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Sources of the Union Wage Gap: Results from High-Dimensional Fixed Effects Regression Models


  • Addison, John T.

    () (University of South Carolina)

  • Portugal, Pedro

    () (Banco de Portugal)

  • Vilares, Hugo

    () (Banco de Portugal)


This paper provides estimates of the union wage gap in Portugal, a nation until recently lacking independent data on union density at firm level. Having estimated nonlinear and linear estimates of the effect of union density on the wage gap, the next stage of the analysis seeks to account for the influence of worker, firm, and job-title permanent heterogeneity, using a three high dimensional fixed effects strategy. Gelbach's decomposition is used to determine the role of each as sources of the union wage gap. A generalization of this technique is applied for the nonlinear case. We find evidence of a substantial union wage gap in circumstances where the majority of the workforce is organized. There is also some clear indication of substitution effects among different types of compensation that favor of wage supplements (likely reflecting tax considerations) as bargaining power increases. The principal result of the decomposition exercise at the most aggregate level is that the union wage gap is mainly manifested through a firm fixed effect, suggesting that unions may force firms to reposition themselves as far as their wage compensation policies are concerned. A subsidiary result is that matching plays almost no role. More importantly, however, are the results obtained when a distinction is drawn between the (estimated) bargained wage and total earnings. Rising union density has a much greater influence upon the former and is negatively related to the difference between the two. This result is consistent with a wider literature indicating that firms have a 'wage cushion' enabling them to avoid some of the strictures of unionism bargaining power.

Suggested Citation

  • Addison, John T. & Portugal, Pedro & Vilares, Hugo, 2015. "Sources of the Union Wage Gap: Results from High-Dimensional Fixed Effects Regression Models," IZA Discussion Papers 9221, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9221

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    References listed on IDEAS

    1. Ana Rute Cardoso & Paulo GuimarĂ£es & Pedro Portugal, 2016. "What drives the gender wage gap? A look at the role of firm and job-title heterogeneity," Oxford Economic Papers, Oxford University Press, vol. 68(2), pages 506-524.
    2. Addison, John T. & Portugal, Pedro & Vilares, Hugo, 2015. "Unions and Collective Bargaining in the Wake of the Great Recession," IZA Discussion Papers 8943, Institute of Labor Economics (IZA).
    3. R. Alison Felix & James R. Hines, Jr., 2009. "Corporate Taxes and Union Wages in the United States," NBER Working Papers 15263, National Bureau of Economic Research, Inc.
    4. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-979, July.
    5. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
    6. Anabela Carneiro & Paulo GuimarĂ£es & Pedro Portugal, 2012. "Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job Title Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 133-152, April.
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    Cited by:

    1. Pedro S. Martins, 2018. "The Microeconomic Impacts of Employee Representatives: Evidence from Membership Thresholds," Working Papers 93, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.

    More about this item


    union density; union wage gap; total compensation; bargained wages; wage cushion; wage supplements; worker/firm/job title fixed effects; Gelbach decomposition;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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