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Union Wage Compression in a Right-to-Manage Model

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  • Thorsten Vogel

Abstract

Trade unions are consistently found to compress the wage distribution. Moreover, unemployment affects in particular low-skilled workers. The present paper argues that an extended Right-to-Manage model can account for both of these findings. In this model unions compress the wage distribution by raising wages of workers in low productivity industries (or low-skilled workers) above market clearing levels. Our analysis suggests that the most direct way to test this model would be via a test for stochastic dominance. We also allow for capital adjustments and compare union and non-union wage distributions in a general equilibrium framework.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2007-009.pdf
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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-009.

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Length: 30 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2007-009

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Keywords: Trade unions; wage compression.;

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References

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  1. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, Econometric Society, vol. 52(2), pages 449-60, March.
  2. Agell, Jonas & Lommerud, Kjell Erik, 1992. "Union Egalitarianism as Income Insurance," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 59(235), pages 295-310, August.
  3. Gesine Stephan & Knut Gerlach, 2005. "Wage settlements and wage setting: results from a multi-level model," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(20), pages 2297-2306.
  4. Davidson, R. & Duclos, J.-Y., 1998. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," G.R.E.Q.A.M., Universite Aix-Marseille III 98a14, Universite Aix-Marseille III.
  5. Hartog, Joop & Leuven, Edwin & Teulings, Coen, 2002. "Wages and the bargaining regime in a corporatist setting: the Netherlands," European Journal of Political Economy, Elsevier, vol. 18(2), pages 317-331, June.
  6. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(4), pages 791-836, August.
  7. Rees, Albert, 1993. "The Role of Fairness in Wage Determination," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 11(1), pages 243-52, January.
  8. Richard B. Freeman, 1982. "Union wage practices and wage dispersion within establishments," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 36(1), pages 3-21, October.
  9. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 239-300 National Bureau of Economic Research, Inc.
  10. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, Econometric Society, vol. 71(1), pages 71-104, January.
  11. Richard B. Freeman, 1980. "Unionism and the dispersion of wages," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(1), pages 3-23, October.
  12. Hildreth, Andrew K G & Oswald, Andrew J, 1997. "Rent-Sharing and Wages: Evidence from Company and Establishment Panels," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(2), pages 318-37, April.
  13. Horn, Henrik & Svensson, Lars E O, 1986. "Trade Unions and Optimal Labour Contracts," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(382), pages 323-41, June.
  14. Dorfman, Robert, 1979. "A Formula for the Gini Coefficient," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 146-49, February.
  15. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, American Economic Association, vol. 71(5), pages 896-908, December.
  16. Anderson, Gordon, 1996. "Nonparametric Tests of Stochastic Dominance in Income Distributions," Econometrica, Econometric Society, Econometric Society, vol. 64(5), pages 1183-93, September.
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Citations

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Cited by:
  1. Teschner, Tatjana, 2009. "Der Einfluss der Tarifbindung auf Lohnhöhe und Lohnverteilung," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-431, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  2. Sebastián Galiani & Guido Porto, 2011. "Trends in Tariff Reforms and Trends in the Structure of Wages," CEDLAS, Working Papers, CEDLAS, Universidad Nacional de La Plata 0124, CEDLAS, Universidad Nacional de La Plata.
  3. Michael C. Burda & Bernd Fitzenberger & Alexander Lembcke & Thorsten Vogel, 2008. "Unionization, Stochastic Dominance, and Compression of the Wage Distribution: Evidence from Germany," SFB 649 Discussion Papers SFB649DP2008-041, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Volodymyr Perederiy, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers SFB649DP2007-060, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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