Unions and inequality redux

Paul Krugman says (via Mark Thoma):

All of the world's advanced nations have to compete in the same global economy. Yet America's combination, of soaring incomes at the top and stagnant wages for most workers, is unique.

We're told that unions, once a key support for wages, have become obsolete in the modern world. Yet the collapse of the union movement in America hasn't been matched elsewhere in the advanced world, even in our neighbor Canada. About 30 percent of Canadian workers are union members, compared with only 12 percent of workers here.

Back in June, I said: (and there's more where this came from)

Many economists suggest that the declining fortunes of unions are the main driver behind the increase in income inequality over the past few decades. While I agree that decreases in union membership and increases in wage inequality go hand-in-hand, I believe the standard narrative is somewhat misguided when it comes to causality. Rather than declining unions leading to increased wage inequality, it is the increasing variance of individual worker productivity that lies behind both. [...]

The fall in the power of unions was not a random event that then led to the increase in wage inequality we observe. This development should be attributed to the changing nature of production and the subsequent increase in potential wage inequality: unions were merely a short-run obstacle to achieving that new equilibrium.

I'm not aware of any empirical study looking into this potential endogeneity, and no suitable instruments spring to mind. In any case, Herb Gintis, approaching this from a somewhat different angle, seems to agree.

And if you do follow this last link, for the record, I think the bonobos will not only survive, but they will prosper too. What keeps the pig coalition together is not a love for free markets or opposition to redistribution, it is common social values (anti-abortion, pro-Jesus and the like - so much for 'only caring about what's in their trough'). The bonobos will eventually compromise on these - a process already underway - and the redistributive hand of the state will start moving more boldly once again.

by datacharmer | Tuesday, November 27, 2007
  , | | Unions and inequality redux @bluematterblogtwitter


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