Unions and Wage Inequality

By David Card, Thomas Lemieux and Craig Riddell

How unions affect the distribution of income is a subject that has long intrigued social scientists. The publication of What Do Unions Do? and the related papers by Freeman (1980) represented a watershed in the evolution of economists' views on this question.

Until the 1970s the dominant view was that unions tended to increase wage inequality (Johnson, 1975). Using micro data on individual workers in the union and nonunion sectors, Freeman (1980) presented results that challenged this view. He showed that the inequality-reducing effects of unions were quantitatively larger than the inequality increasing effects. The equalizing effect of unions became a key chapter in What Do Unions Do? and an important component of the authors' overall assessment of the social and economic consequences of unions.

Recently the relationship between unions and inequality has attracted renewed interest as analysts have struggled to explain increases in wage inequality in many industrialized countries. The fact that two of the countries with the largest declines in unionization - the U.S. and the U.K. - also experienced the biggest increases in wage inequality raises the question of whether these two phenomena are linked. If so, how much of the growth in earnings inequality can be attributed to the fall in union coverage?

The last paragraph of What Do Unions Do? starts with a dire warning: "All told, if our research findings are correct, the ongoing decline in private sector unionism - a development unique to the United States among developed countries - deserves serious public attention as being socially undesirable." (p. 251). By linking the decline in unionism to the dramatic increase in wage inequality in the United States since the 1970s, our research strongly confirms that the ongoing decline in private sector unionism indeed had socially undesirable consequences.