Publication: Estimating union wage effects in Great Britain during 1991-2003
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2008-05
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Abstract
Using a dynamic model of unionism and wage determination we find that the unobserved factors that
influence union membership also affect wages. The estimates suggest that UK trade unions still play a
non-negligible, albeit diminishing, role in wage formation. It appears that the greater impact of un
observables in determining individual union propensity concerning the second period under analysis,
versus past unionisation experience, implies that those remaining in unions during (1997-2002) gain most
from their sorting decision. The significant contribution of unobserved heterogeneity renders the total union
wage differential highly variable across individuals. The endogeneity correction procedure employed yields
a discernible pattern of the estimated union wage effect relative to OLS and Fixed effects. This is in line
with Robinson (1989a) and Vella and Verbeek (1998) and refutes the pessimistic conclusions reached by
Freeman and Medoff (1982) and Lewis (1986) that endogeneity correction methodologies do not
contribute to our understanding of the union wage effect puzzle.
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Union status, Union wage effects, Unobserved heterogeneity, Dynamic model of unionism and wage determination