THE EXIT/VOICE MODEL OF THE LABOUR MARKET:
AUSTRALIAN EVIDENCE OF UNIONISM,
JOB DURATIONS, QUITS AND LAYOFFS
by
Paul Miller
and
Charles Mulvey
Department of Economics
The University of Western Australia
Discussion Paper 89.18
July 1989
ISSN 0811-6067
ISBN 0-86422-764-7
Paul Miller is in the Department of Economics; Charles Mulvey is
in Industrial Relations; both are from the University of Western
Australia.
- .. _-,--"--- -o;;
THE EXIT/VOICE MODEL OF THE LABOUR MARKET:
AUSTRALIAN EVIDENCE OF UNIONISM,
JOB DURATIONS, QUITS AND LAYOFFS
by
Paul Miller
and
Charles Mulvey
Department of Economics
The University of Western Australia
Discussion Paper 89.18
July 1989
ISSN 0811-6067
ISBN 0-86422-764-7
Paul Miller is in the Department of Economics; Charles Mulvey is
in Industrial Relations; both are from the University of Western
Australia.
_. . -- ""-·--·-------"- """" "" """ -.. ._. ,. . _. =
THE EXIT NOICE MODEL OF THE LABOUR MARKET: AUSTRALIAN
-----~E~VID~~E~NCE O_N_UNIO!'lliLM,JfrB_QURATIONS,_QUITS_ANl1LAYOFJi'S._ _ _ _ __
Paul Miller and Charles Mulvey
University of Western Australia
The exit/voice model, as applied to trade unions, is now well known and influential. Freeman and
Medoff (1984) have popularised the model and have persuasively marshalled the empirical evidence
for the US which supports its validity. Almost all of the applied studies conducted in the US have
been supportive of the model, thereby leading to reassessment of the impact of unionism in that
country.
However the exit/voice model of union activity claims considerable generality so that it is important
to test its predictions under different institutional regimes. Two countries that are characterised by a
higher degree of centralisation in their industrial relations systems than the US are Britain and
Australia. Recent British research has been inconsistent with the US findings [see Metcalf (1988)].
Whether this divergence in results is attributable to the different institutional arrangements is
difficult to ascertain: the US and British studies employ different methodologies and are based on
different kinds of data, and as such are not directly comparable.
In this paper we present an empirical analysis which bridges the gap between the US and British
evidence. We directly replicate the methodology of one of the main US studies [Freeman (1980)]
using Australian data. The analysis is similar to that used in Freeman's study but is restricted to a
sample of young, rather than all, workers. However, Freeman analyses a sub-sample of young
workers in one section of his paper so that a direct comparison is possible.
The centralised and highly regulated Australian industrial relations system, together with the focus
on youth, is a stiff test for the model since the essence of the 'voice' mechanism as formulated by
Freeman and Medoff (1984) is direct co=unication from union to employer at the place of work
reflecting the preferences of the median worker. It is of considerable interest, therefore, that our
findings closely replicate those of Freeman (1980) in respect of almost every variable considered
and therefore offer strong support for the relevance of the exit/voice model of unions in the
Australian context. The direct predictions of the exit/voice model examined in this regard are that the
job durations of unionists will exceed those of non-unionists and that the quit and separation rates
of union workers will be lower than those of non-union workers. We also go a little further than
---~F~r~eernmu:lid__JUll:U.=stigate
the separation rate in a more disaggregated fonn by
specificall.J/---~
analysing the influence of union status on the probability ofbeing laid-off.
.. 'J:"lJisp_apt::ris . .<Jrgani:i:eciasfol1<J'<Vs.;i11S.ecti<Jn.Ia]:>riefo11tli11!lQftl1e1Jigt/ygic:!lJJIQclelQftlleunion.is
2
presented and the key predictions are identified; in Section II we test these predictions using data
_ _ __,fr~om_the Austtalian_Longitudinal_S_U1Yey_(ALS)_and_compare_our:iindings_with_those_of_the_main_ __
US studies; in Section III we draw conclusions.
Section I
The exit/voice model of Hirschman (1970) has been adapted to analyse aspects of labour market
behaviour under unionism. Two alternative modes of response by workers to dissatisfaction with
the conditions under which they work are identified:
i)
the traditional response of dissatisfied workers in the market
model is to 'exit' by quitting;
ii) workers may respond by giving 'voice' to their dissatisfaction
where appropriate circumstances exist
The exit/voice model suggests that non-union workers will be more inclined to 'exit' while the
primary response of union workers will tend to be 'voice'.
Non-union workers faced with unsatisfactory working conditions can complain only at the risk of
being labelled a 'trouble maker' with the possibility of subsequent victimisation. Hence fear of
being denied promotion and training opportunities or dismissal may deter individual non-unionists
from expressing voice. Moreover, many of the conditions of work likely to be subject to complaint
are of the nature of public goods and a complaint by one individual, if effective, will benefit the
entire workforce. Individuals will not readily put themselves at risk in order to secure benefits for
their uncomplaining workmates. Dissatisfied non-union workers may therefore be faced with a
choice between quitting and putting up with the source of their dissatisfaction.
Unionism brings with it the potential for expressing a co=on view and usually results in the
establishment of machinery through which such views can be expressed. Grievance and disputes
procedures, which are usually associated with unionism, are examples. Union workers can voice
discontent collectively through such mechanisms with little fear of being victimised as a result.
Moreover the benefits of effective complaints are enjoyed by the entire unionised workforce.
_ _In the Australian context directbargaining, conciliation and arbitration-processes provide forums for
unionised workers to utilise voice. Unions can bring pressure to bear on management through these
________ pr:_oi:_essest() c!iaJ1ge\V<Jrltjng_c_o_11cliti<Jns iil\Vaysclesire:cil:Jy \V(),_,r,,k,,,J':"I:S"''::.:.:::.: ::: : .:..:.:::: :
3
Voice offers workers an alternative to quitting and this in itself will tend to reduce quit rates because
it offers a mechanism for airing the grievance. But if it is also effective in bringing about changes in
the worliliig conilitions wliicli gave rise to dissatisfaction, it will create a set of working conditions
which is more attractive to employees and the propensity to quit will be reduced as a result.
(Improvements in working conditions other than those resulting from the exercise of union
monopoly power that is.) Freeman (1980) identifies the system of 'industrial jurisprudence' as one
aspect of the improvements which unions can bring about. The system of industrial jurisprudence
consists of rules which limit the exercise of managerial discretion and therefore protect workers
from arbitrary managerial decisions. The seniority system is a good example of such a rule. So long
as workers desire such systems and unions provide them, quits should be reduced as a result.
Another way in which the successful application of voice by unions can make working conditions
more desirable emerges from the argument - advanced in Freeman and Medoff (1984) - that unions
can more effectively co=unicate the interests of the entire labour force to management than
management themselves would be able to discern in a non-union environment. The basis of this
argument is that unions will tend to reflect preferences across their whole membership,
representative of the desires of the average worker, whereas management will tend to respond to the
perceived desires of the marginal worker, i.e. the young, mobile highly marketable worker whom
the firm is most anxious to hire and hold. For example, older, established workers may have a high
desire for deferred benefits such as pensions and life, accident and health insurance. These benefits
are more attractive to older, high income workers than to younger workers because older workers
will be nearer to retirement and more likely to avail of the insurance benefits. Also, of course, there
are tax advantages in receiving part of total compensation in the form of fringe benefits which
appeal more to higher income workers. Accordingly, in bargaining with management unions will
articulate a set of preferences which reflects the desires of this broader constituency and will
negotiate packages of pay and benefits which are tailored to the requirements of the whole
workforce and at no additional cost to the firm. Managers in non-union settings will not have access
to this information and will target their packages on those workers at the hiring/holding margin. To
the extent to which this is the case, the exercise of collective voice through unions will produce
working conditions which are more attractive to workers and which will improve worker
satisfaction and morale and thereby tend to reduce quits.
The question which must be asked at this point is why, if the mechanism of voice is of benefit to
firms as well as workers, do not non-union firms devise machinery which simulates voice without
actually creating unions? The answer is, of course, that many have tried but not been wholly
..... succ~ssftt1. Schelll~ssuc~as'l)pen d(Jor.poljcies' and COil]EanY .uni()J1S llave often been. tried but,
---according;:o-Freeman-and-Medoff-(-1984);-withour-general success. They argue tliat for a non-union
voice mechanism to operate effectively it will be necessary for management to surrender a measure
4
of their authority to the workforce and they are seldom willing to do this because it will create the
very system of dual authority that genuine unionism involves. Then:
'Tne problem is aK;in to that of operating a democratic parliament
in a monarchical or dictatorial regime. As long as the monarch or
dictator has the final word, the parliament cannot truly function.
This is not to say that no non-union firm will have a viable grievance system, for
some do, but rather that it is exceedingly difficult to institute an effective system in the
absence of a union.' [Freeman and Medoff (1984) p. 109]
Moreover, as Freeman and Medoff (1984) go on to argue, because non-union firms target their
responses towards young, mobile workers it is quite likely that the message which they receive is
that a voice mechanism is not desired by the workforce. The young, mobile element in the
workforce is less likely to want a voice mechanism than older, established workers who have a
more permanent attachment to the firm.
The exit-voice tradeoffruns both ways: workers with voice exit less, but at the same
time workers who rely on exit have less desire for voice. As long as non-unionfirms
are attuned to the desires of potentially mobile workers, they are unlikely to see the
needfor grievance and arbitration.' [Freeman and Medoff (1984) pp. 107/8]
Dissatisfied union members therefore have access to voice as an alternative to exit and are therefore
likely to display lower propensities to quit than non-unionists, ceteris paribus. But unions also play
a role as monopolists in the labour market and are effective in raising the pay of union members
relative to non-union workers. In Australia this wage gain of unions has been estimated to be
around 10%+. [See Mulvey (1986), Christie (1988) and Miller and Rummery (1989).] This
positive union/non-union wage differential will tend to reduce propensities to quit amongst union
workers relative to non-unionists. Any analysis of quit rates which seeks to explore the influence of
unionism via the voice mechanism must control for relative wage differences.
Another, analogous, prediction of the exit/voice model is that unionists will display longer job
tenures than non-unionists. This is the long-run implication of the availability of the voice
mechanism to unionists throughout their careers. As we explain in the next section, job tenure is
somewhat less amenable to statistical analysis than quits.
One of the more novel aspects of this study is our analysis of the relationship between unionism and
. t()tll! sepaJ"ittiC>!lS 3:11cipefII1iuientlay()ffS ... These relationshiIJs haveseldoil1 been adaressed in the
----literatnre-and;-wherelhey-have;-the-theoretical-o:rsis~of·the analysisnas Been neglected and tli~e---­
empirical analysis has failed to find any significant relationship. Freeman (1980)
5
union/non-union differences in total. permanent separations. He finds that total separations are
significantly and negatively associated with union status. He does not explain the nature of the
hypothesis underlying this relationship and he does not report separately the statistical relationship
between union status ana separations oilier than quits. He does however say '... there are essentially
no differences in other separations between union and non-union workers.' [Freeman (1980) p.
654] Medoff (1979) analyses union/non-union differences in temporary layoffs and in discharges.
Since temporary layoffs are not a feature of the Australian industrial sceue we do not consider them
in this paper. We do however investigate the effect of union status on discharges as part of the total
separations flow and as a major element in our 'layoff variable. Unfortunately Medoff does not
offer any theoretical analysis of the relationship between union status and discharges. Moreover,
Medoff finds no significant relationship between union status and the discharge rate in his
regression analysis.
We investigate the relationship between unionism and total separations and layoffs. Our reason for
examining the relationship between total separations (which includes voluntary quits) and unionism
is mainly to provide a basis for comparison with Freeman's findings. This analysis also serves to
amplify the nature of the job duration/unionism relationship and to give a picture of the total union
effect on separations. We investigate the relationship between unionism and layoffs, however, in
order to examine whether unious are effective - as many people suppose - in preventing
retrenchments of their members and in restricting management's ability to dismiss for disciplinary
reasons.
Would union success in reducing retrenchments relative to the non-union sector indicate that
collective voice or union monopoly power is effective? The answer is probably that both are at
work. Wbereas retrenchments in non-union firms are almost certainly carried out without
consultation or negotiation with the workforce, and are restricted only by legal considerations, it is
co=on for employers to consult with unions in unionised settings. Unions may suggest
alternatives to retrenchments to employers or may negotiate a package which will involve the
employer in substantial severance payments or they may simply threaten to use their industrial
power to resist the retrenchments [see Fells (1987)]. The expected outcome would, of course, be
that, for a given desired level of retrenchments, the unionised employer will tend to translate fewer
of them into reality because of his need to compromise with the union for industrial relations
reasons and because each retrenchment imposes relatively higher costs on him. Moreover, where
both union and non-union employees comprise the relevant labour force it may be the case that the
employer will be inclined to select non-union workers for retrenchment, ceteris paribus, in order to
minimise the extent of the bargaining which they will have to engage in with the union. Voice and
monopoly pow~rai-ebothinvolved in thisprocess<tnditwould be difficult to dise11tangle their
----separate-effects.
6
A major function of unions is to dilute the authority of management to control and discipline the
workforce. Disciplinary procedures and the ability to bargain over particular decisions allow the
union to shield its members from the full force of managerial disciplinary action. Moreover, unfair
aJ.smissa:Is proceaures through the conciliation and arbitration machinery probably favour union
members because of the resources which the union can deploy in representing its members. Once
again, a combination of voice and monopoly power are probably involved here.
Section IT
The data for this analysis are provided by the male sample of the 1985 and 1986 rounds of the
Australian Longitudinal Survey. All worker characteristics are derived from the 1985 round; the
1986 round being used only to obtain the information on retention or otherwise of the job held at the
time of the 1985 survey. The variables used in the study are defined in the data appendix.
The most important feature of the data is the age bracket covered. In 1985, the sample covered
16-25 year olds. Following Miller and Volker (1987), the statistical analyses are based on a purged
data set covering 19-26 year olds, the omission of individuals aged 18 or fewer years representing
an attempt to minimise the impact of sample selection bias associated with differences in schooling
behaviour between socioeconomic groups. As noted previously, basing the analysis on a sample of
younger workers will tend to work against finding a strong union-voice relationship. This follows
from the presumption that unions focus their voice activities on the median rather than the marginal
worker. Evidence presented in Freeman (1980) lends support to this suggestion. He reports that
'The principle conclusion to be drawn from (study of younger workers) is that unionism has a
smaller impact on the exit behaviour of young workers than on the exit behaviour of older
workers'. [Freeman (1980) p. 665]
As discussed in Section I, four aspects of exit behaviour are examined: job tenure, total
separations, quits and layoffs. Each of these informs on different dimensions of the employment
relationship. Job tenure data are held to reflect long-run behaviour, and as such provide a basis for
study superior to that offered by turnover data. However, tenure data are less amenable to statistical
analysis than turnover data. A major problem with attempting to model the distribution of job
tenure is that the characteristics of jobs change over time. Information concerning previous jobs is
generally lacking in the data sets otherwise most suitable for analysis. Accordingly, greater
emphasis is placed on study of separations in empirical research. It is noted, however, that total
separations and job tenure are closely related. With duration analysis, once the distribution function
____f!uo>Lr job dnra ti on s has bee!l-specified,-the-hazard-~i,e.,the-pmbability-that-6mployment-will-terminat'P----~
· in··the ·interval (CJ+ ·c.t)Lmay_he_computed..[see.Hecki:IliuLanciSinger~(i985.)J .-'rhis.re!ationship1--is discussed further when the statistical results are presented.
7
There is also disquiet with the focus on a total separations variable. On the one hand this is
concerned with inclusion in the definition of total separations of forms of worker behaviour not
addressed by the relevant economic models. Included here would be job terminations owing to the
temporary nature of the job. On the other hand, the aggregation of quit and layoff data is a possible
source of bias. Examination of an aggregate index of turnover is generally justified on the basis that
the distinction between employee-initiated and employer-initiated separations is often blurred in
surveys of workers. As argued in Section I, however, study of the separate sources of turnover
may be very informative in an institutional environment where unions are a relatively dominant
force. Such study is proposed as a feature of our analysis.
A common set of regressors is used to explain variations in each type of exit behaviour. Included
are location, educational attainment, qualifications, potential labour market experience, occupation,
full-time/part-time status of the job, government/private sector of employment, wage, job
satisfaction, whether the individual h!\d received firm-specific training, and union status.
The rationale for including these variables in the models follows Freeman (1980). In general, the
regressors permit the voice effect of unions on exit behaviour to be isolated by providing statistical
controls for other determinants of exit. More specifically, variables such as location, occupation,
full-time/part-time status and gove=ent/private sector of employment will provide some degree of
control for non-pecuniary work conditions. In conjunction with personal characteristics, for
example educational attainment, the work-type variables provide indicators of alternative types of
employment. The inclusion of job satisfaction in the estimating equation may be justified on the
grounds that it helps standardise for differences in worker evaluation of non-pecuniary conditions.
The firm-specific training variable is intended to capture the greater permanency of the employment
contract amongst workers in receipt of this type of training [Becker (1975)]. Experience is
essentially a scaling factor in the duration equation: as Miller and Volker (1987) argue, it adjusts for
the fact that individuals who have been in the labour market for only a few years cannot have long
job durations. Finally, the union and wage variables are included in the models to isolate,
respectively, the voice and monopoly wage impacts of unions on exit behaviour.
Descriptive statistics for selected characteristics of the union and non-union samples are displayed in
Table 1. 47 per cent of the sample was unionised. This figure is lower than the mean union density
figure for wage and salary earners in Australia. Trade union membership, however, increases
sharply with experience amongst youth [Miller and Ru=ery (1989)], and hence the relatively low
unionisation rate is viewed as reflecting only the youthfulness of the sample.
The main feature of Table 1 is that non-unionists haye a)()\Ver ciegre~ pf job attach]])ent than
nionists;-The-mean-interrupte-d-duration.-ror rton-unionistsis2353 years, compared to 3~T5years for unionists. This difference in job tenure is reflected in the exit data. The total separation
8
rate for non-unionists is 41.94 per cent, which is 13 percentage points or 46 per cent higher than the
rate of total separations among unionists. The union/non-union differential in mean quit rates
favours unionists, though it is smaller than is the case for total separations. Thus, the mean quit
rate for non-unionists or20.27 per cent is oiily about one-third higher than for unionists.
TABLE!
MEANS AND STAND ARD DEVIATIONS OF SELECTED VARIABLES
Variable
Duration (years)
Total Sample
2.733
(2.382)
non-Union
2.353
(2.247)
Union
3.156
(2.457)
Union/non-Union*
Difference
0.803
(0.12)
Separations (%)
35.68
(47.92)
41.94
(49.37)
28.72
(45.27)
-13.22
(2.34)
Quits(%)
23.30
(42.29)
26.27
(44.03)
20.00
(40.03)
-6.27
(2.08)
Layoffs(%)
7.40
(26.19)
9.68
(29.58)
4.87
(21.54)
-4.81
(1.29)
Firm-specific
Training(%)
12.74
(33.36)
9.33
(29.11)
16.54
(37.18)
7.21
(1.64)
In Wage
Union(%)
Sample Size
1.987
(0.336)
1.904
(0.349)
2.080
(0.295)
47.33
(49.94)
0.00
100.00
1648
868
780
0.176
(0.02)
1648
Source: 1985 and 1986 Australian Longitudinal Surveys.
* Figures in parentheses in this column are standard errors.
significant.
All union/non-union differentials are
The divergence between the union effects on total separations and quits is accounted for by the
sizeable union/non-union differential in layoffs. This represents the most striking feature of the
Table 1 data. These data show that the jobs of 9.68 per cent of non-union members were
terminated by employers, compared to only 4.87 per cent for union members.
It is noted-that the differences in exit behaviour between the union and non-union sectors are more
pronounced than established for the US youth labour market by Freeman (1980, Table N).
__ Anothe:Lmaj<:>:r:difference. .between theUS__ data.and.those.presented.in.Table-1 . rests .with the relative
9
sizes of the union impact on total separations and quits. For the US, Freeman (1980) reports that
the absolute difference in total separations between the union and non-union sectors was
approximately the same size as that for quits. In the Australian data, however, the absolute
ilifference in total separations between the union and non-union sectors exceeds that for quits. In
other words, trade unions in Australia appear to exercise a more important influence on
employer-initiated separations than their US counterparts. This may be attributable to the greater
power of the union movement, as measured by union density, in Australia.
At the aggregate level, it would appear that unions are associated with a marked reduction in the rate
of quits, layoffs and total separations, and a concomittant increase in the mean duration of jobs.
This impact may occur via union wage effects or through the voice role of unions. The weights
which attach to these alternative explanations are examined in the statistical analyses presented in
Table2.
Column (i) of Table 2 lists estimates for the duration equations. The dependent variable is the
interrupted duration of the job. Holding exposure to the labour market constant, location,
occupation, full-time/part-time status, government employment, union status and, to a lesser extent,
educational attainment, exercise important influences on job tenure. For example, the interrupted
duration for individuals employed in the government sector is two thirds of one year greater than
that of private sector employees, and the job-tenure of full-time workers 1.18 years higher than that
of their part-time counterparts. Individuals working in processing and manual occupations tend to
have shorter durations, ceteris paribus. Being a union member is associated with a considerable
increase in average job tenure: 0.535 of one year. This pure union effect means, therefore, that
two-thirds of the difference in average duration between the union and non-union sectors recorded
. in Table 1 is attributable to unionism per se. It suggests that unions increase job tenure in the
Australian youth labour market by around 20 per cent. This union effect on tenure in the Australian
youth labour market is double the 10 per cent increase in tenure associated with unions in the US
youth labour market [Freeman and Medoff (1984)]. The channels through which this stronger
influence exerts itself are identified when the exit data are examined in disaggregated form (i.e. quits
and layoffs) in subsequent analyses.
Wages are not a significant determinant of tenure in the Table 2 results. At face value this suggests
that the union monopoly wage effect is of minor importance. This contrasts with Freeman's (1980)
results for the US youth labour market, where wages exercised an important influence on job
tenure.
These results demonstrate, therefore, !hat trade unions have a Il}ajoriil}p![ct_o!lthejob tenure of
----Australian-youth;-and--thar-the11nion~voice-:i:ti1pact-is
consioerab1y stronger than tlie wage-exit
impact. Study of job tenure, however, has a number of shortcomings. Asnoted previOIJSl~,
10
TABLE2*
ESTIMATES OF MODELS OF EXIT BEHAVIOUR
(1985-1986 Australian Longitudinal Survey)
Duration
Constant
LOCATION:
Urban
Total
--Separations--
-----<:!uits-----
-----Layoffs-----
-2.117
(3.80)
1.794
(3.04)
1.861
(3.24)
0.644
(l.02)
0.617
(0.99)
-1.344
(1.38)
-1.040
(1.08)
0.346
(2.40)
-0.171
(1.12)
-0.259
(1.74)
-0.472
(2.70)
-0.522
(3.02)
0.609
(2.42)
0.508
(2.05)
-0.235
(1.58)
-0.352
(2.42)
-0.458
(2.73)
-0.537
(3.23)
0.361
(1.45)
0.266
(1.08)
-0.573
(1.45)
-0.535
(1.37)
0.023
(0.05)
0.058
(0.14)
-1.334
(1.50)
-1.303
(1.47)
Rural
0.505
(3.61)
EDUCATIONAL ATTAINMENT:
Degree
0.144
(0.38)
Diploma
1.029
(2.64)
-0.246
(0.60)
-0.384
(0.96)
0.310
(0.71)
0.246
(0.57)
-0.332
(0.49)
-0.426
(0.64)
Year 12
0.406
(1.51)
-0.768
(2.77)
c0.801
(2.96)
-0.297
(1.02)
-0.308
(1.06)
-0.821
(1.80)
-0.861
(1.90)
Year 11
0.760
(2.87)
-0.374
(l.38)
-0.499
(1.90)
-0.210
(0.74)
-0.271
(0.96)
-0.285
(0.67)
-0.410
(0.98)
Year 10
0.377
(1.54)
-0.410
(1.65)
-0.470
(1.94)
-0.297
(1.13)
-0.321
(1.23)
-0.335
(0.86)
-0.377
(0.98)
0.001
(0.01)
0.150
(0.97)
0.176
(1.17)
0.248
(1.45)
0.283
(1.68)
-0.076
(0.30)
-0.108
(0.43)
0.094
(0.42)
0.299
(1.27)
0.277
(1.20)
0.266
(1.02)
0.259
(1.00)
-0.034
(0.07)
-0.121
(0.25)
-0.320
(1.60)
0.036
(0.16)
0.128
(0.60)
0.272
(1.15)
0.330
(1.41)
-0.887
(1.60)
-0.777
(1.41)
Sales
0.054
(0.20)
-0.109
(0.39)
-0.099
(0.37)
-0.016
(0.05)
-0.007
(0.02)
0.028
(0.06)
0.059
(0.12)
Trades
-0.094
(0.50)
0.272
(1.34)
0.283
(1.42)
0.087
(0.39)
0.104
(0.46)
0.730
(1.97)
0.776
(2.12)
Process Work
-0.509
(2.20)
0.094
(0.38)
0.232
(0.97)
0.116
(0.43)
0.208
(0.78)
-0.407
(0.81)
-0.278
(0.56)
Manual Work
-1.056
(4.76)
0.430
(1.83)
0.673
(2.94)
0.206
(0.80)
0.374
(1.47)
0.364
(0.89)
0.543
(1.35)
Other0c.
-0:382--o:zf.1!0
(1.40)
(1.62)
0.566
(1.94)
0.795
(2.54)
0.862
(2.76)
-0.639
. (0.93)
-0.580
(0,85)
1.179
(4.60)
-1.272
(4,7())
-0.368
(1.37)
-0.514
(1.92)
-1.065
(3.13)
-1.268
(3.75)
QUALIFICATIONS:
Trade
Other
OCCUPATION:
Clerical
Full-Time
.. .. . J:l!llPloylil!lnt
-1.040
(3,83)
,
_______ ,,_,, __ ,, ----
11
TABLE 2* (continued)
ESTIM:A:TES-()F-M()DEI:;S-()F-EXIT-BEHltVIOUR
(1985-1986 Australian Longitudinal Surve )
Duration
Government
Employment
Total
--Separations--
-----C!uits----
---Layoffs-----
0.662
(5.06)
-0.708
(4.80)
-0.816
(5.64)
-0.920
(5.21)
-0.994
(5.66)
-0.975
(2.78)
-1.085
(3.12)
In Wage
0.085
(0.48)
-0.081
(0.43)
-0.052
(0.29)
-0.303
(1.49)
-0.274
(1.37)
0.020
(0.06)
0.010
(0.03)
Satisfaction
0.073
(0.59)
-0.788
(6.14)
-0.756
(6.06)
-0.944
(7.03)
-0.928
(6.99)
0.089
(0.38)
0.073
(0.31)
Finn-Specific
Training
0.147
(0.90)
-0.547
(2.91)
-0.534
(2.91)
-0.565
(2.59)
-0.563
(2.59)
-0.075
(0.22)
-0.081
(0.24)
Experience
0.727
(6.56)
0.275
(2.27)
0.113
(0.96)
0.222
(l.70)
0.126
(0.98)
0.206
(0.93)
0.100
(0.45)
Experience
Squared
-0.033
(3.54)
-0.021
(2.07)
-0.011
(l.11)
-0.015
(l.35)
-0.008
(0.75)
-0.020
(1.07)
-0.015
(0.78)
Duration
(a)
-0.382
(5.21)
(a)
-0.268
(3.33)
(a)
-0.074
(0.46)
(a)
Duration
Squared
(a)
0.024
(2.56)
(a)
0.021
(2.01)
(a)
-0.023
(0.89)
(a)
Union
-0.535
(4.60)
-0.423
(3.44)
-0.533
(4.45)
-0.166
(1.22)
-0.249
(1.86)
-0.484
(2.14)
-0.550
(2.44)
110.48
1648
92.33
1648
R2/x2
Sample Size
.175
1648
266.92
1648
197.54
1648
168.33
1648
147.77
1648
't' statistics in parentheses
(a) =variable not entered
* The duration equation is estimated using OLS. The total separations, quits and layoffs equations
are estimated using a logit model.
job-type variables such as occupation of employment and full-time/part-time status may change over
time. The ALS (1985 round), however, records only the characteristics of the job at the time of the
Survey. An additional problem is that while job tenure comprises two elements, interrupted durations
and completed durations, the Table 2 results focus only upon interrupted job spells. The job tenure
data in the Australian Longitudinal Survey are heavily censored, and for this reason precise estimates
are difficult to obtain from statistical failure models estimated on samples of both completed and
interrupted spells of employment [see Miller and Volker (1987)]. Consequently, rather than pursue
this line of inquiry, the remainder of thispaperfoc;usesupon turnover data.
Columns (ii) and (iii) of Table 2 present estimates from a logit model of total separations. The two
12
specifications are distinguished by the inclusion of a quadratic in job duration on column (ii). As
discussed previously, duration and job tenure are closely related. When tenure is included in the
estimating equation, the coefficient on unionism could represent a composite of effects. This may be
shown with reference to the simple mocfeI of tenure and turnover outlined in Freeman (1980).
Freeman suggests that tenure (T) and separations (S) depend on unionism (Ui) and an omitted factor
(Fi) as follows:
T =
s=
T
T
F. + e
p U. +A.
i
i
iT
l{ 1 + exp(-psui - A.sFi +Eis)]
The problem which arises in this instance is that Fi is unobserved, and hence will be captured by the
residual term. Should Fi be correlated with unionism (Ui), the estimated coefficients will be biased.
In this instance, the tenure equation may be used to eliminate the unobservable variable Fi from the
separations equation. This yields
s=
lrl+exp[-(ps_PT~S)u.-"'STT+E.s+
A.Se~}]
1
A.
A.
A.
l
l
Whilst this provides a justification for the inclusion of tenure in the specification, it also indicates
that augmenting the separations equation in this manner will result in an understatement of the
coefficient on unionism. This is reflected clearly in the results listed in Table 2. In column (ii),
where duration is included in the estimating equation, the coefficient on the unionism variable is
-0.423 with a 't' of 3.44. When duration is excluded from the estimating equation, the coefficient
on unions is -0.533 with a 't' of 4.45. These equations show, therefore, that trade unions reduce
the total number of separations in the youth labour market. Other variables which are important in
this regard are location, educational attainment, full-time employment status, government sector
employment, the level of satisfaction concerning the job and receipt of firm-specific job training.
The remaining columns in Table 2 focus on quits and layoffs separately. Whilst the quit equation is
statistically significant overall
rx2 = 147. 77 for the column (v) specification compared to the
critical value at the 5 per cent level of x2 0 .05 (23) = 35.17], few individual regressors are
significant. Individual regressors which are significant include job satisfactionJhe finn-spe..,,ciu..fi"'c~--­
trainJ11gvariable, governm~nt sec:tor of.eil1pJoyment and . union membership. Each .. of these.is
aKsociatetl with a reduction m qrnts.
13
The reduction in quits associated with trade unions is consistent with the leading predictions of the
exit/voice model. Using a one-tailed test of significance, consistent with the exit/voice perspective,
this effect is significant at the 3 per cent level. The estimated coefficient of -0.249 in the logit model,
wlien evfiluatedatllie means ofOllier variaoles, sliows iliat unionism is associated with a 2.13
percentage point reduction in quits. In other words, one-third of the raw quit differential reported in
Table 1 [of 6.27 percentage points] is attributable to unionism per se.
Another way of looking at this union effect on quits is that unions reduce quits by around 10 per
cent. This is about one half of the percentage reduction in quits associated with unions in the youth
labour market in the US [Freeman and Medoff (1984), Table 6.11]. Consequently, unions'
relatively stronger impact on tenure in this country - established in column (i) of Table 2 - must
derive from a medium other than quits.
The 10 per cent reduction in quits associated with unions in the Australian youth labour market
implies, using Brown and Medoffs (1978) estimates of the relationship between quits and
productivity, that the union voice impact on quits will raise the productivity of youth by around
1.25 per cent. As the union voice impact is predicted to be relatively weak in the youth labour
market, the union impact on productivity for the labour market as a whole should be greater than
this. However, as unions appear to raise wages by 10 per cent or more, it is unlikely that the
productivity offset associated with a reduction in quits would create a demand for unionism in this
country [see also Freeman and Medoff (1984)].
Whilst the magnitude of the union effect on quits differs between the US and Australia, the general
pattern of unionism in each of the countries in this regard is surprisingly similar. This is illustrated
further by the information on union and non-union quit propensities by level of satisfaction
displayed in Table 3. This table corresponds to data presented in Freeman (1980) Table VI.
TABLE3
UNION AND NON-UNION QUIT PROPENSITIBS BY LEVEL OF
SATISFACTION
Sample
Size
Dissatisfied
Satisfied
236
%
Quit
%
Union
union
Quit%
40.68
(49.23)
56.78
(49.64)
33.58
(47.41)
12215--18:73
... .. . . .. (39.03)
non-union union/non-union
Quit%
Quit Differential
50.00
(50.25)
16.42
(2.57)
5.15
21.74
(35.89) . (41.28)
6.59
(2,96)
Figures in parentheses are standard deviations, except for the final column where the parentheses
·
contain 't' statistics.
- - - ------- --"'i
14
Freeman (1980) suggests that where a formal grievance system is a component of union voice,
dissatisfied union workers will be more likely to have their behaviour .altered by this function of trade
--~------"-
umons, andtliis should be reflecteain the relative rates of quits across levels of job satisfaction.
Consistent with the effects which unions have in the US labour market, the impact of Australian trade
unions on quits appears to be positively related to the degree of job dissatisfaction. Thus, the
union/non-union quit differential is 16.47 percentage points amongst dissatisfied workers, and only
6.59 percentage points amongst satisfied workers. This appears to offer further support for the model
in the Australian context
The measure of quits used in the analysis in Table 2 excludes those who terminated their job due to
sickness [see the Data Appendix]. Some quit equations were estimated which broadened the definition
of quits to include the sickness category . Although the actual number of quits involved is very minor
(18 in a total sample of 1648), the impact of unionism is considerably stronger when the more
encompassing definition is used. This finding is open to several interpretations. Trade unions may
reduce quits in some circumstances by winning concessions such as sick leave for workers.
Alternatively, it may be indicative of the power of trade unions in discretionary job terminations. The
examination of layoffs which follows suggests that unions may have considerable power in this
regard.
The layoff equation is similar to the quit equation in that the equation as a whole is statistically
significant, but few regressors contribute singularly to the understanding of the determination of quits.
The prominent exceptions are full-time employment, government employment, work in the trades
occupation, and union status. About 30 per cent of the mean difference in layoffs between the union
and non-union sectors (i.e., 1.39 of 4.81 percentage points) is due to unionism per se. That is, trade
unions are able to exercise a very powerful influence on the layoff decision. Another conclusion of
interest relates to the insignificance of regressors such as educational attainment and qualifications.
This suggests that personal characteristics might not be used by firms in determining employer-initiated
separations. Other indices or rules would appear, therefore, to be more important in this regard. One
example might be a last-in, first-out rule.
According to these results, trade unions reduce layoffs by about 18 per cent, ceteris paribus, and this is
almost twice the impact on quits (10 per cent reduction). This layoff effect is in sharp contrast to the
US evidence. It was noted previously that the union-discharge relationship in the US is statistically
insignificant The stronger union effect on tenure in the Australian youth labour market would appear,
therefore, to derive from the influence of unions on the layoff decision. The distinctive feature of union
activiti~s ~thi11 thehighly reg;ulat~d Australian labollTI1lark:et, tlleref()re,istheiraJlpart:nt apiljtyJo
--~reduce-retrenchments:-As-discussed-iirSection-I;-iUs-nocc1ear-whet:Ilertlllsis
open to a v01ce or
monopoly interpretation. If the monopoly element is a major player in this second channel of influence,
15
however, unions will increase productivity by less than the 1.25 per cent figure presented earlier.
Section ill
The Australian labour market has traditionally been viewed as a highly centralised and highly regulated
one. The system of compulsory arbitration involves third-parties in the determination of wages and
conditions of work at a level which is usually quite remote from the place of work. Moreover, the
awards of the Arbitration Tribunals apply equally to union and non-union workers. In these
circumstances it is difficult to imagine how collective voice can be so effective in reducing quit rates.
[Scherer (1985) speculates that 'shout' rather than 'voice' would be appropriate in the Australian
context.] While it is true that collective voice can be articulated at high levels of decision making, the
union voice model espoused by Freeman (1980) and Freeman and Medoff (1984) places most
emphasis on direct co=unication from union to employer at the place of work. So far as the impact
of voice on quits is concerned it must be the case that the voice is operative at the plant level. The
impact of voice on layoffs is most likely to operate at company level, which in most cases in Australia
is synonymous with the plant. How then does collective voice assert itself in this situation?
While the formal business of industrial relations is still processed through the arbitral system in
Australia, there has been a steady and rapid growth of informal industrial relations machinery at
workplace level. Fells and Mulvey (1985) have argued that, while plant level industrial relations
activity was very poorly developed in the 1960s, there has been a considerable growth since that time
and there now exists a flourishing and widespread system of local bargaining operating more or less
independently of the arbitral system. Lack of research hitherto has meant that this development has
taken place largely unnoticed, which accounts for the scepticism that co=entators such as Scherer
(1985) display towards the relevance of the exit/voice model in Australian conditions. In addition to the
growth of workplace bargaining it is also the case that an increasing number of Australian employers
negotiate directly with unions and the agreements reached are rubber stamped by the arbitrators as
'consent awards'. As in the case of workplace bargaining this process offers opportunties for
collective voice to be heard, although the terms of the awards which result are applicable to both union
and non-union workers.
Despite the fact that the awards which issue from the arbitral system cover both union and non-union
workers it is now well established that there exists a union/non-union wage differential in Australia.
[See Mulvey (1986), Christie (1988) and Miller and Ru=ery (1989).] The exact mechanism by
which this differential is generated is not known but it seems highly probable that workplace
bargaining for over-award pay and union influence on the allocation of shift and overtime work are
important contributor~. Accordingly, the ability of unionsto secure relative benefits for t11eirn1e!l11:Jers
--~in-respect-ofconditions-ofwork-otherthan-paythrough-sinlilar-medra:nisrrrs-is not-in douDt~[SeeFells
and Mulvey (1985).]
16
In view of this apparent growth of workplace industrial relations in Australia and the ability of unions
to make relative gains for their members, it is n.ot sosurprising after all to find that collective voice
plays an important rolem iiifluencin'=gccs"'e-=p-=ar"'a"'ti"o-=n-:r"'at;::ec::s-.In=d"e"'ec;d,-:csu'~pc-e:c:rfi-:r.1"'c7ial:>:an=al-,:y:-::s:-cis=-=su=-g=-g=--e:-::s::ts=--th=a~tthe-·---···
strength of collective voice in the Australian youth labour market is apparently greater than in the US.
Analysis of data on young males in the Australian labour market shows that trade unions are associated
with a 20 per cent increase in job tenure. This compares with a 10 per cent increase in the US youth
labour market. However, study of quits and layoffs separately suggests that this may be a misleading
assessment. These analyses show that while trade unions are associated with both lower quit and
layoff rates, their relative impact on layoffs (18 per cent reduction) exceeds that on quits (10 per cent
reduction). For the US youth labour market, the union effect of quits is much stronger than in
Australia, and that on layoffs, being virtually non-existent, considerably weaker than the influence
established in the Australian labour market. The strong union impact on layoffs in Australia would
appear to have its basis in both the voice and monopoly faces of trade unionism.
The results of the analysis in this paper do not permit us to generalise about union effects on
productivity in Australia. Our finding that unions increase job tenure and reduce quit rates indicates
that, on this count, unions increase productivity, by over 1 per cent However, our finding that unions
reduce layoffs almost certainly reflects the monopoly as well as voice aspect of union activity.
Accordingly the productivity effect of unions in this respect is ambiguous. And, of course, a union
relative wage effect of over 9 per cent has been estimated by various authors so that there will have to
be very substantial positive union effects on productivity in other ways for the net impact of unionism
on social welfare to be positive.
17
DATA APPENDIX
The variables used in this study are defined below. All variables except the exit variables (total
separations, qmts and layoffi) are defined willi reference to the 1985 Wave of the Australian
Longitudinal Survey. The exit variables are constructed using information in both the 1985 and
1986 waves of the Survey.
Locality: The locality variable describes the part of Australia the respondent lived in at the time of
the survey. The omitted category comprises residents of capital cities and they are distinguished
from residents of urban, non-capital city areas ('small urban locations'), and residents of all other
locations ('rural locations').
Educational Attainment:
Two specifications of the education variable were used. The first
(less restrictive measure) comprises a set of du=y variables where six separate categories are
distinguished: university degrees, diplomas, year 12, year 11, year 10 and less than year 10.
Individuals who left school prior to completing year 10 comprise the omitted category in the
estimating equations. The second specification involves recoding the educational attainment
information into a continuous variable. In this case, university degrees are assigned 3 years of
equivalent full-time study and diplomas 2.5years of equivalent full-time study. The more general
specification was more informative and is used in the analyses reported in the text. Individuals
attending educational institutions were excluded from the study.
Post-School Qualifications: This category of variable refers to post-school qualifications other
than university degrees and diplomas. Three distinct groups are formed: trade qualifications, other
post-secondary qualifications, and no qualification. The latter category is the omitted group.
Occupation: The detailed occupation data available in the Australian Longitudinal Survey were
aggregated into the following groups [see Bureau of Labour Market Research (1986), Appendix 3]:
Professional and Managerial, Clerical, Sales, Trades, Process Workers, Manual Workers, Other
Occupations. The Professional and Managerial group is omitted from the estimating equations.
Full-Time/Part-Time Status: The full-time worker variable is a dichotomous variable, defined
to equal unity if the individual works more than 30 hours per week.
Government Employment: This binary variable distinguishes between individuals who are
employed in the government sector and private sector workers.
----lJnion-Members:-'Fhis-is-a-dichotomous-variable;-set-to-unity-wllere-theiniliviaillil was a
member of a union, otherwise it is defined to equal zero.
18
Experience: The number of years of potential labour market experience at the time of the survey
is entered in the estimating equations in quadratic form.
Job Duration:
The duration of the current job at the time of the 1985 survey (in years) is
entered in the estimating equations in quadratic form.
Wages: The wage variable is derived by dividing usual gross pay by total hours worked in the
main job. This is entered in the estimating equations in logarithmic form.
Training: The training variable is a dichotomous variable, set to unity where the respondent had
received training which would not enhance his prospects of getting a job (the same as, or better
than, the current job) with another firm. That is, this variable records whether firm-specific training
had been received.
Job Satisfaction: The respondent's overall feeling towards his current job was recorded in one
of five categories: 'very satisfied', 'satisfied', 'neither', 'dissatisfied', and 'very dissatisfied'. A
number of variables may be constructed from this information. The analyses reported in this paper
are based on a binary variable formed by combining the first two categories (very satisfied,
satisfied) to generate a 'satisfied' variable.
Quits/Separations: These variables are constructed from the 1986 Wave of the ALS.
Individuals who had changed jobs between the 1985 and 1986 Surveys were asked the main reason
why they left the job they held at the time of the 1985 Survey. Responses were recorded in 12
categories: (1) only a holiday job, (2) other temporary job, (3) laid off, sacked or retrenched, (4)
not satisfied with the job, (5) sickness, (6) pregnancy, (7) home duties, (8) moved residence, (9)
travel, (10) study, (11) to get another job, (12) other. Quits are defined with respect to categories
4, and 6 to 11 inclusive. Layoffs refer to category 3 only. Total separations are defined with
respect to all twelve categories.
The small number of individuals who failed to report answers to any of the questions used in the
construction of these variables were excluded from the analysis. Further details on the survey are
presented in McRae (1984) and Miller and Volker (1987).
19
REFERENCES
Becker, Gary S., (1975), Human Capital: A Theoretical and Empirical Analysis With Special
---Rej'erence-io-Educativn;(2nd-edn:);The-university-of-ehicago-Press;C:bicago.
Brown, CIIBfles andlVleaoff, James L, (f978)-;-'Tradeuiiions in ilie Production Process', Journal
of Political Economy, Vol 86, No 3, pp. 355-378.
Bureau of Labour Market Research, (1986), The First Wave of the Australian Longitudinal Survey:
Facts and Figures About Young CES Registrants, Monograph Series No. 12, Australian
Government Publishing Service, Canberra.
Christie, Virginia, (1988), Union Wage Effects and the Probability of Union Membership,
unpublished Honours Dissertation, University of Western Australia.
Fells, Railton E, (1987), 'Industrial Relations at the Plant Level - A Case Study', Journal of
Industrial Relations, Vol 29, No 3, pp. 350-364.
Fells, Railton E, and Mulvey Charles, (1985), 'The Hancock Report and Workplace Industrial
Relations', Journal of Industrial Relations, Vol 27, No 4, pp.529-543.
Freeman, Richard, (1980), 'The Exit-Voice Tradeoff in the Labour Market: Unionism, Job
Tenure, Quits and Separations', The Quarterly Journal of Economics, June, pp. 643-673.
Freeman, Richard B, and Medoff, James L, (1984), What do Unions Do?, Basic Books, New
York.
Heckman, James J., and Singer, Burton, (1985), 'Social Science Duration Analysis', pp. 39-110
in James J. Heckman and Burton Singer (Eds) Longitudinal Analysis of Labor Market Data,
Cambridge University Press, New York.
Hirschman, Albert 0, (1971), Exit, Voice and Loyalty, Harvard University Press, Cambridge,
Mass.
McRae, Ian, (1984), 'The Australian National Longitudinal Survey', Bureau of Labour Market
Research, Conference Paper No. 44.
Medoff, James L., (1978), 'Layoffs and Alternatives under Trade Unions in US Manufacturing',
American Economic Review, Vol 69, No 3, pp 380-395
Metcalf, David, (1988), 'Trade Unions and Economic Performance: the British Evidence', in C
Dell'Aringa and R Brunetta (Eds) Markets, Institutions and Cooperation: Labour Relations and
Economic Performance, Macmillan, (forthcoming).
Miller, Paul and Volker, Paul, (1987), 'The Youth Labour Market in Australia: A Survey oflssues
and Evidence', Centre for Economic Policy Research, The Australian National University,
Discussion Paper No 171.
Miller, Paul and Rummery, Sarah, (1989),'Unionism and the Structure of Male Wages in the Youth
Labour Market', mimeo, Department of Economics, The University of Western Australia.
Mulvey, Charles (1986), 'Wage Levels: Do Unions Make a Difference ?',pp 202-216 in John
Niland (Ed) Wage Fixation in Australia, Allen & Unwin, Sydney.
Scherer,Peter,(1985),Exir,Voice antl-Margmab.ty:Tlie Interaction Between Labour Markets and
Workplace_JndustrialRelations Systems', mimeo, BLMR, Canberra.
============================---