Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 539: Why Unions Reduce Wage Inequality, I - A Theory of Domino Effects

Johan Stennek ()
Additional contact information
Johan Stennek: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O.Box 640, SE 40530 GÖTEBORG, Sweden

Abstract: Numerous empirical studies show that unions reduce wage differences. But surprisingly few attempts have been made to understand why. Swedish unions reveal that the reason is both ideological and strategic. Relying on employers to voluntarily increase higher wages, to protect efficiency-enhancing wage-differences, unions can focus on increasing the lowest wages without sacrificing higher wages. Since all workers gain, egalitarian wage policies promote unity among workers with different productivity. I formalize these ideas and draw implications for the current debate on capping collectively negotiated minimum wages in Europe. The model combines wage bargaining, efficiency wages, internal union politics and coalition formation.

Keywords: inequality; wage differences; minimum wages; trade unions; collective negotiations; strategic commitment

JEL-codes: J31; J51

51 pages, First version: September 2012. Revised: June 2015. Earlier revisions: February 21, 2013, August 2014.

Full text files

30286 HTML file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Marie Andersson ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-02-21 14:57:39.