What Explains Wage Differences Between Union Members and Covered Nonmembers?

Abstract

An individual covered by a collective bargaining agreement but who is not a union member is estimated to earn about 13% lower wages than a union member. Sectors with relatively few covered nonmembers are associated with a large coverage differential, while sectors with high proportions of covered nonmembers are associated with small differentials. This suggests freeriders either weaken the bargaining position of the union or weak bargaining positions increase the incentive to freeride. Only a modest amount of this differential is accounted for by unmeasured ability, the probationary period associated with newly hired union workers, or union status misclassification.

The impacts of U.S. right‐to‐work laws on free riding, unionization, and compensation

“…RTW laws would therefore reduce any existing wage premium between union members and covered non-members. 7 Indeed, Schumacher (1999) observes sectors with relatively low rates of free riders are associated with higher wage premia and shows a decline in the 4 The literature has focused primarily on earnings (which are negotiated for all covered workers under a CBA). Other potential benefits like training programs, scholarships, and workers' compensation may result in (legally) higher earnings for union workers.…”

“…Such workers are called cheap riders and are indistinguishable in CPS data from free riders. There are relatively few covered nonmembers in non-RTW states (Schumacher, 1999).…”

“…For instance, a wage premium may result from discriminatory behavior by a union, a firm, or both (Blakemore et al, 1986; Budd & Na, 2000; Chaison & Dhavale, 1992). Several papers have found positive wage premia and conclude there are substantial, excludable economic gains to union membership (Blakemore et al, 1986; Budd & Na, 2000; Eren, 2007, 2009; Freeman & Medoff, 1984; Jones, 1982; Schumacher, 1999; Sobel, 1995). However, union members and nonmembers may differ systematically in unobservable characteristics that influence wage, particularly in analyses using national survey data, where variation between and within bargaining units cannot be discerned.…”

“…Studies using establishment‐level data find no evidence of a wage premium (Booth & Bryan, 2004; DiNardo & Lee, 2004; Freeman & Kleiner, 1990). There are also measurement issues associated with both coverage and membership (Bollinger, 2001; Jones, 1982), the latter of which would bias the penalty of free riding on wages toward zero (Schumacher, 1999, p. 504). This paper cannot address all methodological issues in the literature due to a lack of firm‐level data.…”

“…RTW laws would therefore reduce any existing wage premium between union members and covered non‐members. Indeed, Schumacher (1999) observes sectors with relatively low rates of free riders are associated with higher wage premia and shows a decline in the union wage premium in RTW states since the 1980s. Roberts and Habans (2015) find that RTW legislation reduces the wage premium between union members and non‐members.…”