Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany

Abstract

Collective bargaining in Germany takes place at either industry or firm level, and bargaining coverage is much higher than union density. The share of a firm's employees covered can vary between 0% and 100%, suggesting that researchers should distinguish union density, coverage at the firm level, and coverage at the individual level. Using linked employer-employee data, the authors estimate OLS and quantile regressions of wages on these dimensions of union influence. They find that a higher share of employees in a firm covered by industrywide or firm-specific contracts is associated with higher wages but find no clear-cut effect on wage dispersion. Yet, holding coverage at the firm level constant, individual coverage is associated with lower wages and less wage dispersion. Higher union density reinforces the effects of coverage. But for employees in firms without coverage, density's effect is negative and thus compresses the wage distribution in firms without coverage.