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Labor Unions and Labor's Share of Income

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Labor Unions:
Do Unions Affect Labor’s Share of Income: Evidence Using Panel Data
April 17, 2013

Introduction Labor unions have been a part of the U.S. economy since 1935 when the National Labor Relations Act (NLRA) was passed. Federal legislation made the NLRA the main component in determining how labor unions and employers interact with each other in the private sector. In Strategic Compensation: A Human Resource Approach, the author notes, “Since the passage of the National Labor Relations Act (NLRA) of 1935, the federal government requires employers to enter into good faith negotiations with workers over the terms of employment (Martocchio, 2012).” Dr. Rudy Fichtenbaum, professor of economics at Wright State University, investigated the impact of unions on labor’s share of income in the United States. Though previous economists have presented various formulae to calculate labor’s share of income, in Fichtenbaum’s study, it is defined as labor compensation divided by the value added in manufacturing. In an effort to supplement and clarify past research that had been done on this subject, Fichtenbaum (2006) explained: The study was conducted to add to the understanding of the effect of unions on labor’s share of income by developing an analytical module of imperfect competition using panel data methodology for the manufacturing sector. (p. 784)
Here, the author highlights his departure from the methods used in older studies on this topic. Before Fichtenbaum’s study, orthodox economists created macroeconomic models where the labor market was assumed to be in perfect equilibrium. The methodological distinction in the author’s study has an underlying significance for employers, laborers and especially human resource personnel.

The study has three conspicuous implications for the field of Human Resource Management. First,

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