Union Wage and Job Loss: A Cross-national Comparison

Abstract

What members do unions protect? This question is relevant to an ongoing debate about union wage distribution. This paper investigates how unionization affects the relationship between involuntary job loss and a worker’s unobservable ability. Taking advantage of detailed micro-level panel data from four countries--Britain, Germany, Korea and Switzerland—I construct an index of workers’ unobservable abilities by estimating workers’ individual fixed effects. I find that unionization at the work place plays an important role. In Britain, Korea, and Switzerland, unions increase the earnings of lower ability workers but provide more job security to higher ability workers. The negative relationship between involuntary job loss and worker’s ability appears only in unionized workers. An exception is Germany, where lower ability workers in both unionized and non-unionized sectors are disproportionally more likely to lose jobs. The German case may associate with strong institutional forces at the industrial and national level.

Keywords: Cross country comparison, Involuntary job loss, Unobservable ability, Labor market institution, Unionization

JEL Classification: J23, J24, J51, J63, J65, P51