Collective Bargaining, Unions, and the Wage Structure: An International Perspective

In this paper, we assess the recent economics literature on collective bargaining. Despite a declining trend in the OECD in coverage and especially union membership, a large share of formal workers around the world are still covered by collective bargaining agreements. We describe the substantial institutional variation across a variety of countries, highlighting research done with modern research designs and recently available administrative datasets. We then estimate a canonical empirical model of individual-level coverage effects and selection in harmonized cross-country data across 18 advanced economies (in Europe and North America). We estimate collective bargaining coverage premia, compression, selection, and spillover coefficients in each country, and use these to document considerable heterogeneity in collective bargaining coverage effects on the wage structure. While there is a strong negative relationship between collective bargaining coverage and wage inequality across countries, substantial uncertainties remain about the underlying mechanisms. Coverage effects may operate through direct premia, selection, or spillovers onto non-covered wages, but distinguishing and quantifying these channels and how they vary across institutional contexts remains a key challenge for future research. In our data, we find that the direct effect of coverage on wages of covered workers does not explain much of the cross-country correlation between coverage and inequality. While compelling research designs often result from specific institutional variation, we also emphasize that these contextual details must be accounted for when comparing estimates across industrial relations systems. A particularly pressing need is for more compelling causal evidence on spillover effects, which could help reconcile conflicting micro and macro evidence on how collective bargaining shapes the wage distribution.