Unions, Firms, and Wage Inequality

The RFBerlin Applied Economics Seminar series brings leading researchers to Berlin to present their latest work. In this session, the series welcomes Thomas Lemieux from the University of British Columbia, Professor at the Vancouver School of Economics and Director of the Centre on Wealth and Income Inequality. He is also a Research Associate at the National Bureau of Economic Research and a Fellow of the Royal Society of Canada, the Society of Labor Economists, and the Econometric Society.

In his presentation, Professor Lemieux discusses research based on Canadian matched employer–employee data to estimate the effect of unions on wage dispersion. The study extends the Abowd, Kramarz, and Margolis (1999) two-way fixed effects framework (AKM) by allowing unions to influence the returns to unobservable worker characteristics captured by worker fixed effects. The findings indicate that unions compress the returns to unobserved characteristics, leading to a significant reduction in within-firm wage dispersion. Conversely, unions exert only a modest influence on between-firm wage dispersion, as measured by comparing firm wage premiums and productivity across unionized and non-unionized firms. Overall, the results show that most of the difference in the variance of log wages between union workers (0.24) and non-union workers (0.36) stems from union wage compression effects rather than compositional differences.

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