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This paper documents the large cross-country differences in labor institutions that make them a candidate explanatory factor for the divergent economic performance of countries and reviews what economists have learned about the effects of these institutions on economic outcomes. It identifies three ways in which institutions affect economic performance: by altering incentives, by facilitating efficient bargaining, and by increasing information, communication, and trust. The evidence shows that labor institutions reduce the dispersion of earnings and income inequality, which alters incentives, but finds equivocal effects on other aggregate outcomes, such as employment and unemployment. Given weaknesses in the crosscountry data on which most studies focus, the paper argues for increased use of micro-data, simulations, and experiments to illuminate how labor institutions operate and affect outcomes.

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This study examines the effect of trade unionism on the dispersion of wages among male wage and salary workers in the private sector in the United States. It finds that the application of union wage policies designed to standardize rates within and across establishments significantly reduces wage dispersion among workers covered by union contracts and that unions further reduce wage dispersion by narrowing the white-collar/blue-collar differential within establishments. These effects dominate the more widely studied impact of unionism on the dispersion of average wages across industries, so that on net unionism appears to reduce rather than increase wage dispersion or inequality in the United States.T RADE unionismalters the distribution of wages in several ways. First, by raising the wages of organized workers relative to others, unionism changes the dispersion of wages in the economy, increasing inequality when highly paid workers are organized and reducing inequality when low-paid workers are organized. On the basis of estimates of the wage effect and its correlation with wage levels, Lewis concluded that by raising wages unionism has raised the relative inequality of average wages among industries, as measured by the standard deviation of relative wages, by two to three percentage points.' In addition, simply by creating differentials between otherwise comparable workers (regardless of their level of pay), unionism also increases inequality.Alternately, however, unions also affect the dispersion of wages within the organized sector through the "stanjard rate" policies stressed in the institutional literature.2 While most economists accept the notion that standardization of rates reduces dispersion among union members, quantitative estimates of this effect are lacking. The within-sector effect could be large, offsetting or more than offsetting the increase in inequality due to the impact on dispersion across groups, or it could be small.

The extension of information and communication technologies to economic activity is changing the labour market in important ways. This article shows that computerization and use of the Internet are associated with greater hours worked as well as higher wages; that IT occupations are rapidly increasing their share of employment; that job search and recruitment are moving rapidly to the Web, with consequences for matching employers and employees; and possibly most important of all, that trade unions have begun to use the Internet as a tool for servicing members and carrying their message to the public, raising the possibility of a major change in the nature of the union movement.