Wage Dispersion in a Partially Unionized Labor Force
John T. Addison
Ralph W. Bailey
W. Stanley Siebert
Wage Dispersion in a Partially Unionized Labor Force This paper critiques Card’s (2001) method for analyzing wage dispersion in a partially unionized labor market based on a disaggregation of the population into skill categories. We argue that disaggregation is a good idea, the use of skill categories less so. We offer a modified model in which each worker is assigned a union-membership probability, a predicted union wage, and a predicted nonunion wage. Our model provides a natural three-way decomposition of variance, and is also suited to counterfactual analysis. By way of an application, we examine the effect of de-unionization on wage dispersion in the United Kingdom between 1983 and 1995, reporting that the decline in membership accounts for only about one-fifth of the observed increase in wage dispersion.
wage dispersion, three-way variance decomposition, bivariate kernel density smoothing, union membership, deunionization.
Taking as our point of departure a model proposed by David Card (2001), we suggest new methods for analyzing wage dispersion in a partially unionized labor market. Card's method disaggregates the la- bor population into skill categories, which procedure entails some loss of information. Accordingly, we develop a model in which each worker individually is assigned a union-membership probability and predicted union and nonunion wages. The model yields a natural three-way de- composition of variance. The decomposition permits counterfactual analysis, using concepts and techniques from the theory of factorial experimental design. We examine causes of the increase in U.K. wage dispersion between 1983 and 1995. Of the factors initially considered, the most influential was a change in the structure of remuneration inside both the union and nonunion sectors. Next in importance was the decrease in union membership. Finally, exogenous changes in la- bor force characteristics had, for most groups considered, only a small negative effect. We supplement this preliminary three-factorial analy- sis with a ?ve-factorial analysis that allows us to examine effects from the wage-equation parameters in greater detail.
wage dispersion, three-way variance decomposition, bivariate kernal density smoothing, union membership, deunionization, factorial experimental design
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