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Research has shown that wage inequality falls during periods when union density is increasing and rises when union membership is in decline. For example, DiNardo, Fortin, and Lemieux (1996) find that increasing union density contributed to the decline in U.S. wage inequality from 1973-79 and that deunionization was an important factor in the growing wage inequality between 1979 and 1988. In its recent report on inequality, the OECD (2011b) concludes that the decreasing union membership in many OECD countries has made a modest, but significant, contribution to increased wage inequality. The equalizing effect of unions appears to be strongest on the upper parts of the wage distribution, due to a transfer away from their most skilled members.

# _Employment_

It is clear that unions have an effect on employment dynamics. They reduce voluntary turnover and increase job tenure. However layoffs (especially temporary layoffs) are more frequent in unionized firms (Aidt and Tzannatos 2002).

But what is their effect on overall levels of employment and unemployment? Given that unions usually do raise wages, they would be expected to increase unemployment and reduce employment, according to the “monopoly” model. On the other hand, the relationship may not be so straightforward if unions have positive efficiency effects, as suggested by the “voice” model.

On balance, studies are roughly divided between those that find that unions increase unemployment and those that find no significant effect. Almost all the relevant analysis looks at the effect of union density, using aggregate data over time for OECD countries. Examples of studies finding that union density increases unemployment include Bertola, Blau, and Kahn (2002); IMF (2003); Baccaro and Rei (2005); and Nickell, Nunziata, and Ochel (2005). Fewer studies look at the impact of collective bargaining coverage. Nickell (1997) finds that both coverage and density are positively related with unemployment. However, Belot and van Ours (2000) conclude that union density increases unemployment, but collective bargaining coverage does not. Where a significant relationship is found, the magnitude of the effect tends to be small. For example, the OECD’s (2011) most recent estimates find that a 10 percentage point decline in union coverage (which would be a substantial decrease) would increase employment by 0.8 percentage points.

While some studies do find a significant positive union effect on unemployment, many others find no relationship. Indeed, Aidt and Tzannatos (2002) conclude from their extensive review that union density has a very weak or no association with either the unemployment rate or the employment rate. The OECD (2006), in a review of 17 studies, found that only three showed a significant effect of union density or bargaining coverage on unemployment. Glyn _et al._ (2003) and Howell _et al._ (2007) review the robustness of the estimations that have been used, and raise questions on whether a relationship between union density or coverage and unemployment exists.

A related question concerns the impact of different bargaining structures on unemployment and employment. Virtually all of the evidence on these relationships is based on aggregate data for OECD countries. From their extensive review, Aidt and Tzannatos (2002) conclude that