Trade unions and income inequality: Evidence from a panel of European countries

Abstract

This article examines the relationship between trade unions and rising income inequality observed in advanced economies in recent decades. The role of trade unions in addressing increasing income inequality has been overlooked in empirical studies, despite its theoretical ambiguity. The baseline empirical model, estimated for 26 European countries from 2005 to 2018, specifies income inequality as a function of the trade union density rate, its squared value, and a set of control variables. Labour market institutions, other than unions, are incorporated into the model to assess the distributional effects of union density within the entire institutional framework. The authors find that union density has a statistically significant and persistent inverted U‐shaped relationship with income inequality.