DP2764 Deunionization, Technical Change and Inequality

Author(s): Daron Acemoglu, Philippe Aghion, Giovanni L. Violante
Publication Date: April 2001
Keyword(s): Deunionization, Efficiency-Enhancing Unions, Rent-Seeking Unions, Skill-Biased Technical Change, Wage Inequality
JEL(s): J30, J50, O30
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2764

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.