The Union Membership Wage Premium Puzzle: Is There a Free-Rider Problem?

39 Pages Posted: 1 Aug 2001

See all articles by Alison L. Booth

Alison L. Booth

Australian National University (ANU) - Research School of Social Sciences (RSSS); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Mark L. Bryan

University of Essex - Institute for Social and Economic Research (ISER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001

Abstract

Economists have, at least since Olson (1965), suggested that there is a free rider problem associated with labour union membership. The reason is that union-set wages are available to all workers covered by unions irrespective of whether or not they are union members, and - given that there are costs to membership - workers will only join if they are coerced or offered incentive excludable goods. Yet empirical research for both the US and for Great Britain has shown that there is a substantial union membership wage premium amongst private sector union-covered workers. An implication is that the free rider hypothesis is therefore irrelevant, since these studies reveal significant economic gains in the form of higher wages for union members. Using rich data from a new linked employer-employee survey for Britain, we show that this is not the case. While estimates assuming exogenous membership do indeed suggest there is a union membership wage premium of a similar order of magnitude to that found in other studies, we demonstrate that - with appropriate instruments based on theory and with additional controls - this wage premium vanishes.

Keywords: Member/non-member covered wage premium, employer-employee data

JEL Classification: J51, J52

Suggested Citation

Booth, Alison L. and Bryan, Mark L., The Union Membership Wage Premium Puzzle: Is There a Free-Rider Problem? (July 2001). Available at SSRN: https://ssrn.com/abstract=277310

Alison L. Booth (Contact Author)

Australian National University (ANU) - Research School of Social Sciences (RSSS) ( email )

Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 3285 (Phone)
+61 2 6125 0182 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mark L. Bryan

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 874683 (Phone)
+44 1206 873151 (Fax)

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