We argue that inequality and rapid deunionization are related, and that skill-biased technical change has been an important factor in deunionization as well as in the rise in inequality. Skill-biased technical change causes deunionization because it increases the outside option of skilled workers, undermining the coalition among skilled and unskilled worker in support of unions. Our approach implies that although deunionization is not the underlying cause of the increase in inequality, it amplifies the direct effect of skill-biased technical change by removing the wage compression imposed by unions. We also show that deunionization may happen inefficiently.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2764.
Find related papers by JEL classification: J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
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