Conventional estimates do not show a clear pattern of how union wage differentials vary with seniority. In Discussion Paper No. 1007, Research Fellow Alison Booth and Research Associate Jeff Frank use a new data source, the British Household Panel Survey (BHPS), to investigate whether wages rise more with seniority in unionized or nonunionized workplaces. The data distinguish workers who are covered by incremental wage scales with automatic progression by seniority. For union workers with seniority scales, the union wage differential increases with seniority. This is not the case for union workers without seniority scales. Taking account of this heterogeneity, the authors are able to reconcile previous paradoxical empirical findings.

The results provide support for discriminating monopoly models of &nbsptrade unions whereby a union can transfer rents from the firm to senior workers through two-tier pricing reflected in the seniority wage profile. The authors find that unions with formal incremental scales seem to be effective in this price discrimination. However, junior workers covered by a union agreement with a formal scale do not lose in the process, for they can expect to gain about the same discounted lifetime income as with union agreements without scales. This is consistent with the argument that senior workers, even if they control the union decision-making process, are constrained by the need to gain the support of junior workers.

Seniority, Earnings and Unions
Alison L Booth and Jeff Frank

Discussion Paper No. 1007, July 1994 (HR).