Deunionization, Technical Change and Inequality

42 Pages Posted: 18 Apr 2001

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Giovanni L. Violante

New York University, Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: April 2001

Abstract

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

Acemoglu, Daron and Aghion, Philippe and Violante, Giovanni L., Deunionization, Technical Change and Inequality (April 2001). CEPR Discussion Paper No. 2764. Available at SSRN: https://ssrn.com/abstract=267264

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Philippe Aghion

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Giovanni L. Violante

New York University, Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-992-9771 (Phone)
212-995-4186 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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