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Existing theoretical literature fails to explain satisfactorily the differences between the pay of workers that are covered by collective agreements and others who are not. This study aims at providing a model framework which is amenable for an analysis of this issue. Our general-equilibrium approach integrates a dual labor market and a two-sector product market. The 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 Role of Bargaining Power
(2019)
Neoclassical theory omits the role of bargaining power in the determination of wages. As a result, the importance of changes in the bargaining position for the development of income shares in the last decades is underestimated. This paper presents a theoretical argument why collective bargaining power is a main determinant of workers’ share of income and how its decline contributed to the severe changes in the distribution of income since the 1980s. In order to confirm this hypothesis, a panel data regression analysis is performed that suggests that unions significantly influence the distribution of income in developed countries.