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

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

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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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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