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Do chinese unions have "real" effects on employee compensation?

I. INTRODUCTION

Although the unions in developed countries, particularly the United States, have been studied extensively, limited research has focused on the experiences of developing countries. In discussing future extensions in this field, Freeman (2005) noted that
  More research resources should go to studying how
  unions operate under the far wider range of economic
  and social structures outside the United States, in
  particular to the potential development of real unions
  in China, and union activity in India and other large
  developing countries that compete with us in world
  markets through low wages. [p. 663]


Do unions "really" affect employee compensation in China? There is a popular view that China has no "real" unions because the so-called "unions" in China are very different from those in advanced economies. For example, Chinese unions are not politically independent, but rather controlled by the State-Party through a hierarchical system. Union officials are usually appointed by the State-Party rather than elected by the union members, and they belong to the government administration. Chinese unions have weak bargaining power in collective consultation/bargaining with management and are sometimes subordinate to management. A unique feature of Chinese unions is that they have multiple objectives: to assist the State-Party in an administrative function by retaining social and political stability, to collaborate with enterprise management to improve production efficiency, and to represent and protect the interests of employees. These objectives have grown increasingly contradictory, especially in the nonstate sector.

We treat Chinese unions as a special form of labor institution operating in a unique social and economic environment in our investigation of their effectiveness. First, we show that Chinese unions have a "triple-face": a strong "State-Party voice" face, a weak "monopoly" face, and a significant-collective voice" face. Unions function as a "transmission belt" through which the State-Party can reach the majority of workers. The State-Party's political influence plays an important role in unionization, which is highest for state-owned enterprises (SOEs) and lowest for private and wholly foreign-owned enterprises. Chinese unions' "monopoly" face is weak due to weak bargaining power in collective consultation/bargaining with management and the lack of a "strike weapon." In contrast, Chinese unions have a significant "collective voice" face and welfare functions. They take part in a wide range of activities such as accepting employee grievances, mediating labor disputes, monitoring the implementation of labor laws, providing various services and welfare benefits to employees, promoting technological innovation and employee training, and participating in corporate governance and policy making.

Second, we use the enterprise population-level data to test the link between unionization and employee compensation. Our data come from the First National Economic Census in 2004. conducted by the National Bureau of Statistics of China (NBSC). It is the most comprehensive micro-level cross-section data set covering the entire population of Chinese enterprises, and it is the first economic census that reports the information on workplace unions. The empirical findings suggest that Chinese unions have "real" effects. The presence of unions in the workplace is positively associated with the enteiprise average wage, nonwage compensation, and employee training. Moreover, the presence of multiple unions in the same region and industry generates positive spillovers for employee compensation.

This article is organized as follows. Section II discusses the effects that unions have on employee compensation. Unionization in China is described in Section III. Section IV presents the empirical evidence and Section V concludes the paper.

II. UNIONS EFFECTS ON EMPLOYEE COMPENSATION

"Everyone 'knows' that unions raise wages. The questions are how much, under what conditions, and with what effects on the overall performance of the economy?" (Freeman and Medoff 1984, 43)

A large body of literature, both theoretical and empirical, has explored unions' influence on wages. The standard theories of trade unions focus on their "monopoly" role (Addison and Chilton 1997; Booth 1995; Farber 1986; Oswald 1985). Unions are treated as rent seeking organizations that use their monopoly power to raise employee wages above competitive wage levels by redistributing income from consumers, firms, and nonunion workers to union members. This "monopoly" face has led to various distortions and inefficiencies. First, higher union wages cause unionized firms to reduce employment and output and substitute capital for labor, thus inducing the misallocation of resources. Second. unions interfere with the efficient operation of firms and increase production costs, contributing to technical inefficiency. Third. the rent seeking behavior of unions discourages longterm investment and research and development (R&D). Fourth, the "monopoly" face of unions may induce a bias toward cost-push inflation and exacerbate the cyclical macroeconomic instability (see survey in Kaufman 2004). Freeman and Medoff (1984). however, emphasized the "collective voice" face of unions. Workers have two ways of dealing with workplace problems: the "exit" option of quitting and the "voice" option of speaking up to management. Owing to the transaction costs and incomplete nature of labor contracts, the "exit" option might not be the most efficient way to re-contract for labor service. Instead, the collective voice can use unions to solve the workplace problems and promote efficiency.

Empirical studies on union wage effect, mainly advanced economy, suggest a significant union--nonunion wage gap. However, union wage effects vary substantially across industries, worker groups, occupations, and regions (Blanchflower and Bryson 2004; Hirsch 2003). An increasing number of studies have addressed the effectiveness of unions in developing countries, where employee protections and unions are relatively weak. For example, Farris (2005) found that unions in Mexico are associated with a higher share of compensation to nonwage payments and more worker training. Menezes-Filho et al. (2005) estimated a union wage effect of 12% in Brazilian manufacturing firms. Bhandari (2008) reported a union wage effect of 6% for contractual workers and 25% for permanent workers in India. Freeman (2009) summarized the empirical evidence in developing countries and concluded that unions are associated with higher wage and nonwage compensation, greater employee training, and less dispersion of earnings.

The unions in China are different due to their strong "State-Party voice" face. According to the Trade Union Law, the All-China Federation of Trade Unions (ACFTU) is the only permitted official union organization, and all unions must be approved by and under the leadership of the ACFTU. The State-Party and the workers are connected through this "transmission belt," with the "State-Party voice" effectively transmitted from the top- to the bottom-level workplaces and, ideally, the employees' collective voice is also transmitted in the opposite direction to reach the policy makers. Chinese unions also have a significant "collective voice" face and important welfare function: representing their members in collective consultation/bargaining with management, accepting employees' grievances, mediating labor disputes, monitoring work conditions and the implementation of labor laws, providing various services and welfare benefits to the employees, promoting technological innovation and employee training, and participating in corporate governance and policy making. (1)

A. How Do Chinese Unions Affect Employee Compensation?

One would not expect significant wage differentials between union and nonunion workers, given that the "monopoly" face of Chinese unions is weak because they are not independent monopolizing agents and have insufficient power in collective bargaining with management. Although a significant proportion of employees are covered by collective contracts, these contracts only include the minimum terms and conditions that are already prescribed by the labor laws.

In contrast, unions' "State-Party" and "collective" voices might have significant effects on employee compensation. A classical view of unions suggests that imperfect competition in labor markets might give employers monopoly power to lower the wages (or nonwage compensation) below the competitive level, and that unions can play important roles in protecting the employees against this exploitation. This positive role is largely neglected because the exploitation of labor is not a serious problem in advanced economies. However, in transition economies, such as China's, a large number of workers shift from the agricultural to the manufacturing sector, generating extremely elastic labor demand. In addition, the legal institutions regulating industrial relations are underdeveloped and the legal protection for employees is weak.

As a "transmission belt," Chinese unions connect the State-Party with grassroots workplace employees to retain social and political stability. To avoid social unrest, the State-Party recognizes the importance of diminishing the exploitation of labor and protecting the interests of employees. Chinese unions, backed by the State-Party's administrative power, are able to pressure firms to alleviate the exploitation of employees and improve the wage and nonwage compensation. They accept the employees' grievances, mediate labor disputes, monitor the implementation of labor laws in workplaces, and provide legal assistance to employees. Regional unions establish the tripartite system to coordinate with the branches of the Ministry of Labor and the National Enterprises Association in solving labor disputes and other labor-related issues. Through these activities, the unions deliver the workers' requests to management and help individual employees to defend their rights.

These unique features of Chinese unions have important implications for the overall wage effect of unions. While wage differentials between union members and nonmembers might not be significant due to unions' weak "monopoly" face, we expect unionized firms to offer higher wages and nonwage compensation, along with more employee training than nonunionized firms. Moreover, the presence of regional and industrial unions might significantly improve the average level of employee compensation.

Previous empirical studies on Chinese unions, based on case studies, suggest that Chinese unions cannot effectively protect the rights and interests of employees, especially in nonstate enterprises. For example, Chen (2003) provided several case studies to show that the representation role of unions has been highly restricted because their influence stems not from organized labor, but from their official institutional status. Metcalf and Li (2006) investigated three unionized nonstate enterprises in the Hainan province and found that the workplace unions are weak in collective bargaining and dispute resolution, essentially just playing a welfare role. They concluded that Chinese unions cannot impose costs on, or improve the efficiency of, enterprises. However, these case studies lack a systematic comparison between unionized and nonunionized enterprises. The employees in nonunionized workplaces might be significantly less protected, given that there is no labor institution representing their interests. Recent studies based on firm survey data have shown a different pattern. For example, Lu, Tao. and Wang (2010) used the Private Enterprise Survey data and found a positive link between unions and employee benefit and enterprise productivity. On the basis of a survey of 1,268 firms in 12 Chinese cities, Yao and Zhong (2010) found that unions have positive effects on employee welfare. In this article, we use the enterprise population-level data to investigate unions' effect on employee compensation. Compared with individual level analysis, our firm-level study provides a comprehensive analysis of the influence that unions have on inter-firm wage inequality within the same region and industry. The limitation of our firm-level analysis is that we cannot control the attributes of individual employees or estimate the wage differentials between union members and nonmembers. Due to a lack of information on wage distribution within a firm, we are also not able to examine the effect of unions on intrafirm wage distribution.

III. UNIONZATIONS IN CHINA

Our study is based on the First National Economic Census in 2004, conducted by the NBSC. (2) The basic statistics of this data set are summarized in the China Economic Census Yearbook (NBSC 2006). According to the Census, the proportion of unionized legal entities in total legal entities is about 23%. The share of union members in total employees is about 58%. We exclusively access the data set for the manufacturing industry, which covers the entire population of manufacturing enterprises in China. We divide the ownership into six categories based on the registration type reported by each firm: SOEs; collectively owned enterprises; domestic joint ventures (which include domestic cooperative enterprises, domestic joint enterprises, limited liability firms, and shareholding firms); private firms; foreign firms; and Hong Kong, Macao, and Taiwan (HMT)-invested enterprises. Among the total manufacturing enterprises, the majority of firms are private firms (66.1%), with state firms accounting for only 1.6%. Collectively owned enterprises account for 13.4% and domestic joint ventures account for about 10.5%. About 4.4% of the firms are HMT-invested enterprises and 4.1% are foreign firms.

Table 1 reports the unionization in each two-digit industry. Across all the manufacturing industries, about 17% of enterprises have established unions and about 33% of employees are covered by the unions. (3) There are large variations in unionization across industries, with the highest presence in tobacco processing and the lowest in timber processing.
TABLE 1

Unionization Across Two-Digit Industries

Two-Digit Industry      Standard     Proportion  Proportion
                       Industrial        of       of Union
                     Classification  Unionized     Members
                                     Firms (%)       (%)

Manufacturing                              16.6        32.6
sector

Food processing                  13        12.9        26.4

Food manufacturing               14        15.3        29.3

Beverage                         15        14.6        41.8
manufacturing

Tobacco processing               16        64.4        56.9

Textiles                         17        19.2        36.4

Garments and other               18        18.3        25.3
fiber products

Leather, furs, and               19        18.5        26.4
down

Timber processing                20         9.2        17.1

Furniture                        21        11.3        18.3
manufacturing

Paper making and                 22        15.9        30.1
paper products

Print and record                 23        16.6        29.8
medium
reproduction

Stationery,                      24        17.2        23.6
educational, sport
goods

Petroleum                        25        19.9        51.2
processing and
coking product

Chemicals                        26        18.9        42.5

Medical and                      27        29.7        50.7
pharmaceutical
products

Chemical fibers                  28        23.3        43.7
manufacturing

Rubber products                  29        19.7        36.8

Plastic products                 30        14.2        21.9

Nonmetal mineral                 31        13.5        26.1
products

Smelting and                     32        18.1        45.2
pressing of ferrous
metals

Smelting and                     33        20.1        45.5
pressing of
nonferrous metals

Metal products                   34        15.4        26.0

Machinery                        35        18.1        36.8
manufacturing

Special equipment                36        18.9        39.5
manufacturing

Transportation                   37        20.5        45.8
equipment
manufacturing

Electric equipment               40        19.5        28.2
manufacturing

Electronics and                  41        20.4        32.5
telecommunications

Instrument meters,               42        14.2        21.4
cultural machinery

Other                            43         8.5        16.8
manufacturing


Table 2 provides summary statistics and describes various firm characteristics across ownership categories. The mean comparison shows significant variation in unionization across ownership, with the highest degree of unionization in SOEs (about 66% of firms have established unions), whereas only 11% of private firms had established unions. The proportion of unionized workplaces among collectively owned enterprises, domestic joint ventures, HMT-invested enterprises, and foreign firms are about 23%, 27%, 29%, and 28%, respectively. Union density is defined as the share of union members in the total number of employees in the enterprise. The sample mean of union density is 12%. Union density is highest in SOEs and lowest in private firms. The average firm age is 6.53 years, with state firms being the oldest. The average wage in the manufacturing sector is 9.1 (1000 yuan). Foreign firms offer the highest wages, followed by HMT-invested firms and state firms, with collectively owned enterprises and private firms offering the lowest wage levels. The average number of employees is about 104, and the sample mean total sale is 7,796. State and foreign firms are the largest in size, and collectively owned enterprises and private firms are the smallest. The average level of capital intensity, defined as fixed assets per employee, is 72.78. SOEs are the most capital intensive, followed by foreign firms and HMT-invested firms, with collectively owned enterprises and private firms being the most labor-intensive enterprises. The average share of female employees in total employees is about 35%, the highest being in foreign firms. The skill composition of enterprises is measured by the share of employees with varying levels of education. Foreign and state firms are the most skill-intensive firms, and private firms and collectively owned enterprises are the least skill intensive.
TABLE 2

Summary Statistics

Characteristics        Total      State-Owned    Collectively
                                    Enterprises       Owned
                                                    Enterprises

Share of unionized         0.17           0.66            0.23
firms

Union density       0.12 (0.30)    0.58 (0.45)     0.18 (0.36)

Age                 6.53 (8.14)  24.92 (18.10)   13.45 (10.87)

Average wage        9.10 (7.20)    11.4 (9.92)     8.30 (42.3)

Total employment           52.4  171.1 (229.3)     42.3 (78.4)
                        (103.8)

Total sales          7.796 (23,         22,808  4.910 (16.332)
                           156)       (45,450)

Capital labor             72.78  250.0 (663.2)   72.51 (279.1)
intensity               (255.3)

Female employee     0.35 (0.26)    0.33 (0.20)     0.34 (0.26)
share

Share of employees        0.003   0.004 (0.03)    0.002 (0.02)
with graduate            (0.03)
education

Share of employees  0.10 (0.18)    0.20 (0.22)     0.08 (0.17)
with college
education

Share of employees  0.31 (0.28)    0.42 (0.27)     0.32 (0.29)
with high school
education

Observations          1,322,341         21,016         176,511

Characteristics     Domestic  Private   HMT-lnvested   Foreign
                      Joint       Firms      Enterprises     Firms
                    Ventures

Share of unionized      0.27      0.11           0.29      0.28
firms

Union density           0.21      0.08    0.19 (0.35)      0.20
                      (0.37)    (0.25)                   (0.36)

Age                     6.52      4.70    6.47 (4.97)      5.23
                      (9.08)    (5.46)                   (4.51)

Average wage            9.77      8.56    12.1 (8.38)      14.7
                      (7.20)    (5.50)                   (10.7)

Total employment        87.4      34.9  144.0 (185.1)     134.6
                     (150.9)    (63.3)                  (182.8)

Total sales           15,310     4.625         22,097   27. 973
                    (35,560)  (13.961)       (40,182)  (47.530)

Capital labor          99.09     53.07  140.3 (415.9)     188.4
intensity            (310.4)   (166.9)                  (507.7)

Female employee         0.34      0.35    0.45 (0.26)      0.45
share                 (0.24)    (0.27)                   (0.27)

Share of employees     0.006     0.002   0.004 (0.03)      0.01
with graduate         (0.04)    (0.02)                   (0.06)
education

Share of employees      0.15      0.08    0.14 (0.21)      0.22
with college          (0.22)    (0.16)                   (0.26)
education

Share of employees      0.35      0.29    0.33 (0.26)      0.34
with high school      (0.27)    (0.27)                   (0.26)
education

Observations         139,193   873,762         57,752    54,107


Why do 17% of enterprises establish unions while the remaining 83% do not? What determines the unionization process? According to the Trade Union Law, there are two ways for enterprises to establish unions: first, by request from above-level unions (regional or industrial) and second, by request from the employees. The former is dominant because a request granted by above-level unions is supported by the State-Party's administrative power. One of the central tasks of industrial and regional unions is to persuade enterprises to establish a union. Even when employees demand that the labor institutions protect their interests, their requests are largely ignored in the unionization process due to their vulnerable position.

rapidly changing environment. ACFTU, which is subordinate to the State-Party, has its own incentives to reproduce and expand its institutional organization and prevent competition from other independent labor organizations. Enterprise management tends to resist unionization because it worries about State-Party interference and about conflicts with the unions representing the employees' interests. During the bargaining between ACFTU and enterprise management, the local governments' preferences might also play an important role. If local governments care more about local gross domestic product (GDP) growth and tend to attract enterprises with low costs, they will support enterprises' resistance to the request for unionization. If they care more about social and political stability and tend to protect the employees' rights, then they will support regional unions in pressuring the enterprises to establish unions. If government influence has played an

Unionization in China depends on the bargaining that occurs between ACFTU (backed by the State-Party) and enterprise management. The State-Party tends to promote unionization because the unions function as the "transmission belt," assisting the State-Party in the retention of social and political stability in a important role in unionization, then we expect unionization to be highly related to the ownership of enterprises.

Another indication of government influence on enterprises is the administrative subordination level of firms. In an establishment, a firm is subordinate to or supervised by a: certain level of official authority, ranging from central government (top level) to street/village committees (bottom level). The decentralization of the subordination level implies the weaker influence of government on a firm. In the manufacturing sector, the proportion of unionized firms is 74%, 62%, 47%, 39%, 24%, and 17% for the firms subordinate to central government, province, city and prefecture, county, township or district, and village committee (or street committee), respectively.

To investigate the important role that government plays in influencing unionization, we regress the indicators of unionization on firm age, size, province dummies, two-digit industry dummies, ownership dummies, and subordination dummies.4 The benchmark of ownership is domestic joint ventures, and the benchmark of subordination level is central government. We use two indicators of unionization: the union dummy, which is equal to one if the enterprise establishes the union, and zero otherwise; and the union density, which is defined as the proportion of union members in enterprise employment. Here, we focus on the firm attributes associated with unionization and control for industry and regional fixed effects. There might be significant variations in unionization across regions, which are closely related to the quality of economic institutions. For example, Lu. Png, and Zhigang (forthcoming) showed that the quality of economic institutions varies across regions in China and plays a significant role in corporate decisions such as scope of business, family control of business, and foreign direct investment location choice. However, due to the limitation of cross section data, we cannot identify the link between regional attributes and unionization.

We adopt two empirical models for the determinants of unionization. The logit model is used to explain the probability of a firm establishing unions based on the firm's characteristics. The results are reported in columns 1 and 2 of Table 3. Because the union density is censored at zero, we use a tobit model to explain the share of union members in firm employment, based on firm attributes. The results of the tobit model are reported in columns 3 and 4 of Table 3. The results in Table 3 are consistent with those of the mean comparison. SOEs are most likely to establish unions and have the highest union density. In contrast, the unionization is lowest in private firms. The results also suggest that the subordination level is an important determinant of unionization. The decentralization of the subordination level is negatively related to both the probability of unionization and union density. Regarding the other control variables, firm size and age have a significant and positive effect on unionization.
TABLE 3

Determinants of Unionization

                         Union                   Union
                         Dummy                 Density

                           (1)         (2)         (3)         (4)

Age                  0.005 ***   0.005 ***   0.021 ***   0.021 ***
                       (125.4)     (125.1)     (123.4)     (123.2)

Size                 0.081 ***   0.081 ***   0.349 ***   0.349 ***
                       (321.3)     (322.0)     (270.4)     (270.6)

Ownership            0.051 ***   0.056 ***   0.083 ***   0.100 ***
                       (14.73)     (15.80)     (8.1 1)      (9.68)

State-owned         -0.019 ***  -0.018 ***  -0.040 ***  -0.034 ***
entetprises           (-17.81)    (-16.34)     (-7.16)     (-6.09)

Collectively owned  -0.048 ***  -0.051 ***  -0.225 ***  -0.237 ***
enterprises           (-43.24)    (-45.75)    (-46.45)    (-48.98)

Private             -0.011 ***               -0.018 **
enterprises            (-7.73)                 (-2.49)

HMT-invested        -0.020 ***              -0.058 ***
enterprises           (-15.48)                 (-8.09)

Foreign-invested                 0.012 ***               0.087 ***
enterprises                         (5.38)                  (9.25)

HMT joint ventures              -0.029 ***              -0.121 ***
                                  (-19.13)                (-13.46)

Wholly HMT-owned                    0.003*               0.050 ***
enterprises                         (1.65)                  (5.64)

Foreign joint                   -0.045 ***              -0.206 ***
ventures                          (-31.37)                (-20.79)

Wholly
foreign-owned
enterprises

Subordination       -0.015 ***  -0.016 ***   0.069 ***   0.062 ***
level                  (-3.13)     (-3.43)      (3.56)      (3.21)

Province            -0.057 ***  -0.057 ***  -0.106 ***  -0.108 ***
                      (-19.32)    (-19.48)     (-5.89)     (-6.00)

City or prefecture  -0.076 ***  -0.075 ***  -0.229 ***  -0.223 ***
                      (-32.91)    (-32.32)    (-12.99)    (-12.68)

County              -0.099 ***  -0.099 ***  -0.531 ***  -0.524 ***
                      (-62.64)    (-61.61)    (-29.40)    (-29.00)

Township or         -0.105 ***  -0.105 ***  -0.664 ***  -0.658 ***
district              (-80.81)    (-79.80)    (-35.71)    (-35.41)

Street or village   -0.256 ***  -0.243 ***  -0.576 ***  -0.545 ***
committee             (-27.54)    (-26.50)    (-33.07)    (-31.28)

Other

Industry dummies           Yes         Yes         Yes         Yes

Province dummies           Yes         Yes         Yes         Yes

Pseudo [R.sup.2]          0.21        0.21        0.16        0.16

Observations         1.248,025   1.248.025   1.248,025   1.248,025

Notes: Columns I and 2 report the marginal effects of the
logit model. Columns 3 and 4 report the marginal effects of
the tobit model. Robust Z-values are reported in
parentheses. * Significant at 10%; ** significant at 5%;
*** significant at 1%.


There is a possible significant difference in unionization between foreign joint ventures and wholly foreign-owned enterprises, give that the latter is more independent and less likely to be influenced by the State-Party. Columns 2 and 4 of Table 3 report the results when we include seven ownership dummies in the regression: SOEs, collectively owned enterprises, private firms, HMT joint ventures, wholly HMT-owned enterprises, foreign joint ventures, and wholly foreign-owned enterprises. The results suggest that the unionization is highest in state firms, followed by HMT and foreign joint ventures. The unionization is lowest in private enterprises and wholly foreign-owned enterprises.

This evidence is consistent with previous findings that governmental influence plays an important role in the unionization process (e.g., Chan 2000; Chen 2003). Because unionization in China is initiated by ACFTU and supported by the governmental administrative power, the enterprises that are more "loyal" to the State-Party are more likely to establish unions. The higher the administrative level the firms are subordinated to, the more likely they are to unionite. In contrast, those that are less influenced by the government, such as private firms and wholly foreign-owned enterprises, are more likely to reject a unionization request. Another mode of unionization, the "bottom-up-method requested by the employees, is less likely in China. It has been well documented that many private enterprises offer poor wages and work conditions and frequently violate labor laws and regulations (e.g., Chan 2000). Given that the employees in private enterprises are the least protected, one would expect them to have the strongest demand for unions to protect their interests. However, the fact that private enterprises exhibit the lowest unionization level implies that this strong demand is largely neglected due to managerial resistance.

IV. UNIONS AND EMPLOYEE COMPENSATION: EMPIRICAL EVIDENCE

A. The We Effects of Chinese Unions

Most studies use individual-level data to. estimate the wage differentials between union members and nonunion workers (see survey in Blanchflower and Bryson 2004; Hirsch 2003). However, if the presence of unions in workplaces pressures management to alleviate the exploitation of employees and improve average employee compensation for both union and nonunion workers, then this influence is hard to identify using individual-level data. In this study, we use firm-level data to investigate the influence of unionization on enterprise average wage and nonwage compensation, and to examine the wage spillover effect of the presence of unions within same region and same industry. We estimate the following wage equation:

[MATHEMATICAL

EXPRESSION NOT REPRODUCIBLE IN ASCII]

where [w.sub.i] is the logarithm of the average wage level of enterprises i, Unionization is measured by both union dummy and union density, (5) [Union_presence.sub.jk] is the share of union members in total employees of industry j and region k, and [Size.sub.i] is the logarithm of employment of enterprises i. [KL.sub.i] is the capital-labor ratio, which is defined as fixed assets divided by the employment of enterprises i. Previous studies have shown that larger and more capital-intensive firms offer higher wages. Fernalei is the proportion of female workers in total employees in enterprises i. The expected relationship between female employee share and average wage is negative due to the existence of gender wage inequality (see survey in Gunderson 2006). [Skill.sub.i] is the skill composition of the employees in enterprise i, which is measured by three variables: the proportion of employees with graduate education (more than 16 years of education), the proportion of employees with college education (16 years of education), and the proportion of employees with high school education (12 years of education). The benchmark is the employees without high school degrees. Skilled labor is offered higher wages than unskilled labor, and a firm's skill composition is expected to be positively associated with the average wage level. [O.sub.im], includes five ownership dummies: SOEs, collectively owned enterprises, private firms, HMT-invested enterprises, and foreign firms. The benchmark is domestic joint ventures. [I.sub.ij] is the industry dummy, which is equal to one if firm I operates in industry j, and zero otherwise. It captures the industry-specific wage differentials. [R.sub.ik] is the province dummy, which is equal to one if firm i is located in province k, and zero otherwise. It captures the regional-specific wage differentials. [alpha] is a constant and [[epsilon].sub.i] is the error term.

The ordinary least squares (OLS) results are reported in columns 1 and 2 of Table 4. There are significant wage differentials across ownership. The wage level is highest in foreign firms, about 23% higher than that in domestic joint ventures. 14MT-invested enterprises offer a 9% higher wage than the benchmark, and SOEs offer a 6% higher wage than that offered by domestic joint ventures. The wage level in collectively owned and private enterprises is lower than that in domestic joint ventures. The results also suggest that more skill intensive, capital intensive, and larger firms tend to offer higher wage levels while the firms with more female employees tend to have lower wage levels.
TABLE 4

Unions and Wage

                      Total                   Private
                      Sample                  Firms

                        (1)           (2)           (3)

State-owned          0.059 ***   0.053 ***
enterprises            (10.97)      (9.80)

Collectively owned  -0.062 ***  -0.062 ***
enterprises           (-31.39)    (-31.44)

Private             -0.036 ***  -0.035 ***
enterprises           (-22.23)    (-21.99)

HMT-invested         0.090 ***   0.092 ***
enterprises            (30.94)     (31.68)

Foreign-invested     0.226 ***   0.227 ***
enterprises            (73.91)     (74.23)

Size                 0.021 ***   0.022 ***   0.010 ***
                       (44.00)     (48.29)     (16.88)

Capital labor        0.001 ***   0.001 ***   0.001 ***
intensity              (135.8)     (135.2)     (94.28)

Female share        -0.113 ***  -0.114 ***  -0.097 ***
                      (-51.60)    (-51.93)    (-38.00)

Graduate             0.570 ***   0.571 ***   0.411 ***
                       (21.49)     (21.55)     (12.39)

College              0.326 ***   0.325 ***   0.235 ***
                       (87.65)     (87.56)     (51.70)

High school          0.051 ***   0.050 ***   0.039 ***
                       (26.75)     (26.26)     (17.31)

Union dummy          0.086 ***               0.078 ***
                       (67.73)                 (49.07)

Union density                    0.106 ***
                                   (68.73)

Union presence in    0.091 ***   0.090 ***   0.118 ***
same industry and      (11.16)     (11.07)     (11.64)
province

Industry dummies           Yes         Yes         Yes

Province dummies           Yes         Yes         Yes

[R.sup.2]                 0.19        0.19        0.13

Observations         1.198.652   1.198.652     805.852

                                   2SLS

                        (4)           (5)           (6)

State-owned                      0.032 ***      -0.003
enterprises                         (5.28)     (-0.54)

Collectively owned              -0.066 ***  -0.067 ***
enterprises                       (-33.58)    (-33.87)

Private                         -0.030 ***  -0.020 ***
enterprises                       (-16.57)    (-11.27)

HMT-invested                     0.098 ***   0.103 ***
enterprises                        (33.61)     (34.97)

Foreign-invested                 0.241 ***   0.248 ***
enterprises                        (77.55)     (80.01)

Size                 0.012 ***   0.009 ***  -0.003 ***
                       (20.48)      (8.50)     (-3.19)

Capital labor        0.001 ***   0.001 ***   0.001 ***
intensity              (94.46)   (122.1 1)    (118.88)

Female share        -0.097 ***  -0.121 ***  -0.122 ***
                      (-38.17)    (-54.90)    (-55.26)

Graduate             0.412 ***   0.626 ***   0.632 ***
                       (12.42)     (23.25)     (23.34)

College              0.236 ***   0.346 ***   0.342 ***
                       (51.80)     (91.63)     (90.19)

High school          0.038 ***   0.052 ***   0.049 ***
                       (17.20)     (27.27)     (25.24)

Union dummy                      0.159 ***   0.271 ***
                                   (17.74)     (34.53)

Union density        0.091 ***
                       (46.96)

Union presence in    0.118 ***   0.072 ***   0.051 ***
same industry and      (11.70)      (8.66)      (6.19)
province

Industry dummies           Yes         Yes         Yes

Province dummies           Yes         Yes         Yes

[R.sup.2]                 0.13        0.19        0.18

Observations           805,852   1.185.966   1.185.966

Notes: This table reports the estimates of wage Equation
(1). The dependent variable is the logarithm of firm wage.
Columns I and 2 report the estimates for the total sample.
Columns 3 and 4 report the estimates for private firms.
Column 5 reports 2SLS estimates using subordination level
as the instrument. Column 6 reports 2SLS estimates using
firm age as the instrument. Robust t-values are reported in
parentheses. *** Significant at 1% level.


The key variables in the wage equation are the two indicators of unionization. Table 4 shows that the estimated coefficient of the union dummy is 0.086 and significant at the 1% level. This implies that unionized firms pay about a 9% higher wage than nonunionized firms, controlling for other firm characteristics and industrial and regional effects. The estimated coefficient of union density is 0.106, suggestine, that a 100% increase in union density is associated with an 11% increase in average wage level. The size of the union wage premium is comparable to cases in other countries. For example, Menezes-Filho et al. (2005) found a union wage premium of 12% in the Brazilian manufacturing sector. Our results also suggest that the presence of unions within the same region and industry generates positive spillovers for enterprises' wage levels. A 10% increase in the share of union members in total employees is associated with a 0.9% increase in the average firm wage in the same industry and region.

One issue is that the effectiveness of unions might vary according to ownership. Because the private sector is more independent and less unionized, its unions might be less effective than those in the state sector. For example, poor working conditions, overtime work, delays in wage payment, and a lack of mandatory benefits are commonly observed in the private sector. Many private firms do not even offer their employees labor contracts. We use the subsample of private firms to examine the wage effect of unions in the private sector. The results are reported in columns 3 and 4 of Table 4. The results show that the presence of unions in the private sector significantly improves the wage level. The estimated coefficients of unionization are smaller than those for the total sample, but they remain statistically and economically significant. Unionized private firms offer about a 7.8% higher wage than nonunionized firms, and there are significant wage spillover effects for private firms from unionization within the same industry and region. A 10% increase in the share of union members in total employees is associated with about a 1.2% increase in the average wage offered by private firms. Because the private sector is more independent of the "State-Party voice," these results imply that unions' "collective voice" face plays a significant role in protecting employees' interests.

Another issue is the potential endogeneity of unionization. The direction of this endogeneity bias is unclear. If the firms with higher wage levels are more likely to be unionized, then this would lead to reverse causality. In contrast, if the workers in the firms offering low wages and bad working conditions are more likely to establish unions to protect their benefits, then the positive wage effect of unions should be underestimated. However, this endogeneity bias might not be a serious concern given the unique nature of Chinese unions. Unionization in China does not come from employee requests, but rather from top-down requests granted by ACFTU. China's unions are not independent rent-seeking agencies. Instead, unionization is motivated by the State-Party to extend the connection with the majority of workers to retain social and political stability. There is no evidence that ACFTU target firms with high wage levels during the unionization process.

Given that we only have a cross-section data set, it is a challenge to find suitable instruments for unionization. One candidate is the administrative subordination level of firms. In the previous section, we show that unionization in China depends on the bargaining between ACFTU and enterprise managers. Why are some enterprises able to reject an ACFTU request? One important reason is that these firms are more independent and less influenced by government--hence the low unionization in the private and foreign sectors. The subordination level is determined through the establishment of enterprises and is exogenous to employee wages and benefits. Table 3 shows that subordination level is an important determinant of unionization. The decentralization of the subordination level implies weaker government influence and is negatively related to unionization. Two-stage least square estimates with full samples are reported in column 5 of Table 4. The results are consistent with the OLS results indicating that the presence of unions has a positive and significant effect on enterprises' average wages. In the weak identification test, the Kleibergen--Paap statistics are 1696 and a 5% critical value. For Stock and Yogo's (2005) weak instrument test, the value is 19.28. This indicates that the instruments are not weak, albeit registering at the 5% level. To check for robustness, we use firm age as an alternative instrument. The analysis in the previous section shows that the longer firms exist, the more likely it is that workplace unions have been established and the higher the union density. Column 6 of Table 4 reports the two-stage least squares (2SLS) estimates using age as the unionization instrument. The sign and significance of the coefficients associated with unions are consistent with our main results.

B. The Influence of Unions on Nonwage Compensation

Budd (2004) surveyed the evidence of the effects of unions on nonwage compensation. He showed that previous studies using both individual- and establishment-level data have consistently found that unions increase nonwage compensation levels. In our study, the Census reports enterprise expenditures in three categories of nonwage compensation: pension and health insurance, housing subsidy, and labor and unemployment insurance. Labor and unemployment insurance includes benefits and contributions toward retirement, sick leave, settlement subsidy, and mandatory unemployment insurance. In the Census, information on the expenditure on labor and unemployment insurance is available for all enterprises, but the information on the other two benefit categories is only available for the limited sample. (6) A significant proportion of enterprises provide their employees with no benefits. In our sample, only 15% of firms provide a housing subsidy to their employees; about 55% of firms provide pension and health insurance, and 25% of firms provide labor and unemployment insurance.

To examine the effect of unionization on nonwage compensation, we apply the logit model, which explains, based on the firm's characteristics, whether a firm decides to provide a certain type of benefit. The control variables are the same as those in Equation (1).

Columns 1, 3, and 5 of Table 5 report the estimation results for the three compensation categories: housing subsidy, pension and health insurance, and labor and unemployment insurance. The results suggest the following. First, there is a significant difference in nonwage compensation across ownerships. SOEs and foreign firms provide their employees with the best benefits, followed by domestic joint ventures and 1-IMT-invested enterprises. Collectively owned firms and private firms provide the worst benefits. Second, the presence of unions in workplaces is significantly and positively associated with nonwage compensation. Unionized enterprises are more likely than nonunionized enterprises to provide their employees with nonwage compensation. The probability of offering nonwage compensation is 6%, 17%, and 12% greater for unionized firms than for nonunionized firms in housing subsidy, pension and health insurance, and labor insurance, respectively. Third, the degree of unionization within the same region or industry significantly increases the probability of firms offering nonwage compensation. To check for robustness, we use the subsample of private firms and report the estimation results in columns 2, 4, and 6 of Table 5. The results suggest that the presence of unions in the private sector is positively associated with nonwage compensation.
TABLE 5

Unions and Nonwage Compensation

                       Housing                 Pension and
                       Subsidy                   Health
                                              Insurance

                     Total (1)     Private      Total (3)
                                     (2)

State-owned           0.050 ***                0.056 ***
enterprises             (19.50)                  (10.42)

Collectively owned   -0.023 ***               -0.037 ***
enterprises            (-17.83)                  (-7.93)

Private enterprises  -0.076 ***               -0.119 ***
                       (-58.86)                 (-36.08)

HMT-invested         -0.007 ***                0.047 ***
enterprises             (-4.36)                  (10.18)

Foreign-invested      0.038 ***                0.094 ***
enterprises             (20.14)                  (21.01)

Size                  0.024 ***   0.008 ***    0.079 ***
                        (53.22)     (16.49)      (63.99)

Capital labor        0.0001 ***  0.0001 ***   0.0003 ***
intensity               (36.56)      (4.88)      (25.85)

Female share            (-7.00)  -0.011 ***    0.027 ***
                                    (-5.30)       (4.54)

Graduate              0.147 ***   0.096 ***    0.279 ***
                         (9.44)      (8.14)       (4.94)

College               0.152 ***   0.062 ***    0.337 ***
                        (56.79)     (26.61)      (38.81)

High school           0.055 ***   0.023 ***    0.066 ***
                        (28.20)     (12.86)      (12.76)

Union dummy           0.063 ***   0.018 ***    0.171 ***
                        (57.24)     (17.33)      (73.12)

Union presence in     0.048 ***   0.020 ***    0.163 ***
same industry and        (6.68)      (3.09)       (9.34)
province

Industry dummies            Yes         Yes          Yes

Province dummies            Yes         Yes          Yes

Pseudo [R.sup.2]           0.27        0.11         0.17

Observations            248.741     113.621      248,741

                                   Labor
                                 Insurance

                       Private     Total (5)     Private
                         (4)                       (6)

State-owned                       0.082 ***
enterprises                         (21.10)

Collectively owned               -0.005 ***
enterprises                         (-3.57)

Private enterprises              -0.070 ***
                                   (-52.42)

HMT-invested                      0.014 ***
enterprises                          (6.38)

Foreign-invested                  0.052 ***
enterprises                         (21.84)

Size                  0.071 ***   0.037 ***   0.027 ***
                        (35.10)     (105.1)     (69.48)

Capital labor        0.0002 ***  0.0001 ***  0.0001 ***
intensity                (9.70)     (39.13)     (17.23)

Female share              0.002   0.041 ***   0.028 ***
                         (0.17)     (23.13)     (14.95)

Graduate              0.458 ***   0.196 ***   0.197 ***
                         (4.61)     (15.50)     (13.14)

College               0.415 ***   0.198 ***   0.183 ***
                        (28.97)     (89.01)     (73.78)

High school           0.028 ***   0.074 ***   0.049 ***
                         (3.51)     (50.07)     (31.30)

Union dummy           0.152 ***   0.120 ***   0.084 ***
                        (42.08)     (96.23)     (55.00)

Union presence in     0.173 ***   0.147 ***   0.103 ***
same industry and        (6.08)     (22.32)     (13.42)
province

Industry dummies            Yes         Yes         Yes

Province dummies            Yes         Yes         Yes

Pseudo [R.sup.2]           0.17        0.14        0.11

Observations            113.622   1,236,133     828.242

Notes: This table reports the marginal effects of the logit
model. Columns 1, 3, and 5 report the results for the total
sample, and Columns 2, 4, and 6 report the results for
private firms. Robust Z-values are reported in parentheses.
*** Significant at 1% level.


C. The Influence of Unions on Employee Training

Previous studies on the effect of unionization on employee training have generally noted a positive effect of union presence on training investment (see survey in Metcalf 2003). Chinese unions not only encourage enterprises to increase their investment in human resources, but also to directly provide training services. For example, industrial and regional unions have independently established 1,038 employee education institutions, including colleges, technical secondary schools, spare-time schools, training centers, and re-employment training bases in 2004.7 The Census provides information for enterprise expenditures on employee training for the limited sample. We use two measures of employee training: the training dummy, which is equal to one if the enterprises invest in employee training and the training density, which is defined by employee training expenditures divided by total sales. Among manufacturing enterprises, about 43% of enterprises invest in employee training. The mean of training intensity is about 0.07% with a large standard deviation of 0.67%.

We apply both logit and tobit models. Columns 1 and 2 of Table 6 report the results of the logit model and columns 3 and 4 of the same table report the results of the tobit model. These results suggest that the presence of unions in the workplace significantly increases the incidence and intensity of employee training. The presence of unions within the same industry and region significantly encourages employee training. There are also notable variations across ownership: foreign and HMT-invested firms invest the least while domestic joint ventures invest the most in employee training. Larger and more capital-intensive enterprises tend to invest more in employee training. Skill composition has significant and positive effects on employee training while female-employee share has significant and negative effects on employee training.
TABLE 6

Unions and Employee Training

                      Training               Training
                       Dummy                Intensity

                       Total      Private     Total      Private
                     Sample (1)    Firms    Sample (3)    Firms
                                    (2)                    (4)

State-owned          -0.014 ***               0.013 **
enterprises             (-2.68)                 (2.44)

Collectively owned   -0.041 ***             -0.014 ***
enterprises             (-9.76)                (-3.26)

Private enterprises  -0.087 ***             -0.046 ***
                       (-28.47)               (-14.46)

HMT-invested         -0.156 ***             -0.097 ***
enterprises            (-42.42)               (-21.44)

Foreign-invested     -0.121 ***             -0.074 ***
enterprises            (-32.31)               (-17.12)

Size                  0.103 ***  0.094 ***   0.062 ***  0.001 ***
                        (86.34)    (51.81)     (51.37)    (40.91)

Capital labor        0.0003 ***     0.0002  0.0002 ***    90.0001
intensity               (29.24)        ***     (18.77)        ***
                                   (14.23)                 (7.52)

Female share         -0.044 ***     -0.042  -0.019 ***     0.0001
                        (-7.58)        ***     (-3.17)     (0.12)
                                   (-5.28)

                      0.288 ***  0.330 ***   0.183 ***  0.003 ***
                         (5.43)     (3.83)      (3.41)     (4.72)

College               0.260 ***  0.276 ***   0.189 ***  0.002 ***
                        (32.92)    (22.81)     (23.52)    (19.93)

High school           0.074 ***  0.059 ***   0.039 ***     0.0003
                        (14.98)     (8.28)      (7.57)        ***
                                                           (6.37)

Union dummy           0.166 ***  0.135 ***   0.108 ***     0.0008
                        (74.63)    (41.56)     (45.36)        ***
                                                          (30.37)

Union presence in     0.083 ***      0.041    0.040 **     0.0001
same industry and        (4.84)     (1.59)      (2.27)     (0.65)
province

Industry dummies            Yes        Yes         Yes        Yes

Province dummies            Yes        Yes         Yes        Yes

Pseudo [R.sup.2]           0.11       0.08        0.06       0.06

Observations            246.762    113,549     246.762    113.551

Notes: Columns 1 and 2 report the marginal effects of the
logit model. Columns 3 and 4 report the marginal effects of
the tobit model. Robust Z-values are reported in
parentheses.
** Significani at 5%;
*** significant at 1%.


In summary, the empirical evidence suggests that the presence of unions in workplaces is significantly and positively correlated with employee compensation. The unionized enterprises offer higher wages, better nonwage compensation, and invest more in employee training than nonunionized enterprises. Unionization within the same industry and region also delivers positive spillovers for employee compensation. These empirical findings are consistent with the triple-faces-of-unionism approach, which states that Chinese unions have a strong "State-Party voice" face, a weak "monopoly" face, and a significant "collective voice" face. In China, the employees are weakly protected due to the underdeveloped labor laws and insufficient enforcement of the laws and regulations. The bargaining power between enterprise management and individual employees is significantly unequal. The State-Party has recognized that labor rights must be protected to retain social and political stability. Chinese unions, as the "State-Party's organs," have strong motives to monitor/supervise the implementation of labor laws in workplaces, pressure the employers to diminish the exploitation of employees, and harmonize industrial relations. The "collective voice" face of unions plays a significant role in protecting employees' interests through various activities such as receiving the employees' grievances, meditating labor disputes. providing legal and financial aid, and offering employee training.

V. CONCLUSION

Our study investigates trade unions in a transition economy characterized by weak labor protection and rapid economic growth. We use the enterprise population-level data to empirically examine the determinants of unionization and the link between unionization and employee compensation.

We develop the following twofold view. First, trade unions in China are underdeveloped. Chinese unions have a strong "State-Party voice" face in that unions are subordinate to the State-Party and function as a "transmission belt" between the State-Party and the workers. This governmental influence plays an important role in the unionization process. Chinese unions lack a "monopoly" face because they have weak bargaining power in the collective consultation and bargaining with management.

Second, Chinese unions have "real" effects in protecting the employees' interests. The unions participate in a wide range of activities such as accepting the employees' grievances, mediating in labor disputes, monitoring the implementation of labor laws, providing various services and welfare assistance, promoting technological innovation and employee training., and participating in corporate governance and policy making. The empirical evidence suggests that there is a systematic difference between unionized and nonunionized enterprises. The presence of unions in workplaces is positively associated with employee wages, nonwage compensation, and employee training. Unionization within the same industry and region generates positive spillovers for employee compensation.

Economic development in China calls for an improvement in labor and trade union laws to grant the unions an independent status that will allow them to separate from both the State-Party and enterprise management. This would clarify that their only objective is to represent and protect the interests of employees. However, independence from. the State-Party may not be sufficient to support successful union development. In a unique political, legal, and economic environment, without the support of the State-Party's administrative power, the survival of unions is threatened by strong managerial resistance. In a comparison study of trade unions in China and Russia, Clarke (2005) showed that unions in Russia, which have rapidly obtained independent status, have difficulties developing their ability to defend the employees' interests, and must often turn back to their traditional social-political and managerial functions.
  This implies that it is inappropriate to analyze
  post-socialist trade unions in terms of their
  development toward one or another existing model
  of trade unionism, because they have to construct their
  own trade unions practice on the basis of inherited
  structure and within a framework that is outside
  their control, [Clarke 2005, 2]


One would not expect China to completely abandon the current union system and adopt the standard model in an advanced economy. For a short-term institutional reproduction, Chinese unions must retain their traditional role in collaborating with the State-Party and management. For long-term development, they must improve their ability to represent and protect the employees' interests. With increasing conflicts between these objectives in an economic transition process, it is a challenge for Chinese unions to find a suitable evolutionary path that will secure economic development.

ABBREVIATIONS

2SLS: Two-Stage Least Squares

GDP: Gross Domestic Product

HMT: Hong Kong, Macao, and Taiwan

NBSC: National Bureau of Statistics of China

OLS: Ordinary Least Squares

SOEs: State-Owned Enterprises

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(1.) For details on the structure, features. and activities of Chinese unions, please see Ge (2007).

(2.) The Census covers 5,168,303 legal entities--a total of 5323,235 legal entities in 2004--and the coverage rate. is about 97%.

(3.) Metcalf and Li (2006) provide a detailed description of the changing union membership and density in China since 1949.

(4.) Other firm attributes such as skill composition or gender composition of employment might be correlated with unionization. Previous studies in advanced economies have shown that skilled workers and female workers are consistently less likely to unionize relative to unskilled and male workers, respectively. However, this might not be an important concern in the case of China because unionization in China is not from the request of the employees. but initiated by ACFTU and supported by the government administrative power.

(5.) The union activity within the workplaces could be a better measue of unionization. Due to limited data, the only available firm-level information on unions is the number of union members.

(6.) The limited sample includes SOEs and the large- and medium-sized nonstate enterprises (with total sales roughly above 5 million yuan). This sample comes from the annual enterprises survey conducted by the National Bureau of Statistics, which has been widely used in previous studies. Brandt et al. (2011) provided a detailed description of this data set, revealing that below-scale firms only account for a small proportion of economic activities. The sample's bias toward large firms might overestimate the positive link between unions and nonwage compensation.

(7.) On the basis of the information from the Chinese Trade Union Statistics Yearbook 2005 (Research Department of ACFTU 2006).

YING GE *

* I would like to thank Brad Humphreys and three anonymous referees for their insightful comments and suggestions. Funding from University of International Business and Economics is gratefully acknowledged.

Ge: School of International Trade and Economics, University of International Business and Economics, Chaoyang District, Beijing 100029, China. Phone 010-64493368, Fax 010-64796438, E-mail yige60@vip.sina.com; geying@uibe.edu.cn
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