Reciprocal Loyalty and Union Mediation

• DOI: http://doi.org/10.1111/irel.12028
• Author: Ioannis Theodossiou,Georgios A. Panos
• Published date: 01 July 2013
• Date: 01 July 2013

Reciprocal Loyalty and Union Mediation

GEORGIOS A. PANOS and IOANNIS THEODOSSIOU*

This study investigates the concept of loyalty in the employment relationship

using a stated preference approach and a dataset obtained through purpose-built

questionnaires. Reciprocal loyalty is defined as a gift exchange. Workers’good

performance is rewarded by the employer by the provision of a job with a low

likelihood of job loss. The study shows that such reciprocal employer–employee

loyalty is highly rated by the workers as a desirable job attribute. Loyalty in the

employer–employee relationship is differently valued by unionized and nonunion-

ized workers. Overall, the evidence suggests that unionized workers are more

receptive to arrangements involving reciprocal loyalty. This may be an outcome

of adaptation to internalized norms of union behavior.

Introduction and Brief Literature Review

COLLECTIVE BEHAVIOR IS OFTEN SHAPED BY SOCIAL NORMS AND BEHAVIORAL REGU-

LARITIES that are based on socially shared beliefs and often enforced by infor-

mal social sanctions (Akerlof 1980; Fehr and G€

achter 1998). Social norms can

be internalized, and they can shape the individual’s preferences. Thus, acquired

preferences often become constraints on behavior (Ariely, Loewenstein, and

Prelec 2003, 2006; Carpenter 2005; Hirschman 1982). Dunlop (1944) argues

that “the institutionalized form of collective action may introduce new prefer-

ences in the same way the household modifies individual preferences”and

suggests that “interaction patterns of a given form of collective action could

alter preferences and in addition various forms of collective action can

* The authors’affiliations are, respectively, Economics Division, University of Stirling, Stirling, UK. Email:

georgios.panos@stir.ac.uk; Centre for Entrepreneurship Research at the University of Essex, Southend-on-

Sea, UK. Email: theod@abdn.ac.uk; Department of Economics, University of Aberdeen Business School,

Aberdeen, UK. Centre for the European Labour Market Research, Aberdeen, UK. The authors are grateful

for the invaluable contribution of Professor Bernard Van Praag and Dr. Ada Ferrer-i-Carbonell during the

design stage of the questionnaire. The helpful comments of Keith Hancock, Keith Bender, Kohei Kawamura,

Tim Barmby, Ed Hopkins, Kostas Pouliakas, two anonymous referees of this journal, and the seminar partic-

ipants at the University of Aberdeen, the 11th IZA Summer School in Labor Economics, SGPE 2008, IA-

REP/SABE 2008, IMEBE 2009, IMAEF 2009, ISNIE 2009, and the 21st Australian Labour Market

Research Workshop 2010 are gratefully acknowledged. This study is undertaken as part of the wider agenda

of the EPICURUS project (contract number: HPSE-CT-2002-00143) and the HEALTHatWORK (contract

number: 200716) project supported by the European Commission.

INDUSTRIAL RELATIONS, Vol. 52, No. 3 (July 2013). ©2013 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

645

obviously affect the choice of the group even if preferences remain stable”

(Duncan and Stafford 1980).

Industrial relations literature suggests that unionized workers exhibit distinct

behavioral profiles that are shaped by the context of the environment of media-

tion and collective action. Freeman and Medoff (1984) maintain that unionized

workers are more loyal to their employers than nonunion workers. Akerlof

(1982) emphasizes that loyalty is based on employer–employee reciprocity and

points out that the concept of loyalty can be expressed in terms of norms and

a“gift exchange,”which are partially endogenously determined due to value-

changing processes labeled as “loyalty filters”(Akerlof 1983). The above

implies that union membership entails social preferences, which involve

expressions of reciprocity toward the employer. Dohmen et al. (2009) present

evidence on the relationship between reciprocity and future labor market out-

comes, such as wages, effort, unemployment, and absenteeism.

Unions provide employees with an effective voice to communicate their

concerns, partly by promoting “legitimacy”at the workplace (Freeman 1976,

1980). Legitimacy is related to reciprocal employer–employee arrangements,

mediated by the union (Doeringer 1984, 1986).

Social preferences for reciprocal “loyalty”are more likely to prevail among

unionized workers for a number of reasons. Several authors suggest that the

mediating role of unions and their ability to facilitate communication, informa-

tion, and reputation can induce cooperative outcomes (Milgrom and Roberts

1992; Ostrom 1998; Simon 1951; inter alia). These issues are also explored

by Fehr and Fischbacher (2002); McCabe, Rigdon, and Smith (2003); and

Walton and McKersie (1991). Union membership may lead to internalized

roles, norms, and values that affect the behavior of members (Akerlof 1980;

Akerlof and Kranton 2000, 2005; Booth 1985; Bowles 1998; Goette, Huffman,

and Meier 2006) via “conformist”behavior.

Empirical evidence on employer–employee loyalty and the paths for the op-

erationalization of this concept are scarce (Cahuc and Kramarz 1997). In the

empirical literature, loyalty is defined in various ways such as organizational

commitment, “the degree to which a person identifies with an organization”

(Boroff and Lewin 1997), “giving private and public support to the organiza-

tion”(Rusbult et al. 1988), and “organizational citizenship”(Cappelli and

Rogovsky 1998).

In view of the above, this study investigates the differences between union

and nonunion workers regarding the preference for loyalty in the employment

relationship. This is an important issue because the “reciprocal loyalty filter-

ing”role of the trade union may mediate in structuring attitudes and the estab-

lishment of norms in the labor market. Furthermore, reciprocal loyalty is a key

element affecting the mechanisms of collective action in environments where

646 / GEORGIOS A. PANOS AND IOANNIS THEODOSSIOU

the relations and obligations are not governed by explicit agreements (Fehr

and Gächter 2000; Fehr, Gächter, and Kirchsteiger 1997). Finally, as Akerlof

(1982) and Okun (1981) have pointed out, reciprocal loyalty in the employ-

ment relationship may partly explain the tendency of wages to be rigid down-

wards even in periods of high unemployment, particularly in the unionized

sectors.

In this study, preferences are elicited using conjoint analysis, a stated prefer-

ence elicitation methodology. Employer–employee loyalty is reflected in a

“gift-exchange”reciprocal behavior. The employer offers employment with a

reduced likelihood of job loss, and workers reciprocate by offering elevated

performance. The results show that the unionized workers exhibit a greater

preference for reciprocal loyalty compared with their nonunion counterparts.

This difference is found to be robust to a number of specifications, including

after controlling for individual fixed effects and for self-selection into union

membership. Reciprocal loyalty exerts a higher impact on the preferences of

unionized workers compared with the nonunion employees. Moreover, it

appears that this greater preference for reciprocal loyalty for the unionized

workers arises as an outcome of adaptation to union-mediated cooperation.

Methodological Issues

The study assumes that the utility a worker derives from a job stems from

the specific attributes of the job, rather than the job per se. Thus, a job is

described by its characteristics. The extent to which an individual derives satis-

faction from a job or values the job depends on the levels of these job charac-

teristics. The underpinnings of this approach originate in the studies by

Lancaster (1966, 1971) and Rosen (1974). It involved a stated preference

methodology rooted in the random utility theory (Hanemann 1984; McFadden

1974). The main objective of this study is to identify the value that union and

nonunion workers attribute to reciprocal loyalty.

A specific job jis described by a vector of attributes a

j

, the so-called

vignette. It is assumed that a job vignette jis evaluated by a cardinal evalua-

tion function, with the stated utility expressed as U

j

=U(a

j

), where a

j

is a vec-

tor of job characteristics (attributes) describing a job j. Obviously, different

individuals have different opinions about the same job, and individuals are

indifferent between two jobs 1 and 2, if U(a

1

)=U(a

2

). The knowledge of the

function U(.) provides the trade-off ratios, reflecting the extent to which an

individual may accept less of one job attribute when compensated by an

increase in another, without the overall evaluation of a job being affected.

Thus, the trade-off ratio between attributes 1 and 2 of a job is:

Reciprocal Loyalty and Union Mediation / 647