The Percent Organized Wage (POW) Relationship for Union and for NonunionWorkers

Abstract

This paper analyses the relation between the percent of workers organized in a product market and the wages received by union workers and by nonunion workers. It argues that the greater is the union coverage of a sector, the lower will be the elasticity of demand for the product of organized firms (since there will be fewer nonunion competitors) and as a result the lower will be the elasticity of demand for union labor and the larger the union wage gains. Estimates of the link between coverage and wages using information on individuals and on establishments shows the expected positive relation for union workers across manufacturing industries. By contrast, nonunion wages in manufacturing appear to be unrelated or only modestly related to the percentage organized. Estimates of the link between the percentage of construction workers unionized in a state and the wages of union and nonunion construction workers reveal relationships similar to those for manufacturing. Overall, the results strongly suggest that the percent organized is an important determinant of union wages and of the union-nonunion wage differential.