Diverging Male Wage Inequality in the United States and Canada, 1981-1988: Do Institutions Explain the Difference?

Abstract

The U.S. and Canadian economies have much in common,including similar collective bargaining structures. During the period 1981-88, however, although both countries witnessed a decline in the percentage of workers belonging to unions and an increase in hourly wage inequality, those changes were much more pronounced in the United States than in Canada. Using micro data on men in the United States and Canada in 1981 and 1988, the authors study the effect of labor market institutions on changes in wage inequality by computing simple counterfactuals such as the distribution of wages that would prevail if all workers were paid according to the observed nonunion wage schedule. Their results suggest that changes in unionization rates and minimum wages account for two-thirds of the differential growth in wage inequality between the two countries.