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Nonunion Wage Rates and the Threat of Unionization


  • Henry Farber


I investigate how the the threat of union organization affects the wage paid to nonunion workers. I start by outlining the standard model of wage determination by a nonunion employer when faced with the threat of union organization. The model suggests that the nonunion wage will be directly related and the union wage gap will be inversely related to the threat. I use repeated cross-section data from the CPS from 1977-2002 to develop a measure of the threat as the predicted probability of union membership. I use this measure to estimate earnings functions that use several sources of variation in the likelihood of union membership to identify the threat effect in a manner that reduces the likelihood of omitted variable bias. Finally, I investigate two cases where there has arguably been a change in the likelihood of union organization that is not correlated with changes in the demand for labor. These include the wage changes surrounding the introduction of right-to-work (RTW) laws in two states during the period studied and wage changes surrounding deregulation of key industries in the late 1970s and early 1980s. The results are mixed. The preferred estimates from the analysis using predicted probability of unionization as the threat measure, imply very little relationship between either nonunion wages or the union wage gap and the threat. The estimates that rely on the introduction of RTW laws show a significant relationship between nonunion wages and the introduction of RTW laws in one of the two states. Stronger evidence of threat effects is found in the experience of deregulated industries, where regulation was a central factor in union strength.

Suggested Citation

  • Henry Farber, 2003. "Nonunion Wage Rates and the Threat of Unionization," NBER Working Papers 9705, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9705
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    Cited by:

    1. David Blanchflower & Alex Bryson, 2004. "The Union Wage Premium in the US and the UK," CEP Discussion Papers dp0612, Centre for Economic Performance, LSE.
    2. David G. Blanchflower & Alex Bryson, 2010. "The Wage Impact of Trade Unions in the UK Public and Private Sectors," Economica, London School of Economics and Political Science, vol. 77(305), pages 92-109, January.
    3. Michael F. Lovenheim, 2009. "The Effect of Teachers' Unions on Education Production: Evidence from Union Election Certifications in Three Midwestern States," Journal of Labor Economics, University of Chicago Press, vol. 27(4), pages 525-587, October.
    4. Michael Lovenheim & Alexander Willén, 2016. "The Long-run Effects of Teacher Collective Bargaining," CESifo Working Paper Series 5977, CESifo Group Munich.

    More about this item

    JEL classification:

    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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