Abstract

We argue that inequality and rapid deunionization are related, and that skill-biased technical change has been an important factor in deunionization as well as in the rise in inequality. Skill-biased technical change causes deunionization because it increases the outside option of skilled workers, undermining the coalition among skilled and unskilled worker in support of unions. Our approach implies that although deunionization is not the underlying cause of the increase in inequality, it amplifies the direct effect of skill-biased technical change by removing the wage compression imposed by unions. We also show that deunionization may happen inefficiently.

Acemoglu, Daron
Aghion, Philippe
Violante, Giovanni L
Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 229-264

Source: www.cepr.org/pubs/dps/DP2764.asp