Labour Market Segmentation and Union Wage Gaps

Article excerpt

Abstract There has been a great deal of research regard the effects of unions on union--non-union wage gap. Most of the studies regarding the impact of unions on wages have assumed that apart from the division between union and non-union workers, the labour market is relatively homogeneous. A number of economists, however, have argued that the labour market is segmented, implying that there are distinct labour markets and that some workers employment opportunities are concentrated in "bad jobs" while other workers employment opportunities are concentrated in "good jobs" which are rationed.

This paper will explore whether the relative wage differential between union and non-union workers differs between the independent primary, subordinate primary and secondary labour markets. Labour market segments are defined using "job zones". "Job zones" are distinct groups defined by the level of specific vocational preparation necessary for a particular occupation, allowing for the comparison of skill levels and training for each occupation. The data on "job zones" comes from the Occupational Information Network database (O*Net). We estimate separate equations for union and non-union workers in each segment using data from the Current Population Survey and calculate union non-union differentials for each labour market segment. The findings of this paper suggest that the greatest differentials are in secondary labour markets followed by differentials in the subordinate primary labour market and that the smallest wage differentials are in the independent primary labour market.

Keywords: wages, unions, segmented labor markets

INTRODUCTION

There have been numerous studies of the effect of unions on the wages of union and non-union workers. Most of these studies concentrate on the relative impact of unions on the union-non-union differential (Parsley 1980; Freeman and Medoff 1984; Lewis 1986; Hirsch and Addison 1986; Blanchflower and Bryson 2004; Hirsch 2004). Most of the studies regarding the impact of unions on wages have assumed that apart from the division between union and non-union workers, the labour market is relatively homogeneous. A number of economists, however, have argued that the labour market is segmented, implying that there are distinct labour markets and that some workers employment opportunities are concentrated in "bad jobs" while other workers' employment opportunities are concentrated in "good jobs" which are rationed. In recent years, a number of empirical studies that have found strong support for the segmented labour market model (Dickens and Lang 1985; Osberg et al. 1987; Boston 1990; Fichtenbaum et al. 1994; Orr 1997; Kalleberg 2003; Reid and Rubin 2003; Davia and Hernanz 2004). There has also been important research along similar lines dealing with wage differentials between contingent and full-time workers (Belman and Golden 2000). One important question that has not been adequately addressed in the segmented labour market literature is whether unions affect wages differentially between sectors. This paper attempts to fill this gap in the literature. Specifically, this paper will explore whether the relative wage differential between union and non-union workers differs between primary and secondary labour markets.

The next section will discuss the problems of defining labour market segments and the data used in this paper. The third section will present a number of models to estimate the union--non-union wage gap in both the primary and secondary sectors. The models will then be estimated and the results compared with previous findings in the literature. Finally, the last section will present a summary and conclusion.

DEFINING LABOUR MARKET SEGMENTS

A central concern in defining labour market segments has been the issue of truncation bias. One of the central predictions of segmented labour market theory is that returns to education and work experience will be smaller or non-existent is secondary labour markets. …