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# **_5.1  Impacts on living standards_**

The literature relevant to living standards impacts is voluminous, especially for developed countries. Many studies have estimated the union wage effect and any employment impacts that may result. There is also a substantial body of analysis on how different types of workers are affected by unions and collective bargaining.

# _Earnings_

Studies consistently find that union members and workers covered by collective bargaining earn higher wages than other workers. In their extensive review, Aidt and Tzannatos (2002) concluded that the size of this union wage effect was typically between 5 and 15% in developed countries. Although far fewer studies have looked at developing countries, the consensus view is that the size of the wage premium is as least as large. Freeman (2010) includes a number of union wage effect studies in his review of labor market institutions in developing countries. Two countries where a number of estimates have been made are Mexico and South Africa; the wage effect is in the 10-15% range in the former and 10-20% in the latter.<sup>43</sup> In Brazil, studies for manufacturing have found positive wage effects of 5% and 12% (Arbache 1998; Menezes-Filho _et al._ 2005). There are a few studies in Sub-Saharan Africa, including Ghana where wage premiums of 16% and 6% were estimated by Verner (1999) and Blunch and Verner (2004), respectively.<sup>44</sup> Very few studies have been made of the union wage premium in Asia. Some work has been carried out in Korea, with estimates suggesting very small positive impacts in the 5-6% range (Fields and Yoo 2000; Park 1991).

How do institutional features affect the union wage premium? Not surprisingly, union wage bargaining power tends to be greater in sectors where membership or coverage rates are high (e.g., Morgan and Mourougane 2001; Tzannatos 2008). However, there is no consistent evidence across countries with respect to the relationship between bargaining structure and the wage effect (Aidt and Tzannatos 2002; OECD 2004).

Unions and collective bargaining also have an equalizing impact on the distribution of earnings by reducing wage differentials along various dimensions (Aidt and Tzannatos 2002; OECD 2004; OECD 2011). The evidence largely comes from analysis in developed countries.<sup>45</sup> The union wage effect is typically strongest for less skilled workers, which narrows skills differentials. Most studies show that the wage effect is larger for women than men, although the evidence on other typically low-wage groups, such as ethnic and racial minorities, is less clear (Tzannatos 2008). The equalizing effect of unions seems to be strongest where union density is high (Aidt and Tzannatos 2002; Koeniger _et al._ 2007) and where bargaining is centralized and/or coordinated (OECD 2004; Aidt and Tzannatos 2002).

> 43 Some early research estimated much higher union wage effects for South Africa (as high as 60%) and this became an often-cited explanation for the high unemployment in that country.  However, more recent research (e.g., Magruder 2010), based on better data and methodologies, has found more typical wage differentials.

> 44 Some studies in Sub-Saharan Africa have identified negative union wage effects (e.g., Terrell and Svejnar 1989, for Senegal).  However, Freeman (2010) questions whether these unions are actually engaged in typical collective bargaining.

> 45 One exception is Popli (2005) who did find that unions decreased wage inequality in Mexico between 1984 and 2000, although the magnitude of this effect diminished over that period.