The Impact of Unions on Nonunion Wage Setting

The paper presented in this Mannheim Applied Seminar provides new estimates of the impact of unions on nonunion wage setting. The authors allow the presence of unions to affect nonunion wages both through the typically discussed channel of nonunion firms emulating union wages in order to fend off the threat of unionisation and through a bargaining channel in which nonunion workers use the presence of union jobs as part of their outside option. They specify these channels in a search and bargaining model that includes union formation and, in their most complete model, the possibility of nonunion firm responses to the threat of unionisation. Their results indicate an important role played by union wage spillovers in lowering wages over the 1980-2010 period. The authors find de-unionisation can account for 38% of the decline in the mean hourly wage between 1980 and 2010, with two-thirds of that effect being due to spillovers. Both the traditional threat and bargaining channels are operational, with the bargaining channel being more important.