, satellite communication systems, had meaningful effects on drivers' earnings, which rose as a consequence of superior efficiency and work intensification. Union membership remains an important determinant of wages, with members earning 18% to 21% more than their non-union counterparts. The authors conclude that the primary sources of wage decline and increased wage inequality have been deregulation, de-unionization, and a declining manufacturing wage.

Using interview and survey data they gathered in 1995–97 from managers and employees in 45 establishments, the authors investigate how high-performance work practices, such as self-directed teams and offline teams, affected workers' earnings in the apparel, steel, and medical electronics industries. An analysis with extensive controls for personal characteristics and other variables shows a positive relationship between high-performance practices and earnings in the apparel and steel industries. In medical electronics and imaging, the same statistically significant association disappears when a control variable for education is added, suggesting that there is a strong relationship between formal education and high-performance systems in that industry.