RISING WAGE INEQUALITY: Unionization and Inequality in the Public and Private Sectors 3

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Examination of the unadjusted union-nonunion wage gaps in Figures 8 and 9 suggests that the effects of unions on wages in the public sector have changed relatively little over the past 20 years, while the union wage effects for the least skilled workers in the private sector may have declined slightly. In the absence of longitudinally-based estimates of the “true” union wage effects for the two years, however, these changes must be interpreted cautiously, since the processes of selection into the union sector may have also changed, leading to shifts in the magnitude of selection biases in the observed wage gaps.

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Table 8 uses data by predicted skill decile for men and women in the public and private sectors to estimate the effects of unions on wage inequality in the two sectors in 1973-4 and 1993. As in Table 5 I have computed the effects of unions using equation (6) and two alternative sets of union wage gaps: the observed gaps (shown in Figures 8 and 9) and “adjusted” gaps based on the estimates in my 1996 paper. The results for private sector men and women in Table 8 are fairly close to the results for all workers in Table 5: changes in unionism can account for 15-20 percent of the rise in wage inequality among private sector men, and virtually none of the rise in inequality for private sector women. The results for public sector workers suggest a more important role for unions. Changes in public sector unionism have apparently “held back” rising wage inequality to a significant degree. For men, the estimates suggest that the variance of wages would have risen an additional 30-40 percent in the absence of unions, while for women the variance of wages would have risen an additional 40 percent. Comparing the changes in wage inequality in the public and private sectors, differential trends in union membership can potentially account for 50-80 percent of the slower rise in wage inequality for men in the public sector, and 20-30 percent of the slower rise in wage inequality for women in the public sector.

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