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Unionization, Stochastic Dominance, and Compression of the Wage Distribution: Evidence from Germany

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Author Info

  • Michael C. Burda
  • Bernd Fitzenberger
  • Alexander Lembcke
  • Thorsten Vogel

Abstract

This paper establishes theoretical and empirical linkages between union wage setting and the structure of the wage distribution. Theoretically, we identify conditions under which a right-to-manage model implies compression of the wage distribution in the union sector relative to the nonunion sector as well as first-order stochastic dominance. These implications are investigated using quantile regressions on the 2001 GSES, a large German linked employer–employee data set which contains explicit information on coverage by collective agreements. The empirical results confirm that, in case of industry-wide collective agreements, log union wage effects decline in quantiles, implying union wage compression. This finding, however, cannot be corroborated for wages determined at the firm level. Stochastic dominance is confirmed, as predicted by the theoretical model, for both types of collective agreements.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2008-041.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 SFB649DP2008-041.

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Length: 35 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2008-04

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Related research

Keywords: Union wage effect; stochastic dominance; wage compression; quantile regressions; Machado-Mata decomposition;

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References

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  1. L Christofides & A Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Contract Data," CEP Discussion Papers dp0041, Centre for Economic Performance, LSE.
  2. MaCurdy, Thomas E & Pencavel, John H, 1986. "Testing between Competing Models of Wage and Employment Determination in Unionized Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S3-S39, June.
  3. Louis N. Christofides & Andrew J. Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Data," NBER Working Papers 3648, National Bureau of Economic Research, Inc.
  4. 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, vol. 104(4), pages 791-836, August.
  5. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
  6. Gürtzgen, Nicole, 2005. "Rent-sharing : Does the Bargaining Regime Make a Difference? Theory and Empirical Evidence," ZEW Discussion Papers 05-15, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Orley Ashenfelter & James N. Brown, 1985. "Testing the Efficiency of Employment Contracts," Working Papers 573, Princeton University, Department of Economics, Industrial Relations Section..
  8. Kohn, Karsten & Lembcke, Alexander C., 2007. "Wage Distributions by Bargaining Regime: Linked Employer-Employee Data Evidence from Germany," IZA Discussion Papers 2849, Institute for the Study of Labor (IZA).
  9. Bernd Fitzenberger & Karsten Kohn & Alexander C. Lembcke, 2008. "Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany," CEP Discussion Papers dp0859, Centre for Economic Performance, LSE.
  10. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  11. Thorsten Vogel, 2007. "Union Wage Compression in a Right-to-Manage Model," SFB 649 Discussion Papers SFB649DP2007-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  12. Russell Davidson, 2006. "Stochastic Dominance," Departmental Working Papers 2006-19, McGill University, Department of Economics.
  13. Christofides, Louis N., 1990. "Non-nested tests of efficient bargain and labour demand models," Economics Letters, Elsevier, vol. 32(1), pages 91-96, January.
  14. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
  15. Joshua Angrist & Victor Chernozhukov & Iván Fernández-Val, 2006. "Quantile Regression under Misspecification, with an Application to the U.S. Wage Structure," Econometrica, Econometric Society, vol. 74(2), pages 539-563, 03.
  16. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  17. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  18. Gürtzgen, Nicole, 2006. "Rent-Sharing and Collective Bargaining Coverage: Evidence from Linked Employer-Employee Data," ZEW Discussion Papers 05-90 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Citations

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Cited by:
  1. Addison, John T. & Teixeira, Paulino & Evers, Katalin & Bellmann, Lutz, 2013. "Indicative and Updated Estimates of the Collective Bargaining Premium in Germany," IZA Discussion Papers 7474, Institute for the Study of Labor (IZA).
  2. Karsten Kohn & Dirk Antonczyk, 2013. "The aftermath of reunification," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(1), pages 73-110, 01.
  3. repec:iab:iabzaf:v:44:i:1/2:p:163-172 is not listed on IDEAS
  4. repec:iab:iabzaf:v:44:i:1/2:p:15-27 is not listed on IDEAS
  5. Antonczyk, Dirk & Fitzenberger, Bernd & Sommerfeld, Katrin, 2010. "Rising Wage Inequality, the Decline of Collective Bargaining, and the Gender Wage Gap," IZA Discussion Papers 4911, Institute for the Study of Labor (IZA).
  6. Heinze, Anja, 2010. "Beyond the mean gender wage gap: Decomposition of differences in wage distributions using quantile regression," ZEW Discussion Papers 10-043, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Kohn, Karsten & Antonczyk, Dirk, 2011. "The Aftermath of Reunification: Sectoral Transition, Gender, and Rising Wage Inequality in East Germany," IZA Discussion Papers 5708, Institute for the Study of Labor (IZA).
  8. Tobias Brändle & Wolf Dieter Heinbach, 2010. "Opening Clauses in Cellective Bargaining Agreements: More Flexibility to Save Jobs?," IAW Discussion Papers 67, Institut für Angewandte Wirtschaftsforschung (IAW).

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