THE EFFECTS OF TRADE UNIONS ON THE DISTRIBUTION OF EARNINGS: A SAMPLE SELECTIVITY APPROACH†
| Author | P. J. Sloane,P. D. Murphy,D. H. Blackaby |
| Published date | 01 November 1992 |
| Date | 01 November 1992 |
| DOI | http://doi.org/10.1111/j.1468-0084.1992.mp54004003.x |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 52,2(1991)
0305-9049 S3.00
THE EFFECTS OF TRADE UNIONS ON THE
DISTRIBUTION OF EARNINGS: A SAMPLE
SELECTIVITY APPROACHt
P. D. Murphy, P. J. Sloane, D. H. Blackaby
INTRODUCTION
The size of the wage mark-up obtained by the exploitation of trade union
monopoly power remains one of the most hotly debated issues in labour
economics. Compared to the USA, however, estimates of the union wage
effect are relatively scarce in the UK. For example in a US survey, Lewis
(1986) reviews almost two hundred studies devoted to the issue, while
Blanchflower (1984) in a comparable UK survey references only 13
published articles. The contrast between the volume of empirical work
devoted to this issue in the UK and USA is even more pronounced when
comparing studies based on individual micro data, a finding which in part
reflects the relative scarcity of individual micro data sets on this side of the
Atlantic. Indeed, there are only three published papers based on individual
data in the UK which are regularly quoted: Stewart (1983), Shah (1984), and
Green (1988).
Without access to individual micro data most of the early empirical studies
undertaken in the UK, which examined the trade union wage differential,
were based upon highly aggregate industry data. Moreover, they often used
union coverage rather that union membership data to measure the influence
of trade unions on average industry wages. Estimates of the union wage
differential found from these industry based studies ranged from O to 70
percent; although the majority lie within the 7 to 26 percent range. Thus
Metcalf (1977), in a survey of this literature concluded that while the effect of
unions was still uncertain a figure of 20 percent may not be dreadfully in
error'.The considerable variability found in estimates of the union wage differen-
tial from aggregate and industry based studies is not as pronounced in more
tThe authors are grateful to the ESRC for providing funds (ESRC Grant No. R000-23-
2601) to support this research. Thanks are also due to Steve Nickel! and the editors of the
Bulletin for providing helpful comments on an earlier version of the paper. Of course any
failure to meet these recommendations and all remaining errors are the sole responsibility of
the authors. Finally, we should like to extend our thanks to Sian Davies who has typed the
several drafts through which this paper has proceeded.
517
518 BULLETIN
recent work using individual micro data. Table 1 summarizes some of the
major UK studies using individual micro data, and suggests that the union
wage differential is much smaller than that reported from earlier industry
based studies. Estimates of the union wage differential taken from micro data
vary from between 7.7 to 13 percent for manual workers, and from between
4 to 5 percent for non-manuals. These new estimates, therefore, are substan-
tially less than Metcalf's 'poll of polls', and there is now a growing feeling
among academic commentators that while previous industry based on studies
produced biased estimates of the union wage differential those based on
individual micro data are generally more acceptable and reliable (Stewart,
1983).In keeping with this 'new' tradition the present paper uses individual micro
data, taken from an interdiscipinary ESRC financed programme into the
Changing Pattern of Economic and Social Life in Britain (known as SCELI),
to provide further estimates of the size of the union wage differential in the
UK.' Our motivation, however, does not rely solely on the paucity of results
obtained so far from UK micro data sets. Instead, we feel that the paper offers
a wide perspective and attempts to shed some light on a number of areas
which have as yet been only partially developed in the UK literature.
First, we examine the influence of trade unions on both moments of the
earnings distribution. Thus while most previous studies in the UK have
examined the effects of trade unions on average wages, we extend the analysis
to consider the role of standard rate policies in reducing the variance of earn-
ings in the union sector (Freeman, 1980). Second, the problem posed by
sample selection is addressed, and its effects on the estimated union wage
differential investigated. Third, one advantage of the data used here is that
the survey on which it is based was conducted at a time when industrial
relations legislation weakening the power of trade unions had been fully
implemented and was beginning to bite most hard as trade union membership
declined rapidly from the peak levels reached in 1979. The data, therefore,
offer an opportunity to gauge the effect that the changing legislative environ-
ment facing trade unions has had on union wage differentials.
DATA AND METHODOLOGY
The SCELI project was designed to investigate the changing pattern of
economic and social life in Britain. The programme involved a household
survey of 1000 individuals in each of six local labour markets - Aberdeen,
Kirkcaldy, Rochdale, Coventry, Northampton, and Swindon. Fieldwork was
carried out in Autumn 1986 by a professional survey company which inter-
viewed individuals between the ages of 20 and 60 drawn at random from the
electoral registers in each of the six local labour markets canvassed. Thus
'A similar study using the same data set has been carried out by Main and Reilly (1992) in
relation to the union wage gap for female workers.
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