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Market Power and Price: Theory and Evidence on Labor Unions

Author

Listed:
  • Brian Chezum

    (St. Lawrence University)

  • John Garen

    (University of Kentucky)

Abstract

We examine the effect of the market power of unions on the wage of unionized labor. Market power is measured as the percent of an industry's labor force that is unionized. Unique in this study is the simultaneous treatment of the union wage and extent of union organization as union choice variables. We model this choice in a setting of product market competition with unrestricted entry. An important empirical implication is that standard wage equation estimates of the effect of union coverage on union wages are biased upward. Empirical tests reject the exogeneity of union coverage in wage determination and we show that OLS overestimates the true relationship between wages and organization by over 25%.

Suggested Citation

  • Brian Chezum & John Garen, 1997. "Market Power and Price: Theory and Evidence on Labor Unions," Eastern Economic Journal, Eastern Economic Association, vol. 23(1), pages 73-87, Winter.
    • Handle: RePEc:eej:eeconj:v:23:y:1997:i:1:p:73-87
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume23/V23N1P73_87.pdf
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    Keywords

    Union;

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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