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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 09 de 2009


Wage Dispersion in a Partially Unionized Labor Force

John T. Addison
University of South Carolina (U.S.A.), GEMF (Portugal), and IZA

Ralph W. Bailey
University of Birmingham (U.K.)

W. Stanley Siebert
University of Birmingham (U.K.) and IZA

Wage Dispersion in a Partially Unionized Labor Force This paper critiques Card’s (2001) method for analyzing wage dispersion in a partially unionized labor market based on a disaggregation of the population into skill categories. We argue that disaggregation is a good idea, the use of skill categories less so. We offer a modified model in which each worker is assigned a union-membership probability, a predicted union wage, and a predicted nonunion wage. Our model provides a natural three-way decomposition of variance, and is also suited to counterfactual analysis. By way of an application, we examine the effect of de-unionization on wage dispersion in the United Kingdom between 1983 and 1995, reporting that the decline in membership accounts for only about one-fifth of the observed increase in wage dispersion.

JEL Classification: D3, J31, J51.

Keywords: wage dispersion, three-way variance decomposition, bivariate kernel density smoothing, union membership, deunionization.

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