Percent

Chart 3. Percent changes In compensation for private industry workers by union status
trom the Employment Cost Index, 1980-96

16

127

L n 1 4 n

L L n n L L ‘ L

L L 1 n

1980 1961 1982 1963 1984 1965 1986 1967 1988 1989 1990 1991 1992 1993 1994 1995 1996

rapidly than wages and salaries, but
have recently dampened, probably
due to cost shifting and cut-backs in
plans."

Another benefit for which cost
does not rise at the same rate as
wages and salaries is lump-sum
payments, often paid in lieu of wage
increases. Lump sum payments,
which are considered a
nonproduction bonus in the ECI,
have been popular among employers
because they do not alter base wages
and may more easily be discontinued
in future contract negotiations than
wage changes.!?

The relative importance of
benefits differs substantially between
union and nonunion workers. In
March 1995, for example, benefits
made up 28.4 percent of total
compensation for all private industry
workers, 35.7 percent for union
workers, and 26.8 percent for
nonunion workers. Furthermore, the
union advantage, in terms of benefit
costs as a percentage of compensa-
tion costs, was greatest for those
benefits whose costs were least
closely related to wages—insurance,
supplemental pay, and pension and

Table 3. Average annual percent changes In the Employment Cost Index of compen-

‘sation costs for union and nonunion workers, selected periods, 1975-96

Period and worker group Union Nonunion

June 1981-December 1983:

All private industry 7A 61
Goods-producing 66 5.6
Service-producing 8.0 64
Manufacturing .... 65 57

77 63

December 1983-March 1991:

All private industry 3.4 46
Goods-producing 35 43
Service-producing 34 48
Manutacturing .... a7 44
Nonmanutacturing 32 47

43 35
43 37
42 34
46 39
40 34
27 29
21 28
33 29
24 29
34 28
41 44
40 42
43 45
4i 43
4t 44

31 Compensation and Working Conditions September 1996



Table 2. Average annual percent changes in wages and salaries from the Employment
Cost index and “average wage changes,” selected periods, 1975-95

Sept. 1976- | Dec. 1983- | Mar. 1991- | Mar. 1994- | Sept. 1975-
Series Dec, 1983] Mar.1991]) Mar.1994| Dec. 1995) Dec. 1995

74 3.9 3.0 28 51

8.0 2.9 31 28 5.0

73 34 af 27 5.0

75 37 32 3.0 51

81 31 3.0 26 5A

78 33 34 25 5.0

TA 40 29 28 5A

8.0 27 32 29 49

79 3.0 34 28 5.0

66 28 22 26 42

76 3.0 32 3.0 49

84 28 34 35 52

83 26 3.0 27 49

69 40 27 33 49

75 3.0 34 26 48

74 49 33 24 55

75 43 40 27 54

Average wage changes in collec-
tive bargaining settlements are not
strictly comparable to ECI wage and
salary changes for union workers,
largely because such changes are
based on data for all bargaining
agreements covering 1,000 or more
workers, whereas ECI union data are
based on a sample of all workers
whether or not they are covered by a
collective bargaining agreement.’

Despite differences in the two
series, average wage changes have
been very similar to ECI union wage
changes where comparison is
possible—for all private industry
workers and for manufacturing and
nonmanufacturing. This similarity
provides support for using the

average wage changes as an indica-
tor of ECI union wage changes in
industries for which ECI measures
are not available.

‘Comparisons of overall ECI wage
changes with average wage changes
by industry sector outside of manu-
facturing generally support the
finding of relatively large union pay
gains during 1975-83 and 1991-94
and relatively small gains during
1983-91 and 1994-95.* The excep-
tions are the transportation and
public utilities industries during
1975-83 and 1991-94, construction
during 1983-91 and 1994-95, and
services during 1994-95. For
transportation and public utilities in
every time period reviewed, union

increases (as measured by average
wage changes) were lower than
nonunion gains; for construction, the
opposite relationship was true.

Compensation cost changes

Data on wage and salary changes
tell only part of the story. Compre-
hensive analysis of labor cost trends
requires data on total compensation
costs, which include benefit costs as
well as wages and salaries. Chart 3
presents 12-month percent changes
in compensation costs for the period
since December 1980, when the data
first became available.®

In addition to wages and salaries,
compensation costs as measured by
the ECI include paid leave, employer
costs for private insurance and
Tetirement plans, and their costs for
legally required programs, supple-
mental pay, and other benefits. The
supplemental pay category includes
premium pay for work on weekends
and holidays, shift pay, and
nonproduction bonuses, including
lump-sum payments made in lieu of
wage adjustments.

Benefits differ in the degree to
which they are related to wages.

The cost of some benefits, such as
paid vacations or holidays, is directly
related to wages because the benefits
are nearly always paid at the wage
rate. Costs of other benefits, such as
Social Security, are related to wages
but also can be affected by factors
outside the control of parties in the
negotiations, such as legislated
changes in tax rates or ceilings on
taxable earnings.

Still other benefits, such as health
insurance and pensions, show cost
changes that are almost totally
unrelated to wage movements.'®
Consider, for example, health
insurance costs. During 1980-84,
employer health insurance costs rose
much more rapidly than wages and
salaries. During 1985-87, insurance
cost increases dampened dramati-
cally, due to lower rates of increase
in medical costs and cost contain-
ment efforts by employers. During
1988-92, they again rose much more

Compensation and Working Conditions September 1996 30



retirement costs. This pattern
suggests that the union-nonunion
relationship will be different for
compensation cost changes than for
wage and salary changes.

Although compensation cost
changes show the same general
pattern as wages and salaries—
relatively large union gains until
1983 and during March 1991-94 and
relatively small gains during 1983-
91 and March 1994-96—there are
important differences between the
two measures. For example, during
1991-94, compensation costs
increased faster for union than for
nonunion workers in goods-produc-

ing and manufacturing industries,
contrary to what was found for
wages and salaries. Data on average
annual percent changes in compen-
sation costs are shown in table 3.

When one compares union and
nonunion compensation trends, it is
clear that the June 1981-December
1983 and March 1991-94 periods
differ from the other periods, in that
union compensation gains are larger
than nonunion increases. In the
other periods, the nonunion gains
are larger. These patterns were true
for all private industry workers and,
with few exceptions, for the major
industry categories.

Table 4. Benefit and insurance costs as a percentage of total compensation costs, by
union status for selected industry and occupational groups, March 1995,

Total benefit costs Insurance costs
Series

35.7 26.8 10.0 6.0

37.5 29.2 102 66

39.3 WE 11.0 TA

40.1 322 113 83

33.7 25.8 95 57

Table 5. Indexes of employment costs for wages and salaries, benefits, and total
compensation costs of union workers relative to nonunion workers, March 1988 and

March 1995
(Nonunion=100)
. Wage and Compensation
Series salaries Benefit costs

Private industry workers:

1988 125.3 186.0 140.8
1212 183.7 137.8
150.0 224.9 169.9
144.2 209.2 163.2
98.2 131.1 107.9
93.1 136.3 106.3
148 176.7 147.3
1221 1720 138.3
1341 195.4 149.2
132.6 1942 148.4

Compensation cost levels

Despite variations in the magni-
tude of the differences between
union-nonunion wages and compen-
sation, a substantial gap remains, as
shown in a review of employer costs
for employee compensation.!?
Benefit costs, in particular, make up
a larger percentage of compensation
costs for union than for nonunion
workers in March 1995. (See table
4.)

A major difference between the
union and nonunion sectors is in
employers’ costs for insurance,
which accounted for 10.0 percent of
compensation costs for union
workers, compared with 6.0 percent
for their nonunion counterparts.
This pattern is found even when the
comparison is restricted to more
narrow industry and occupational
categories. For blue-collar workers
in manufacturing, for example,
insurance costs made up 11.3
percent of compensation costs for
union workers and 8.3 percent for
nonunion workers.

Wage, benefit, and compensation
costs typically are higher for union
than for nonunion workers, but the
magnitude of the union premium
depends on the time period, the
measure of compensation, and the
group of workers examined. (See
table 5.) For all private industry
workers in March 1995, wage and
salary costs were about one-fifth
higher for union than for nonunion
workers, whereas compensation
costs were more than one-third
higher. And in manufacturing, the
union compensation cost advantage
was 6 percent for all workers and
nearly 40 percent for blue-collar
workers. In nearly all cases, the
union premium was lower in 1995
than in 1988.

Clearly, when making union-
nonunion comparisons, it is impor-
tant to look at different time periods,
total compensation rather than
simply wages and salaries, and
particular occupational categories
rather than all workers combined.

Compensation and Working Conditions September 1996 32



Trends in the Differences
Between Union and
Nonunion Workers in Pay
Using the Employment
Cost Index BY ALBERT SCHWENK

ver the past two decades, the differences in wage and compensation changes

between union and nonunion workers fluctuated, sometimes to the advantage of

union workers and sometimes to the advantage of their nonunion counterparts.
During 1975-83 and again in the early 1990s, wages for union workers increased more
rapidly than those of their nonunion counterparts, as measured by the Employment Cost
Index (ECT). From 1983 through March 1991 and for the past 2 years, nonunion wage

increases have been larger. By 1996, however, the pay advantage for union workers
was slightly smaller than it was in the mid-1970s.

This article examines the differ-
ences in the size of the gap between
the wages and compensation of
union and nonunion workers as
measured by the ECI, including the
effects of foreign competition,
industry deregulation, and the
proportion of the work force that is
unionized.

Trends in wages and salaries
From 1975, when wage change
data from the ECI were first avail-
able, until the early 1980s, the
union-nonunion wage differential

Albert Schwenk is an economist in the Divi-
sion of tion Data Analysis and Planning,
Bureau of Labor Statistics. Telephone (202) 606-
6203.

grew steadily as wage increases for
union workers almost always
exceeded those of their nonunion
counterparts. (See chart 1.) Other
BLS data suggest that, in manufac-
turing, at least, the long string of
years with relatively large union pay
gains began in 1969 and that, by
1983, the union-nonunion differen-
tial was at a historic high.'

During the early 1980s, pay
increases for both union and
nonunion workers dropped sharply.
The recession of 1981-82 contrib-
uted to the decline in pay increases
for both union and nonunion
workers, leading to wage freezes and
pay cuts, and a lower rate of price
increases. Although pay gains in the
union sector continued to exceed

27 Compensation and Working Conditions September 1996

those in the nonunion sector through
the middle of 1983, the drop in the
Tate of increase was sharper for
union workers, due in part to the
growing importance of lump-sum
payments offered in lieu of wage
increases in union contracts.

From the end of 1983 until the
early 1990s, nonunion wage in-
creases consistently exceeded those
for union workers. By the end of
1988, the union-nonunion differen-
tial in wage rates was smaller than it
had been in 1975.2 Chart 2 shows
the progression of cumulative
percent changes in wages for both
union and nonunion workers,

During 1983-91, the decline in
the difference between union and
nonunion wages resulted from the



Technical Note

An employment-weighted
measure of labor costs, the ECL
covers all nonfarm establishments
(except private households and the
Federal Government) regardless of
size, and provides detail by industry,
occupation, region, union status, and
occupational group within industry
categories.“

"See Michael L. Wachter and William H.
‘Carter, “Norm Shifis in Union Wages: Will 1989
Be a Replay of 19697", Brookings Papers on
Economic Activity, 1989:2, p. 245. The 1959-
76 data on union wage changes were from the
Bureau’s Wage Developments in Manufacturing,
which was discontinued in the late 1970s. The
pre-1959 data on union wage changes, and the pre-
1976 data on nonunion wage changes, were de-
rived from average hourly earnings from the
Bureau's Current Employment Statistics program.

2 Robert J. Flanagan, “Wage Concessions and
Long-term Union Wage Flexibility,” Brookings
Papers on Economic Activity, 1984:1,p. 187, has
observed that “[i]t would take another decade of
differences in union and nonunion wage growth
of the size observed in 1983 to restore the relative
union wage in manufacturing to its 1969 level.”

3 Reasons for the relative decline in the rate of
‘union wage and benefit increases in the early
1980s are explored in Linda A. Bell, “Union Con-
cessions in the 1980s,” Quarterly Review, Fed-
eral Reserve Bank of New York, Summer 1989,
pp. 44-58.

* Wachter and Carter, p. 246.

5 Data on the proportion of private industry
wage and salary workers covered by a union con-
tract are available on a generally consistent basis
only since 1983. In that year, 18.8 percent of those
workers were covered. The percent dropped to
14.6 percent in 1987, 13.1 percent in 1991, and
11.4 percent in 1995. Data on union membership
(which also includes government workers) as a

The advantage in using the ECT is
that it publishes data on cost levels
and changes for total compensation
as well as for its components, wages
and salaries and benefit costs.'* A
measure including both wages and
benefits provides a more complete
estimate of the differences in
compensation between union and
nonunion workers.

In the ECT, the basic unit of

—Endnotes—

percentage of wage and salary employment shows
a drop of about 16 percent (from 24.1 percent to
20 percent) between 1979 and 1983. (Data on
the proportion of workers covered by union con-
tracts are from the Current Population Survey.)

© Average wage changes (formerly called ef-
fective wage adjustments) data were obtained
from all union contracts covering 1,000 workers
‘or more, They measured all adjustments in the
reference year, regardless of the settlement date.
‘The series was discontinued after December 1995.
for budget reasons,

1The two series differ not only in the group of
workers covered but also in the precision of the
estimates. Because ECI data are based on a
sample, wage (and compensation) change esti-
mates from the survey have sampling errors asso-
ciated with them; because they are based on data
for the universe, “average wage changes” do not
have sampling error.

* For this analysis, the most recent period ends
in December 1995, because “average wage
changes” are not available after that point.

» Data on 12-month changes in compensation
costs by union status for the major industry cat-
egories are available only since June 1982.

” See Bradley R. Braden, “Increases in Em-
ployer Costs for Employee Benefits Dampen Dra-
matically,” Monthly Labor Review, July 1988,
pp. 3-7.

TM Tt is not possible to determine from the ECT
why the rate of increase in health insurance costs

33 Compensation and Working Conditions September 1996

observation is an occupation within
an establishment.’6 An occupation
in an establishment is considered to
be unionized if the workers are
covered by a union contract."”
Because both establishments and
occupations are selected on a
probability-proportionate-to-size
basis, the sample reflects the
distribution of union and nonunion
workers in the economy.

* See Bell, “Union Concessions in the 1980s,”
p.49,

> BCI data on compensation costs by union
status are available once a year and only since
1988. Note that union and nonunion cost levels
reflect a variety of influences, including coverage
by acollective bargaining agreement and varia-
tion in distribution of union and nonunion work-
ers among occupations and industries.

4 Although the ECT is designed to be a fixed-
weight Laspeyres index, indexes for series related
to union status are more like Laspeyres chain in-
dexes. See G. Donald Wood, “Estimation Proce-
dures for the Employment Cost Index,” Monthly
Labor Review, May 1982, pp. 40-42. For more
information about the ECI, see Employment Cost
Indexes and Levels, 1975-95, Bulletin 2466,
Bureau of Labor Statistics, October 1995.

+ See Felicia Nathan, “Analyzing Employers’
Costs for Wages, Salaries, and Benefits,” Monthly
Labor Review, October 1987, pp. 3-11. Separate
data on cost levels for union and nonunion work-
ers were not available until 1988,

16 An establishment generally is a single
physical location where business is conducted or
where services or industrial operations are per-
formed.

1 If some workers in an occupation in the
establishment are covered by a union contract and
others are not, the two groups of workers are con-
sidered to be in different occupations, and one oc-
cupation is selected for the survey on a probabil-
ity-proportionate-to-size basis.



Chart 1. Percent change in wages and salarles from the Employment Cost Index, private
workers by union status, 1976-96

Percent

12

10

Nonunion

Ll L L 1 ieeweswwel Ll Lot boiit L L n Daetbriit l

1976

1077 1678 1979 1900 1981 1962 1969 1964 1985 1986 1967 1988 1989 1900 1901 1902 1903 1904 1995 1996

Chart 2. Indexes of wages and salaries, union and nonunion workers, private industry, 1975-96

Index

300

250 F

200 -

150 |-

100 F

{UNWa GUTS OUWE FOUN SYWE SUUE EYEE OUwe NYE SNwE FET FOES COWS SESE EW SE FEST NONE SETS OTS BUCS ETOS!

107) 97S 1677 HTL 1079 veRD 1081 102 1083 1004 1005 1008 ONT 1008 1900 1000 101 1082 1982 18% 1008 1008

Compensation and Working Conditions September 1996



confluence of several factors. First,
highly unionized industries lost
some of their protection from
competitive forces. Manufacturing
industries, such as automobiles and
steel, were strongly affected by
foreign competition, while transpor-
tation industries, such as trucking
and airlines, were affected by
deregulation.

A second factor in the decline in
the union-nonunion differential
during 1983-91 is the difference in
occupational composition of union
and nonunion workers. White-collar
workers are more likely to be
nonunion workers, and during the
1980s their pay rose more rapidly
than that of blue-collar workers, who
are more likely to be unionized.

A third factor influencing
changes was the size of the differen-
tial. The larger the union wage
premium, the more likely the
differential is to narrow for competi-
tive reasons, and even as late as
1989, the union wage premium was
closer to series highs than to series
lows.‘

Another factor was the steady
decline in the percent of the work
force that is covered by a union
contract. That steady decline began
around 1979 and continued through
1995, but the sharpest drop was in
the early 1980s.

By the early 1990s, the impact of
these factors on wages diminished to
varying degrees. For example,
foreign competition and deregulation
continued to influence the size of
wage adjustments, but the difference
in union and nonunion wages in the
affected industries by then better
teflected the new competitive
environment.

From March 1991-94, union
wage increases were, on average,
larger than nonunion ones; but from.
March 1994-1996, nonunion
workers had larger increases.
However, throughout the 1990s, the
sizes of the increases for both the
union and nonunion sectors were not

as large as in either the 1975-83 or
1983-91 periods, Furthermore, the
union or nonunion advantages in
wage increases were not as consis-
tent across industries. (See table 1.)
In goods-producing industries
(including manufacturing), union
pay increases continued to lag
behind those of nonunion workers
during the entire March 1991-96
period, whereas in service-producing
industries, union increases were
larger in March 1991-94,

Although it is not possible to
make direct comparison of wage
changes between union and non-

union workers for detailed industry
groups, such as construction,
because of insufficient sample size, it
is possible to make broad compari-
sons for some industry groups using
data on average wage changes from
the Bureau’s major bargaining
settlements program in conjunction
with ECI data. (See table 2.) For
example, if average wage changes
from the major bargaining settle-
ments program were lower than the
ECI change for all workers in the
industry group, this would suggest
that nonunion increases were larger
than union increases.

Table 1. Average annual percent changes in the Employment Cost Index of wages and
salaries for union and nonunion workers, selected periods, 1975-96

Period and worker group Union Nonunion

September 1975-December 1983:

Alllprivate industry 8.0 7

it 79 70
83 72

. 71

72

December 1983-March 1991;

All private industry 29 42
Goods-producing 29 3.9

28 44
34 40
27 43
31 29
28 34
3.6 28
3.0 33
32 28
27 34
25 34
28 31
27 32
27 34

September 1975-March 1996:

All private industry 5.0 54
Goods-producing 49 5.0
Service-producing .. 52 52
Manufacturing ..... 51 51
Nonmanutacturing .. 49 51

29 Compensation and Working Conditions September 1996