Union wage premium

A union wage premium refers to the degree in which union wages exceed non-union member wages. Union wage premiums are one of the most researched and analyzed issues in economics especially in labor economics [http://www.psi.org.uk/research/project.asp?project_id=43 PSI: Research: The Union Wage Premium in Britain and the United States ] ] . Unions and their struggle for wages and better benefits usually target larger firms that have a concentrated industry http://www.econ.iastate.edu/classes/econ322/orazem/Wage%20Differentials.ppt] . Unions have an affect on wages, the probability of gaining benefits,productivity of the worker, and workplace protections [http://www.epi.org/content.cfm/briefingpapers_bp143 How unions help all workers ] ] . One of the characteristics of a union is to try to bargain and negotiate wages and hours.Unions also try to reduce or eliminate pay discrimination and low wages . The wage gap of non-union workers and unionized workers since the 1970’s has varied between 21% and 32% in the U.S. [http://www.statcan.ca/english/studies/75-001/archive/e-pdf/e-0242.pdf e-p17-23.pmd ] ] . This union premium wage gap can be interpreted as the adaptations to globalization, technological, and demographic changes . Another argument for this gap between union and non-union wages is the competition between the wages including a foreign competitor, different workplace improvements to enhance productivity, safety in the workplace, and other interests of the workers .Thus higher wages paid in the union sector makes it seem like there is a rationing of union jobs and that the average worker would rather work a union job than a non-union job [ [http://www.nber.org.libproxy.lib.unc.edu/papers/w1883.pdf?new_window=1 University of North Carolina at Chapel Hill Libraries - Home ] ] . Others attribute changes in this premium to changes in business cycles (for example during should the unemployment rate go up, it would raise the premium or if the inflation rate were to increase then it should lower the premium) . Deregulation also affects premiums by adding competitors that will probably lower the unions bargaining power but it could be argued that it also affects the wages of non-union workers as well . As well cause them to compete with local and foreign wages to keep workers in the jobs and not move to a better paying job . Similarly, import penetration would cause the union to insulate the wages for a period of time .

Narrowing of the Union Wage Premium Gap

Although union wages for their members are higher than non-union members the gap between these two have decreased over time http://www.dartmouth.edu/~blnchflr/papers/irra%20long.pdf] . This gap decrease could be due to the diminishing ability for unions to get monopoly rents, hence the rents affected by technology, competition from overseas, and deregulation of different firms/workplaces . Another study done by on union wage premiums attributes this narrowing of this gap to labor markets strengthening with time http://www.jstor.org/pss/3270649] . Thus this strengthening depends on the actual and expected inflation of the union workers who are covered by their cost of living adjustments .

Impact of Union Wage Premiums

Union wage premiums show the direct benefits of being a member of a union. Although the union wage premiums have fallen for private sector, it has raised for the public sector in the U.S. . Union wage premiums also usually raise the wages of low-skilled workers more than those of high-skilled workers . Thus these low skilled workers usually have less education, lower wages, and in lower paid jobs . This mainly is the result of unions historically representing the working and lower classes. Most economist and labor studies on union wage premiums estimate a difference of about 15% [ [http://www.metapress.com/content/dna507agtn2rk5ne/?p=91f5cec641834157bcc7e35b90473ede&pi=2 MetaPress - Journal Article ] ] . Although another study done reports a much smaller wage difference of 7.7% and 6.0% in workplaces with more than 100 workers . Some studies also argue that as a consequence of unions raising their wages especially if about the market rate wage, it can cause serious firm profitability and eventually jobs could be lost . In some instances union pressence in the firm can be associated with 3 to 9 percentage lower net income on assets for the firm but the opposite effect occurs when union density or size is lower .

Lower-wage, middle-wage, blue-collar, and high school educated workers are also more likely than high-wage, white-collar, and college-educated workers to be represented by unions . This is mainly due to the fact that they raise the wages of the bottom and middle of the wage distribution than that of the top . The explanation that is given for this sector is that it is receiving more than the white collar sector with wage premiums. As well as with larger wages these workers have more purchasing power and their household incomes also increasing, thus this wage premium not only effects their budget line but as well as their household budget line. Another study also backs up the emphasis of importance of wage union premiums among pay structures, especially with the wages of the lowest paid having an effect on pay differentials among gender, ethnicities, health, and different types of occupations . Thus although unions have become smaller in size and participation among the different worker sectors throughout time, those that have survived as are more apt and able to negotiates and demand a wage premium to the firms and businesses . Union wages also hold up better with increased international competition than those of non-union workers wages although this might mean less union employment in their sector .

There were also changes through time of the union wage premium among different groups in the labor market. The changes could be seen through gender, skill, and the private and public sector of the labor market . Through studies and figures it was shown that the wage premium was largest in the least skilled, for both males and females . But for males there is a decline in wage premiums as their skill increases so the wage premium is negative for men with very high skill jobs. The pattern for the public and private sector was extremely similar especially during the years of 1973 through 1993.

How to Estimate the Union Wage Premium

The formula for the estimate:

lnwit=β1Xu + Σj αjt Iijt + Σf πjt Iijt Uit +εit ,

Thus where w denotes equals weekly wage of the i, the individual in t years, Xis the control variable (education, experience, gender, marriage, part-time work, census divisions, and twelve occupations). Ij is the indicator variable for industry j, U is the indicator variable for union membership and ε is the regression error. The πjt is the union wage premium in industry j in year t .

ee also

* Union threat model

Notes

References

* [http://www.statcan.ca/english/studies/75-001/archive/e-pdf/e-0242.pdf Union Wage Premium]
* [http://www.dartmouth.edu/~blnchflr/papers/irra%20long.pdf The Union Wage Premium in US and the UK]
* [http://www.jstor.org/pss/3270649 Changes in the Union Wage Premium by Industry]
* [http://www.epi.org/content.cfm/briefingpapers_bp143 How unions help all workers]
* [http://www.nber.org.libproxy.lib.unc.edu/papers/w1883.pdf?new_window=1 Labor Market Segmentation and The Union Wage Premium]
* [http://www.metapress.com/content/dna507agtn2rk5ne/?p=91f5cec641834157bcc7e35b90473ede&pi=2 Reconsidering union wage effects: Surveying new evidence on an old topic]
* [http://www.psi.org.uk/research/project.asp?project_id=43 Policy Studies Institute: The Union Wage Premium in US and the UK]
* [http://www.econ.iastate.edu/classes/econ322/orazem/Wage%20Differentials.ppt Economics 322]