WHAT DO UNIONS DO?

by Richard Freeman '64 and James Medoff Basic Books, Inc., 1984. 293 pp., $22.95

Dartmouth counts among its graduates the world's leading expert on the economics of unions, Professor Richard Freeman of Harvard University. What Do Unions Do?, written with Professor James Medoff, also of Harvard, represents the product of over a decade of work, and is the most important book on the economics of unions to appear since Professor Greg Lewis' influential work of 1963.

This book is of interest not just to the academic labor economist. If you can resist the footnotes, this book is written to be understood by the nonspecialist. It is a contribution of wide scope, setting forth and testing hypotheses about unions and their effects, information that is essential for anyone wishing to reach an opinion about the social value of unions. In addition, it provides an opportunity to examine how empirical research in economics is done today, and what is required to provide correct information to guide policy analysis of economic issues.

As economists, Freeman and Medoff are interested in the economic effects of unions, but they go well beyond the topics traditionally covered by an economic analysis i.e., the impact of unions on wages and employment. They spend much of this book marshalling evidence on what unions do to productivity (and thus to costs), to employer profits, to the incomes of those who are unlucky enough not to be able to secure a union job; in short, they examine what unions do for and to labor, to the firms that are organized, to the public and to the consumer, and they ask why unions have these effects. To answer these questions, Freeman and Medoff develop a conceptual framework. Their explanation for union behavior allows for the traditional view that unions have monopolistic effects, raising wages and reducing employment in some firms, reducing profits in the union sector. But the unique and controversial part of their explanation, a part that represents a major departure from the traditional literature in labor economics, concerns the positive role that unions play in giving voice to their membership so that working conditions may be adjusted and productivity maintained without the firm experiencing the kind of unwarranted and costly turnover or other productivity loss that may occur when quits are the only way for workers to voice their dissatisfaction.

This book makes it apparent why good economic analysis, even with a strong empirical orientation, is in the end so closely tied to theory. Without providing a careful and complete explanation of how all of the factors other than unions, which influence the supply and demand for labor, have affected each of outcomes that are of interest, and without the careful effort to remove these other influences, one could have little faith that Freeman and Medoff had indeed isolated union effects not just those operating through adjustments to higher wages, but the effects of a more satisfied and communicative work force. Without their careful analysis, we could not determine whether the differences they found between union and nonunion workers or firms were simply the result of the effects of other omitted factors, or indeed were the result of unions. The details of each argument, the pursuit of the implications of each behavioral explanation in the data, provides a clinic in how modern economics functions at its best.

I could not conclude a review of this important book without elaborating on the role that the Dartmouth connection played in Professor Freeman's professional career. The reader will note that the first of the names in the dedication of What Do UnionsDo? is Martin Segal, who came to Dartmouth in 1958 and remained a distinguished member of its economics department until his death three and a half years ago. Freeman was Professor Segal's student in the early sixties, when Segal was doing his most influential work on the economics of unions. As Professor Segal's student, Freeman not only got his first exposure to labor economics, but was such an extraordinary student that he and Segal jointly authored a paper, Freeman's first professional paper in labor economics. They stayed in close contact over the next two decades, spending hours on the phone discussing much of the work in this book and many of the other projects Freeman engaged in over that period.

ALAN L. GUSTMAN

Alan Gustman is a professor of economics at theCollege.