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Why Unions Reduce Wage Inequality, I - 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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    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: 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; strategic commitment;

    Find related papers by JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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    3. Lee, David S. & Mas, Alexandre, 2009. "Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961-1999," Institute for Research on Labor and Employment, Working Paper Series qt1j93n8gj, Institute of Industrial Relations, UC Berkeley.
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    7. repec:fth:prinin:315 is not listed on IDEAS
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    14. Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-79, December.
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