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Does unionization reduce wage inequality? New evidence from business dynamism

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  • Chao, Chi-Chur
  • Ee, Mong Shan

Abstract

Incorporating the business-dynamism effect, this paper examines distribution and welfare effects of labor unions. An increase in unionization can raise the unskilled wage rate and lower the skilled wage rate in the economy, and wage inequality can be further reduced by the business-dynamism effect of firm exit. Nonetheless, the inequality-reducing role might be mitigated by the delay of firm exit caused by labor unions. In addition, the rise in unionization can solve the problem of excessive entry in the oligopolistic market, thereby improving welfare of the economy. Using multiple-country panel data, we find a negative relationship between unionization and wage inequality. This finding confirms the theoretical prediction of the inequality-reducing effect of labor unions.

Suggested Citation

  • Chao, Chi-Chur & Ee, Mong Shan, 2024. "Does unionization reduce wage inequality? New evidence from business dynamism," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 690-703.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:690-703
    DOI: 10.1016/j.iref.2024.02.048
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    More about this item

    Keywords

    Labor unions; Business dynamism; Wages; Welfare;
    All these keywords.

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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