Imperfect goods and labor markets, and the union wage gap

Abstract

Existing theoretical literature fails to explain the differences between the pay of workers that are covered by union agreements and others who are not.This study aims at closing this gap by a single general-equilibrium approach that integrates a dual labor market and a two-sector product market. Our results suggest that the so-called 'union wage gap' is largely determined by the degree of centralization of the bargains, and, to a somewhat lesser extent, by the expenditure share of the unionized sector's goods.

The Wage Impact of Trade Unions in the UK Public and Private Sectors

“…Where union wage‐setting affects a large percentage of the working population and union effects are sizeable, general equilibrium effects are likely to be substantial. For an example of such a study see Sanner (2003).…”