Union effects on wages

A primary goal of trade unions is to maintain and improve workers' terms and conditions, particularly workers who are members of the union, through collective bargaining with employers. Whether unions are successful depends, in large part, on their bargaining strength Ð which is based on their ability to restrict the supply of labour to the employer Ð and the ability of employers to concede above-market wages (Freeman and Medoff, 1984). In an era of decline in union density such as the one experienced over the past two decades it is frequently assumed that unions are marginalised and will have less influence on wage setting. This chapter reviews the processes by which unions affect pay levels, discusses the difficulties analysts face when seeking to identify the causal impact of unions on wages, and then reviews evidence to date on union wage effects before concluding with some suggestions for future research.