Seminar: Michael Burda, Humboldt University at Berlin.

Abstract:

This paper studies the theoretical and empirical links between the level of union wage determination and the wage distribution. First, we show conditions under which Nash bargaining and right--to--manage models imply stochastic dominance as well as compression of the wage distribution relative to competitive outcomes. These implications are investigated using quantile regressions of wages based on the 2001 German Structure of Earnings Survey, a large German linked employer--employee data set which contains explicit information on coverage by type of collective agreements. The empirical results confirm that, in case of industry--wide collective agreements, log union wage effects are decreasing in quantiles, implying union wage compression. This finding, however, cannot be corroborated for wages determined at the firm level. Stochastic dominance is confirmed, as predicted by the theoretical model, for both types of collective agreements.