Unionization and the Pattern of Nonunion Wage Supplements

Abstract

Negotiated standard wage policies reduce dispersion in the log earnings of union members when compared to those of otherwise equal nonunion members [5; 6]. As large as these dispersion differences are, they may underestimate the true influence of union wage policy. Kahn and Curme [14] have suggested that high degrees of unionization actually result in reduced nonunion wage dispersion. This follows from a particular model of the union threat effect in which nonunion employers tilt induced wage increases toward low-wage workers. Such tilting makes sense because lower paid workers are assumed to be more likely to support unions, ceteris paribus. This assumption fails to emphasize that low wage workers may be the least likely to be retained by a newly unionized employer and that this also influences their ultimate decision to support unionization. In the face of union avoidance strategies that routinely imply the possibility of job loss, low wage employees may recognize that the employer faces greater costs of bringing them up to a standard union wage and thus their chances for retention are lower.' Including this realization results in ambiguous predictions about the influence of unionization on nonunion dispersion. Not only should the ambiguity of the proper theoretical prediction be highlighted, but it should be recognized that the relevant prediction from theoretical models has not yet been tested. Previous tests are inappropriate because the threat induced wage increases could be tilted toward low-wage workers without a necessary reduction in the typical measures of wage dispersion. Similarly, those measures of wage dispersion may actually decline without a general tilt of wages toward low-wage workers. This possibility exists because of the sensitivity of the usual variance measures to outliers and because of aggregation and endogeneity problems affecting previous methodologies. This paper uses 1983 and 1988 Current Population Survey (CPS) data to directly estimate the impact of unionization on the earnings of lowand high-wage nonunion workers. After controlling for traditional human capital, locational, and occupational variables, unionization increases the log-earnings of low-wage nonunion workers significantly more than those of high-wage nonunion workers. This result is found with the very data Belman and Heywood [2] used to demonstrate that