Tips allow restaurants to pay servers lower wages. As more servers are hired, each serves fewer meals and earns less in tips. As a result, restaurants must pay a higher wage. This gives them monopsony power over wages. Over some range, a higher minimum wage should increase employment. Empirically, we found the full "reverse C" monopsony pattern of employment for restaurants, with employmentfirst going up and then down as the minimum wage is increased. (JEL 538, 542)

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It is a strong prior among many economists that unionizedfirms hire better-quality workers to ofiet higher union wages.In fact, standard economic theory does not support this prior. The key insights introduced by this paper are that, first, unions will likely raisefuture wages to reflect improvements in worker quality and, second, that unionizedfirms, anticipating this, often do better by hiring lower-quality workers. This surprising result has empirical support. 616 QWestem Economic Association InternationalWESSELS: DO UNIONIZED FIRMS HIRE BE'ITER WORKERS? 2. Lewis's views are widespread. In another leading book on unions, Hirsch and Addison [1986,117], following a similar line of logic as Lewis, predict that union wage gains will get smaller over time as firms hire better workers. Still another widely used labor economic text, McConneu and Brue [1992], treats the betterquality proposition as a fact by giving it a name: the "superior worker effect."

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