A Summary of “Union Density, Productivity and Wages”

Welcome back! Today, I’ll be summarizing this interesting paper by Erling Barth, Alex Bryson, and Harald Dale-Olsen. I chose it because it examines Norway’s union system, where unions are organized by sector and coordinate their bargaining, as compared to the US’ uncoordinated and establishment-level unions. The former, I believe, has many positive effects over the latter, and is less examined. Remember, my comments are in brackets [like this]!

1. Introduction

The relationship here is generally tough to figure out, because it’s hard to find something exogenous to measure the effect of union membership on productivity directly. After all, if high productivity firms are more likely to unionize in this first place, this could lead to a spurious correlation. Or, perhaps unionized firms pick more productive employees to hire. Luckily, Norway’s tax system basically provides a subsidy for union membership. This subsidy varies over time. Since you’re more likely to join a union if it costs less, this allows us to measure the effect of union membership on productivity by comparing firms whose difference is just what the price of union membership is at the time.

2. Theory and Previous Empirical Literature

An important channel through which unions act is compressing the wage distribution, increasing the wages of workers with low earnings, and decreasing the wages of workers with high earnings. In many European countries, wages are set by sectoral unions bargaining at the national level. This can achieve a high level of coverage. For example, 95% of workers in France are covered by a bargaining agreement. These high coverage rates lessen the potential negative effects of unionization, since it’s harder for investors to shift investment towards non-union sectors in the economy.

Norway specifically has strong sectoral unions, with 50% of private workers being union members [and 70% being covered by a collective bargaining agreement]. There may, of course, be local bargaining that raises wages above the sectorally-negotiated level, and 79% of those covered by sectoral agreements have such local agreements.

3. A Simple Model of Union Membership

4. The Norwegian Tax Legislation and the Union Membership Fee

Their data contains the union membership fees paid by all individuals as reported to the tax authorities in Norway for those years. They take as a instrumental variable the subsidy/(union fee-subsidy), and note that lower wage earners generally pay lower membership fees.

5. Empirical Approach and Data

6. Results

7. Conclusion

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