Deunionization, Technical Change and Inequality
42 Pages Posted: 18 Apr 2001
Date Written: April 2001
Over the last 25 years, the US and the UK have experienced sharp increases in wage inequality and rapid deunionization. We argue that these two phenomena are related, and that skill-biased technical change has been an important factor in deunionization as well as in the rise in inequality. Skill-biased technical change causes deunionization because it increases the outside option of skilled workers, undermining the coalition among skilled and unskilled worker in support of unions. Our approach implies that although deunionization is not the underlying cause of the increase in inequality, it amplifies the direct effect of skill-biased technical change by removing the wage compression imposed by unions. We also show that deunionization may happen inefficiently.
Keywords: Deunionization, efficiency-enhancing unions, rent-seeking unions, skill-biased technical change, wage inequality
JEL Classification: J30, J50, O30
Suggested Citation: Suggested Citation