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Why Unions Reduce Wage Inequality - A Theory of Domino Effects

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  • Stennek, Johan

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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    Abstract

    Numerous empirical studies show that unions reduce wage differences. But surprisingly few attempts have been made to understand why. Swedish unions reveal that the reason is both ideological and strategic. Relying on employers to voluntarily increase higher wages, to protect efficiency-enhancing wage-differences, unions can focus on increasing the lowest wages without sacrificing higher wages. Since all workers gain, egalitarian wage policies promote unity among workers with different productivity. I formalize these ideas and draw implications for the current debate on capping collectively negotiated minimum wages in Europe. The model combines wage bargaining, efficiency wages, internal union politics and coalition formation.

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    File URL: http://hdl.handle.net/2077/30286
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    Bibliographic Info

    Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 539.

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    Length: 51 pages
    Date of creation: 18 Sep 2012
    Date of revision: 21 Feb 2013
    Handle: RePEc:hhs:gunwpe:0539

    Contact details of provider:
    Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
    Phone: 031-773 10 00
    Web page: http://www.handels.gu.se/econ/
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    Keywords: inequality; wage differences; minimum wages; trade unions; collective negotiations;

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    17. David Lee & Alexandre Mas, 2009. "Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961-1999," NBER Working Papers 14709, National Bureau of Economic Research, Inc.
    18. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
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