OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 54,4(1992)0305-9049 $3.00

CLOSED SHOPS AND RELATIVE PAY:INSTITUTIONAL ARRANGEMENTS OR HIGH

DENSITY?

David Metca if and Mark Stewart

I. INTRODUCTION

There is now general agreement that, on average, unionized establishmentspay higher wages than otherwise comparable non-union ones. Recentevidence for Britain also suggests that the presence of a closed shop arrange-ment further raises the level of pay. In addition a pre-entry closed shop isfound to have a larger impact than a post-entry one. Stewart (1987) foundthat in 1980 the pay of semi-skilled manual workers was, ceteris paribus, 5percent higher where there was some form of post-entry closed shop arrange-ment than where there was just union recognition but no form of closed shop.This premium rose to 10 percent where the closed shop was pre-entry (bothof these effects were significantly different from zero). For skilled manual paythe corresponding estimates were 4 percent and 8 percent (again both statisti-cally significant). These estimates are based on data from the first WorkplaceIndustrial Relations Survey (WIRS). Estimates based on the second survey,conducted in 1984, are broadly similar to those for 1980. Stewart (1991)found that the pre-entry premium on semi-skilled pay had increased slightly,to about 14 percent, while that for post-entry had contracted slightly, toabout 3 percent. (Both of these are again relative to pay in an establishmentwith union recognition but no form of closed shop.) Premia of these orders ofmagnitude can also be found in a number of other recent studies based on theWIRS samples.

Several recent pieces of industrial relations legislation have been aimed atthe weakening and eventual removal of closed shops. From 1980 any newclosed shops required a substantial majority in a ballot of employees at theworkplace. In 1982 this provision was extended (coming into force in 1984)to existing closed shops. Rather few such ballots were held and thereforemost closed shops were operating unlawfully post 1984. Subsequently thegovernment simply outlawed the post-entry closed shop in 1988 and the pre-entry closed shop in 1990 (see Metcalf and Dunn, 1991, for further details ofthe industrial relations legislation).

503

504 BULLETIN

This legislative onslaught raises the interesting question of whether thewage premia discussed above result from the institution of a closed shop, i.e.the existence of an agreement on membership with the employer, or from theaccompanying high union membership density at the establishment. To putthe question another way, if the closed shop is removed at an establishment,but the high union density remains, what would we expect to happen to pay?This is the question addressed by this paper. We seek to investigate how thepay in private sector establishments with a closed shop compares with that incomparable establishments without a closed shop arrangement, but with asimilar high level of union membership.

IL VIEWS OF THE CLOSED SHOP

A closed shop exists when 'an employee is made to realise that a particularjob is only to be obtained or retained if he or she becomes and remains amember of one of a specified number of trade unions' (McCarthy, 1964). In1989 there were 2.6 million employees covered by such arrangements, halfthe 1979 number. Department of Employment officials (Stevens, Millwardand Smart, 1989) state that the current closed shop numbers are split roughlyevenly between the pre-entry closed shop, where the individual has to beaccepted as a union member before starting work, and the post-entry closedshop where the employer may take on a non-unionist, so long as such arecruit joins the union shortly after starting the job.

Economists have long worried that the costs associated with closed shopsoutweigh the benefits. By contrast, those from industrial relations haveemphasized certain positive effects on the process of collective bargainingand personnel managers have observed both advantages and disadvantagesin the system. When union membership was approaching its peak the Insti-tute of Economic Affairs (1978) brought together economists and others tocontemplate the question 'Trade unions - public goods or public bads'?There is scarcely a kind word for trade unions in the resulting monograph,and the closed shop is subjected to vitriolic assault. John Burton suggestedthat distortions associated with trade unions in general and the closed shop inparticular reduced potential GNP by at least 12 percent! And the prefaceconcluded 'the earlier trade unions are deprived of their man-made mono-poly, the less the disturbance and damage to British society'.

More recently Blanchilower and Oswald (1988) and Metcalf (1989)survey evidence on various outcomes associated with union recognition andthe closed shop. The results surveyed suggest that in the first half of the1990s, as compared with workplaces without a closed shop, those with aclosed shop had higher pay, lower labour productivity levels but faster labourproductivity growth and inferior financial and employment performances.There are, as always, many caveats. In particular lower productivity levelsmay have more to do with bad management than the closed shop and the

CLOSED SHOPS AND RELATIVE PAY 505

employment results may simply be the mirror image of the productivitygrowth results.

Classical economists were divided as to whether unions could raise rela-tive wages (see Hollander (1968) from where the three quotes which followare taken). McCulloch (1864) argued against legislation stopping workersorganizing, because 'no bad consequences can result from the exercise of thispower (or combination) on the part of workmen. If the price they demand forthe labour be unreasonable, the masters may, and always do, refuse to employthem; and as they cannot afford to live for any considerable period withoutemployment, it is plain that all combinations to obtain an undue rise of wages,or to effect an improper purpose, carry in their bosom a principle of dissolu-tion, and must steadily fall to pieces' (p. 333).

By contrast Mill (1965) states that a union might succeed in raising payabove the competitive level 'in trades where work people are few in number,and collected in a small number of local centres' (p. 930). Thus Mill empha-sized the importance of effective organization and spelled out the circum-stances under which such organisation was likely. The Hand-Loom WeaversCommission, under the direction of Senior (1841) went further. It empha-sized the potential power of craft groups and also anticipated Olson's (1965)notion of non-encompassing groups by well over a century: 'A combinationfrequently succeeds in effecting its immediate purpose, when this inactivity ofthe workmen in combination, can produce the further effect of throwing outof employment other and more numerous sets of work-people, or renderuseless a large amount of fixed capital' (p. 32). Thus Senior argues that wherea group of workers is essential to an entire process it will be in the best posi-tion to exert pressure successfully. Senior also suggests that such pressure islikely to be greater during periods of high macroeconomic activity than whentrade is slack.

Industrial relations writers and practitioners are more concerned with pro-cesses than outcomes. In his classic study McCarthy (1964) emphasizes thatthe closed shop provides membership, discipline and entry control. By 1979it was even suggested (Hart, 1979) that 'bosses love the closed shop, becauseit helped deliver the reform of workplace bargaining by insulating union offi-cials and shop stewards from workers' pressure and permitting them to takeunpopular decisions concerning, for example, the introduction of technicalchanges and any consequent rationalization of work. More recently the Insti-tute of Personnel Managers (1989), responding to the Green Paper by theDepartment of Employment (1989) signalling the government's intention tooutlaw the pre-entry closed shop, stated that the Green Paper was defectivebecause it does not explain why 'the pre-entry closed shop has remainedtacitly supported by such a large number of employers in one form or anotherfor so long'. The IPM's response stated that the closed shop provides 'stabilityand controlled collective bargaining ... fragmented bargaining can be veryexpensive'.

506 BULLETIN

Such discussion and analysis of the closed shop has up to now, we believe,been deficient in one very important respect. No one has investigated orreported whether or not the effects of the closed shop - on either processesor outcomes - are additional to those associated with high union density in aworkplace. Does the institution of the closed shop have an effect over andabove that of high union .density? This is clearly the central question. In addi-tion it is important to ask whether any such effect varies between the pre-entry and post-entry closed shop. Using information from the 1984Workplace Industrial Relations Survey we examine these questions for one ofthe key effects - that of unions on pay.

Industrial relations specialists provide only limited guidance to what wemight expect. The authors of the two major books on the closed shop aresuitably agnostic. McCarthy (1964) stated that the closed shop 'is a devicewhich unions want to assist in dealing with particular problems concernedwith organizing, controlling or excluding different categories of workers. Byhelping to overcome such problems it adds to the effectiveness of the sanc-tions unions impose on employers ... and results in a growth of union strengthand solidarity'. However, 'the crucial factor which determines whether or notmost groups obtain the practice is whether or not they can muster sufficientpower, without its aid, to impose it unilaterally, or make it worth theemployers' while to concede it'. Further, 'there are a number of groups wherethere is a high level of organization yet few, it any, demands for the closedshop' (pp. 94, 146).

Twenty years on Dunn and Gennard (1984) faced the same conundrum:'there are strong unions with closed shops and weak unions without thembut also weak unions with closed shops and strong ones without them. Forinstance both coal miners and shop assistants are covered by closed shops. Isthat an important similarity in understanding their industrial behaviour? Andin comparing the Union of Communication Workers [formerly union of PostOffice workers] which operates a closed shop, with the Post Office Engineer-ing Union [now National Communication Workers Union] which does not,although it has achieved nearly 100 percent voluntary membership, how it ispossible to disengage the closed shop from a host of other variables thatdetermine the similarities and differences in the way they operate?' (p. 6).

The Department of Employment is not so much agnostic as ambivalent. In1985 the then Employment Minister Peter Bottomley felt able to tell parlia-ment the 'monopolistic hold of the closçd shop has been broken' (quoted inHanson 1987). If that was indeed the case, it is not clear why further tranchesof legislation were required to banish the post-entry closed shop (1988) andpre-entry closed-shop (1990). The Department certainly took a very differentstance in its 1989 Green Paper on the pre-entry closed shop, and concludedon the basis of the recent WIRS-based research referred to in the introduc-tory section above the pre-entry closed shop raises pay by more than recogni-tion alone: 'The effect.on labour costs is most marked with the pre-entry closedshop. Recent analysis suggests that the existence of a pre-entry closed shop

CLOSED SHOPS AND RELATIVE PAY 507

raises the earnings of manual workers by over 10 percent on average' (para.2.11).

Dunn (1985) discussing the 'moral panic' over the closed shop also empha-sizes the importance of distinguishing between the post- and pre-entryvarieties. He surmizes that the pre-entry closed shop has an effect over andabove density but that the post-entry variety is simply 'the last piece of thejigsaw' - a consequence of high membership, not a cause of it, and with noadditional effect on top of the high density effect. That is precisely what wefind. Our results help resolve the industrial relations puzzle posed by theauthorities on the closed shop in Britain. The pre-entry variety is - on thepay dimension - a separate institutional form with an effect additional todensity. This is, however, not so for the post-entry closed shop, which bringsno extra reward in terms of pay in addition to that resulting from high density.Our work also aims to provide a basis for subsequent analysis of the effects ofthe 1 980s industrial relations legislation outlawing closed shops.

Ill. EVIDENCE FOR SEMI-SKILLED PAY BASED ON THE 1984 WIRS

A Basic Results

This section reports the results from using the 1984 WIRS to examine howunion wage differentials in the presence and absence of a closed shoparrangement vary with the extent of union membership among the manualworkforce at the establishment. More specifically we examine how the closedshop wage premia differ from those associated with establishments with highunion density but no closed shop. We start with the sample of establishmentsused in Stewart (1990) and from this delete establishments that do notprovide adequate information on union density. The deletions do not distortthe results obtained.'

To address our prime question we require some notion of what constituteshigh union density. Table 1 presents a breakdown of union density amongmanual workers by recognition and closed shop status. 86 percent ofestablishments with at least some manual workers in a pre-entry closed shophad union density of 95 percent or above and the vast majority (nearly 80percent) had 100 percent membership among the manual workforce.Similarly 89 percent of establishments with no pre-entry closed shop but atleast some workers in a post-entry variety had union density of 95 percent ormore. This 95 percent threshold also seems an intuitively plausible breakpoint. However this is really an empirical issue. We investigate suitable model

'The deletions reduce the sample by about 7 percent. The reduced sample was comparedwith that before deletions by estimating a log-linear pay equation with variables for unionrecognition without closed shop, post-entry closed shop and pre-entry closed shop togetherwith the same set of control variables used in that paper. The differences between the twoestimated equations were negligible. The differences in the union coefficients only affected thethird decimal places, the largest difference being .004.

508 BULLETIN

TABLE 1Union Density Among Manual Workers by Recognition and Closed Shop Status

Data source: Workplace Industrial Relations Survey, 1984.Sample size = 660.

specification in terms of density in two ways. We test down from a fairlygeneral specification with density divided into five categories to examine theacceptability of a single break point. In addition we allow this dividing pointto be a parameter of the model and estimate it (by Maximum Likelihoodmethods) along with the rest of the model.

The pay equations estimated all include controls for the size of theestablishment (five dummy variables), the composition of the workforce(proportion manual, proportion skilled, proportion female and proportionpart-tiie) and indicators of whether of not the establishment is a singleindependent firm, is foreign owned, is in the manufacturing sector or usesshift work. The equations are estimated by Maximum Likelihood to takeaccount of the grouped nature of the WIRS pay variable (see Stewart, 1987,for further details). However the coefficient estimates can be interpreted inthe usual way for log-linear pay equations.

The results of partitioning the effect of recognition without a closed shopinto five categories as described above are given in Column 1 of Table 2. Thethree coefficients for the categories below 95 percent are all insignificant,while the two for the categories above 95 percent are significantly greaterthan zero and very similar to one another. Thus, where there is no closedshop, a pay premium over workplaces where unions are not recognized isonly achieved when union density is at least 95 percent. This also holds inColumn 2 where a variable indicating establishments where there are unionmembers, but no recognition of any unions, is added. In this specification thebase group for the differentials is now establishments without any unionmembers. Relative to this group, high density with recognition but no closedshop generates a differential of around 8-10 percent.2

2The simple recognition effect in equations corresponding to Columns 1 and 2 in Table 2 is 3percent and 4 percent respectively (not quite statistically significant in either case), overstatingthe premium at low levels of density and understating in at high levels.

Density (%)NoRecogn.

Recogn.No c/shp

Post-entc/shop

Pre-entc/shop All (%)

0 76.3 0 0 0 21.5>0 but <70 21.0 36.0 3.6 2.7 21.27Øtjut <80 0.5 11.1 2.9 4.1 5.6

but <90 0 6.1 2.1 5.5 3.5

90but <95 0 8.8 2.9 1.4 4.2

95 but <100 0.5 12.6 11.4 6.8 8.3= 100 1.6 25.3 77.1 79.5 35.6Total 100.0 100.0 100.0 100.0 100.0

CLOSED SHOPS AND RELATIVE PAY 509

Column 3 gives the equivalent estimates with the specification restricted toa single break at 95 percent. This simplified model is accepted in a likeli-hood-ratio test against Colunm 1 (giving a x2(3 )-statistic of 0.94). If density isless than 95 percent the recognition effect is small and insignificant, while ifdensity is 95 percent or above the recognition effect is much larger (about 8percent), statistically significant and similar in magnitude to that for a post-entry closed shop.3 (A likelihood-ratio test rejects the hypothesis that thecoefficients above and below the break are equal, giving a x2(i )-statistic of6.26.) As well as being the specification suggested by Column 1, 95 percent isalso the Maximum Likelihood estimate of the break point in a model with asingle break. If we consider a model with the break point as a parameter, agrid search with steps of size 1 percent between 90 percent and 100 percentinclusive indicates that 95 percent is the parameter value that maximizes thelikelihood function.

The hypothesis that this recognition effect for high density establishmentsis equal to the post-entry closed shop effect is also accepted in a likelihood-ratio test (with a x2(i )-statistic of 0.42). In Column 4 the variable indicatingestablishments where there are union members, but no recognition of anyunions, is again added. Relative to this base group, high density with recogni-tion but no closed shop again generates a differential of about 9 percent.

The above results indicate that there is no wage premium attached to thepost-entry closed shop over and above that resulting from a high level of uniondensity at the establishment. Dunn's (1985) 'last piece of jigsaw' hypothesis issupported by the data. The further hypothesis of equality with the pre-entryclosed shop coefficient is strongly rejected. (A likelihood-ratio test here givesa 2(1 )-statistic of 12.57.) In contrast to the post-entry case, the pre-entryclosed shop does produce a wage premium over and above that associated withhigh levels of union density at the establishment.

The final column in Table 2 refines the model further, distinguishingbetween establishments where the recognition of unions cover all manualworkers and where it does not. The result is somewhat ambiguous: while theeffect is only significantly different from zero where there is full coverage, thetwo effects are also not significantly different from one another (a likelihood-ratio test gives a 2(2)-statistic of 0.2). Further modification to treat the closed

3The categories of the union indicator variables in each of the equations in Table 2 areconstructed to be mutually exclusive in order that the coefficient estimates give directly differ-entials relative to non-union establishments. (Strictly if ß is the coefficient on a particular indi-cator variable, the associated differential is exp (/3)-1.) The linearity of the function ofdetermining factors used means that a differential between two union categories can be calcu-lated by subtraction of one coefficient from the other, and that this estimate will be identical tothat that would result from the estimation of the corresponding formulation with overlappingcategories. For example if the high density variable used in Column 3 were reformulated to alsoincorporate all closed shops, the coefficient on the post-entry closed shop variable in thatmodel would become .060.079 = - .019 (and insignificantly different from zero), now mea-suring the differential relative to union recognition and high density but no closed shop. Sim-ilarly that on the pre-entry closed variable would become .094 (significantly different fromzero).

TA

BL

E 2

Sem

i-sk

illed

Pay

Equ

atio

ns w

ith D

ensi

ty E

ffec

ts: M

axim

um L

ikel

ihoo

d E

stim

ates

Uni

on v

aria

ble

12

34

5

Uni

on m

embe

rs, b

ut n

o0.

038

0.03

8re

cogn

ition

(0.9

7)(0

.98)

Rec

ogni

tion,

no

clos

ed s

hop:

Den

sity

<80

%0.

017

0.02

9(0

.64)

(0.9

8)80

but <

90%

0.02

60.

014

(0.4

4)(0

.23)

9übu

t <95

%0.

029

0.01

7(0

.58)

(0.3

3)<

95%

0.00

80.

020

(0.3

0)(0

.69)

<95

% a

nd0.

013

cove

rage

<10

0%(0

.34)

<95

% a

nd0.

016

full

cove

rage

(0.5

8)95

but

<10

0%0.

088

0.10

1(2

.00)

(2.1

9)

The

dep

ende

nt v

aria

ble

is th

e lo

gari

thm

of

the

typi

cal w

eekl

y pa

y of

sem

i-sk

illed

wor

kers

at t

he e

stab

lishm

ent.

Eac

h eq

uatio

n al

so c

onta

ins

cont

rol v

aria

bles

as

desc

ribe

d in

the

text

.A

bsol

ute

valu

es o

f t-

ratio

s in

par

enth

eses

.D

ata

sour

ce: W

orkp

lace

Ind

ustr

ial R

elat

ions

Sur

vey,

198

4. S

ampl

e si

ze=

660.

ni

=10

0%0.

072

0.08

4(2

.10)

(2.3

0)95

%0.

079

0.09

2(2

.55)

(2.7

4)95

% a

nd0.

036

cove

rage

<10

0%(0

.36)

95%

and

0.08

2fu

ll co

vera

ge(2

.61)

Atle

asts

omei

npos

t-0.

058

0.07

10.

060

0.07

30.

061

entr

yc/s

,non

epre

.(2

.00)

(2.2

2)(2

.06)

(2.2

8)(2

.10)

Atle

asts

omei

npre

-0.

171

0.18

40.

173

0.18

60.

174

entr

y c/

s(4

.96)

(4.9

8)(5

.02)

(5.0

5)(5

.05)

a0.

208

0.20

80.

208

0.20

80.

208

R2

0.52

80.

529

0.52

70.

528

0.52

8lo

g-lik

elih

ood

-101

6.61

-101

6.14

-101

7.30

-101

6.81

-101

6.91

> zN

otes

and

sou

rces

:

512 BULLETIN

shop as being supplementary to full coverage does not cause the findingsabove to be modified.4

B Refinements

So far we have only examined the average impact of pre-entry and post-entryclosed shops, but such averages do not capture the richness and diversity ofthese arrangements. (Those wanting some stories are referred, for example,to Gennard and Dunn (1984) on printers, Metcalf (1991) on Smithfieldmeat market, Hill (1976) on dockers and the more general discussions inMcCarthy (1964) and Dunn and Gennard (1984).) The WIRS data permitinvestigation of some elements of the multiplicity of different forms ofindustrial relations. It is noteworthy that none of these refinements causes anymodifications to the basic findings described above.

First, there is no evidence that the closed shop effects themselves differwith the level of density. Thus a closed shop raises pay even when the overalldensity for manual workers in the workplace is below 95 percent. A likeli-hood-ratio test for Column 3 of Table 2 against a model in which the twoclosed shop variables are also partitioned at 95 percent density gives a x2(2)-statistic of 0.46. This suggests that the abolition of a closed shop will have agreater impact on the pay premium where density is low than where it is high.

Second, the closed shop effects do not differ significantly according towhether all manual workers or only some are covered by the closed shoparrangements, confirming the findings of Stewart (1987) for 1980. Third,establishments where there is no closed shop arrangement, but wheremanagement recommends membership pay no premium over those withrecognition only. (Adding high and low density terms equivalent to Column 3to the specification in Colunm 3 gives premia of .001 and - .008 over recog-nition alone and a likelihood-ratio test of their joint significance gives a x2(l )-statistic of 0.72.) Fourth, the premium for high density (with -recognition andfull coverage) but no closed shop is not significantly higher if there is a formalwritten recognition agreement than if there is not (.08 5 compared to .071).

Finally, closed shops vary in their degree of formalization. In 1984 theunion membership agreement for manual workers was a formal written docu-ment at Fords, but an informal arrangement at BL. Smithfield meat market isprobably the strongest closed shop in the UK, yet has no all-embracingwritten agreement, while many pre-entry shops in general printing and inprovincial newspapers involve(d) extensive written house agreements.

WIRS indicates whether or not the closed shop for the largest manualgroup in the workplace rests on a formal written agreement with manage-ment. Thus it is possible to examine whether formal arrangements have

4Restricting closed shop status to those establishments with full coverage, the equivalentmodel to Column 5 is dominated in likelihood terms by Column 5 and only causes minorchanges in coefficients (to the third decimal place).

CLOSED SHOPS AND RELATIVE PAY 513

different repercussions on pay to informal ones. The (percentage) incidencefigures are:

Formal written agreement Informal

Pre-entry 71 29Post-entry 84 16

In the event, informal and formal written agreements have no differentialimpact on pay for either post-entry or pre-entry closed shops, When theeffects are partitioned according to whether or not there is a written agree-ment the coefficients are not significantly different from one another.

For post-entry shops this hints that vintage is potentially more importantthan formalisation. After the Donovan Report (1968) industrial relationsprocedures gradually became much more formal in many workplaces, so that'formalization' embraces closed shops with very different norms and tradi-tions. The post-entry shops in coal mining,for example, had a much longerhistory than most in the food and drink industry and it is possible that theimpact on pay would be greater in the more traditional sectors. UnfortunatelyWIRS contains no information on the vintage of the agreement, partlybecause it would be difficult to trace those which emerged informally, so wecannot investigate this here.

In the case of pre-entry closed shops, informal agreements actually yieldeda larger pay premium than formal written ones, although not significantly so.This suggest that it is the 'muscle' that brings and enforces the pre-entryclosed shop that also raises pay, rather than the mere signing of a formalagreement. Such muscle involves the ability both to control the supply oflabour and to impose costs on the firm via industrial action. Smithfield meatmarket with its informality but strong conventions of behaviour turns out tohave quite similar procedures to those (previously) formally set out in thenational dock labour scheme or the labour pool which operates in seafaring.It is not the degree of formality that matters. Rather it is the power to excludealternative labour, itself enforced by potential costs if industrial action takesplace.

IV. SUMMARY, CONCLUSIONS AND SPECULATION

The pay of semi-skilled manual workers in 1984 has been analysed to seewhether or not the closed shop provides a pay premium over and above thatassociated with high union density at an establishment. The main findings are:

(1) Union recognition without a closed shop raises the average pay of theemployees in a workplace relative to that in comparable workplaces whereunions are not recognized. But this recogniton effect only bites at densitylevels above 95 percent. Below this the recognition premium is insignificantly

514 BULLETIN

different from zero while above it the premium is between 7 percent and 10percent.

When (at least some of) the manual workers in the plant are in a post-entry closed shop there is a premium relative to those in non-union work-places. But the post-entry closed shop does not boost pay any further overand above that associated with high density. Thus there is an incentive formanangement to repudiate a post-entry closed shop only once density isdriven below this critical 95 percent level.

The gravy thickens only when (at least some) workers are covered by apre-entry closed shop. The workers as such an establishment get 17 percentto 19 percent more pay than their counterparts in non-union workplaces.Thus the pre-entry closed shop roughly doubles the premium associated withhigh density. The pre-entry closed shop is a separate institutional form - atleast in pay determination - whereas the post-entry closed shop is not. Thisconfirms Dunn's previous speculation that the post-entry closed shop isnormally just the 'last piece of the jig-saw'. It is worth noting that it took theConservative Government 11 years and 5 tranches of legislation before it gotaround to outlawing the one institutional form of trade unionism - the pre-entry closed shop - which really bit in terms of pay.

These effects do not differ significantly according to whether or notthere is a formal written membership agreement. It is the 'muscle' that bringsand enforces the pre-entry closed shop that also raises pay, rather than themere signing of a formal agreement.

What consequences might these results have for unions in Britain since1984 and into the 1 990s? Aggregate union density fell by ten percentagepoints during the 1 980s (see Metcalf, 1991 a). The fall was both extensive andintensive. Gregg and Yates (1991) find that in a sample of large publicityquoted companies 13 percent of those firms which recognized a union in1984 had at least partially derecognized by 1990. They also find that incompanies where union recognition status did not change there was a fall indensity between 1985 and 1990 of about 2 percent. Thus it seems likely thatby the end of the 1 980s as well as there being fewer unionized establish-ments, fewer of those that were unionized would have been paying thepremium associated with density levels above 95 percent. In line with thisGregg and Machin (1991) report that in companies without a closed shopwhere there was no change in recognition status the average union premiumfell by about 3 percent over the period 1984-88. Ingram (1991) corroboratesthis trend but with a somewhat smaller reduction in the benefits to unioniza-tion.

The reduction in union density had been accompanied by a reduction inthe number of closed shops and there has been a correlation acrosscompanies in the two. Gregg and Yates (1990) find an average decline indensity of 9 percent over the period 1985-90 in companies where there hasbeen at least partial removal of closed shop arrangements. This compareswith a 3 percent average decline in both companies where the closed shop

CLOSED SHOPS AND RELATIVE PAY 515

remained intact and companies without a closed shop at any time. Of coursethe direction of causality here is open to question. Most of the closed shopsremoved in this period might be expected to be of the post-entry variety.Where this was accompanied by a fall in density to below 95 percent ourresults would suggest that the premium would be eliminated. Where densitydid not fall this far we would expect no reduction in the premium. Gregg andMachin (1991) find that in their sample of companies the union pay premiumfell slightly on average where a closed shop was removed.

Our evidence suggests that it is the pre-entry closed shop which is theseparate institutional form - which adds a pay premium over and above highdensity. Assuming that the pre-entry closed shops decays over the 1990s - itwas made illegal in 1990 - fewer employees will receive this extra premium.However, the fact that informal pre-entry closed shops yield at least the samepayoff as formal ones means that mere repudiation by management may not,in and of itself, eliminate the premium. Nevertheless it seems likely that in the1990s fewer employees will receive the high premium associated with thepre-entry closed shop and that premium may itself be more modest.

Industrial Relations DepartmentLondon School of EconomicsDepartment of EconomicsUniversity of Warwick

Date of Receipt of Final Manuscript: March ¡992

REFERENCES

Blanchflower, D. and Oswald, A. (1988). The Economic Effects of Britain's TradeUnions, Employment Institute.

Department of Employment (1989). Removing Barriers to Employment, Cm 655,HMSO, March.

Donovan, (1968). Royal Commission on Trade Unions and Employers Associations,Report, Cmnd 3623, HMSO, London.

Dunn, S. (1985). 'The Law and the Decline of the Closed Shop in the 1 980s' in Fosh,P. and Littler, C. (eds.) Industrial Relations and the Law in the 1980s, Gower.

Dunn, S. and Gennard, J. (1984). The Closed Shop in British Industry, MacMillan,London.

Gennard, J. and Dunn, S (1983). 'The Impact of New Technology on the Structureand Organization of Craft Unions in the Printing Industry', British Journal ofIndustrial Relations, Vol. 21, pp. 17-32.

Gregg, P. and Machin, S. (1991). 'Unions, the Demise of the Closed Shop and WageGrowth in the 1980s', mimeo, UCL, forthcoming in Oxford Economic Papers.

Gregg, P. and Yates, A. (1991). 'Changes in Wage Setting Arrangements and TradeUnion Presence in the 1 980s', British Journal of Industrial Relations, Vol. 29, pp.36 1-76.

516 BULLETIN

Hanson, C. G. (1987). 'Economic Significance of British Labor Law Reform', CatoJournal, Vol. 6, pp. 85 1-68.

Hart, M. (1979), 'Why Bosses Love the Closed Shop', New Society, 15 February,pp. 32-5.

Hill, S. (1976), The Dockers: Class and Tradition in London, Heinemann.Hollander, S. (1968). 'Views of the Classical Economists' in Kruger, A. and Meltz, N.

(eds.) The Canadian Labour Market, University of Toronto Press. -

Ingram, P. (1991). 'Ten Years of Manufacturing Wage Settlements 1979-89', OxfordReview of Economic Policy, Vol.7 Spring, pp. 93-106.

Institute of Economic Affairs (1978). Trade Unions: Public Goods or Public Bads,lEA Readings, 17, London.

Institute of Personnel Management (1989). 'Comments on Green Paper on RemovingBarriers to Employment', DE mimeo, 20 June.

McCarthy, W. E. J. (1964). The Closed Shop in Britain, Basil Blackwell, Oxford.McCulloch, J. R. (1864). Principles of Political Economy, 5th edn., New York 1965.Metcalf, D. (1989). 'Trade Unions and Economic Performance: the British Evidence',

LSE Quarterly, Spring.Metcalf, D. (1991). 'British Unions: Dissolution of Resurgence?' Oxford Review of

Economic Policy, Vol.7, Spring, pp. 18-33.Metcalf, D. (1991). 'Smithfield Meat Market: the Ultimate Pre-entry Closed Shop',

Work, Employment and Society Vol. 5, June, pp. 159-79.Metcalf, D. and Dunn, 5. (1991). 'Labour Legislation 1980-91: Intent, Ideology and

Impact', CEP Working Paper 12 (revised).Mill, J. S. (1965). Collected Works of John Stuart Mill, Vols. II and III, Principles of

Political Economy, University of Toronto Press.Olson, M. (1965). The Logic of Collective Action: Public Goods and the Theory of

Groups, Harvard University Press.Senior, N. W. (1841). Chairman, Commision for Inquiring into the Conditions of

Unemployed Hand Loom Weavers in the United Kingdom, Parliamentary Papers,X.

Stevens, M. Millward, N. and Smart, D. (1989). 'Trade Union Membership and theClosed Shop in 1989', DE Gazette, November, pp.615-22.

Stewart, M. (1987). 'Collective Bargaining Arrangements, Closed Shops and RelativePay;, Economic Journal, Vol. 97, pp. 140-56.

Stewart, M. (1990). 'Union Wage Differentials, Product Market Infuences and theDivision of Rents;, Economic Journal Vol. 100, pp. 1122-37.

Stewart, M. (1991). 'Union Wage Differentials in the Face of Changes in theEconomic and Legal Environment', Economica, Vol. 58, pp. 155-72.