Do Labor Unions Raise Wages? Measuring Union Effects on Wages Using Investment Shocks

• In Event: 603 - Section on Labor and Labor Movements Paper Session. Labor Besieged: Repression and Resistance in the Contemporary United States

Abstract

This paper addresses a puzzle in sociology and labor economics research on the effects labor unions have on wages. Observational studies find that unions increase wages for their members, while recent quasi-experimental studies of close union elections find null or negative effects on average wages at newly unionized companies. The current paper adjudicates these contradictory findings by introducing a new empirical strategy for estimating the effect of unions on their members’ wage rates. Instead of analyzing the binary presence or absence of union representation on wages, I compare years in which unions are stronger to years in which they are weaker. This reconceptualization of union effects draws attention to the mechanisms through which unions raise wages: unions successfully pressure employers with tactics like industrial action, consumer boycotts and political influence. When unions are more able to spend on these forms of collective action, their members are more likely to get larger wage increases. I isolate the exogenous effect of increased union power on wage rates by focusing on union spending that is driven by increased revenue from random investment shocks. I find that during the period from 2000 to 2013, union members’ wages increase 0.3% with each 1% increase in union spending. These results indicate that unions still play an important role in determining wages for their members.

Author

• Nathan Wilmers, Harvard University