Conference on Irish Economic Policy Union membership and the union wage Premium in Ireland Frank Walsh School of Economics University College Dublin

Conference on Irish Economic Policy Are Trade Unions good or bad for employment and efficiency Theory suggests it depends on: The objective of unions The level and degree of co-ordination in bargaining The legal/institutional framework and how competitive labour and product markets are Empirical literature Impact of unions on firm performance and productivity is mixed Across countries evidence that unions increase unemployment unless there is co-ordination across firms and sectors

Conference on Irish Economic Policy Arguably if unions are un-representative or if membership is unbalanced co-ordination across sectors is more difficult Walsh 2009 looked at trends in Trade Union membership No matter how you looked at the data there seemed to be a decline in the percentage of employees who were members Changes in composition of job and worker type could not explain this decline The exception is Public Administration This is consistent with international evidence of decline in membership across a wide range of countries (concentrated in the private sector)

Conference on Irish Economic Policy Quarterly National Household Survey quarter two 2003/11 This does not include Non-employed members Non-members covered by union contracts but not members Other agreements: ( JLC’s, REA’s) Density recovers during recession as a share of employees but continues to decline as a share of labour force Indicates decline in union number of employees less than in non-union

Conference on Irish Economic Policy Quarterly National Household Survey quarter two 2003/11 Boom and bust cycle much greater for total number employees than for union employment

Conference on Irish Economic Policy International literature shows a decline in membership across most countries over time Very of often the decline greater for private sector workers This trend is pronounced in the Irish case Percentage members in Public vs. Private sector

Conference on Irish Economic Policy Proxy for Public Sector is Public Administration, Education and Defence. Private sector is all other employees Quarterly National Household Survey quarter two 2003/10 Steady decline in private sector density continues throughout The density is fairly stable for public sector employees

Conference on Irish Economic Policy Is the pattern in membership reflecting a change in the composition of the workforce/jobs or is there an underlying trend? We can look at the probability that an employee is a union member in each year and control for worker and job characteristics Controls are for: age, gender, education, nationality, region, urban status, industry, occupation and firm size Create an index starting at 100 and compare the raw density with the change in probability of membership when control for worker and job characteristics Changes in the composition of jobs/workers

Conference on Irish Economic Policy Quarterly National Household Survey quarter two 2003/10 When we control for changes in composition there is a steady decline in union density over the period

Conference on Irish Economic Policy Measuring the union wage premium Can unionised firms choose more able workers for higher paying union jobs? This would imply the observed wage premium overstates the true premium But unionised firms have compressed wage structures and lower returns to skill Highest skill workers might do better in non-union jobs Empirical literature suggests that there is two sided selection Union firms can choose at lower skill levels to ensure they don’t get the least able workers but will not attract the most able Empirical evidence internationally supports this two sided selection and suggests ability bias will cancel out on average?

Conference on Irish Economic Policy What if follow the same workers over time and observe those who switch union status. Does their wage rise or fall? Ability is fixed A problem with this is that a small % of workers randomly miscode in all surveys. These will almost always look like they change union status from one period to the next A high percentage of the fraction of the sample who appear to be moving may be just miscodes The union premium will be biased downwards since wages will not change for the workers with miscodes SILC data for Ireland asks workers if paid a union sub on last wage packet. Separate question asks how much it is. For over 60% of sample the payslip is observed Arguably for this sub-sample measurement error in the union variable will be very low. You would have to incorrectly report paying a sub or not, then report an incorrect amount that is consistent with this and the interviewer would observe your payslip and fail to resolve this inconsistency

Conference on Irish Economic Policy

Wage premium declining over time for all specifications

Conference on Irish Economic Policy Discussion/Conclusion Union density on a downward trend especially in private sector Union wage premium at around 8-10% from but seems to have fallen substantially during recent recession A labour market with co-ordinated sectoral bargaining does not seem feasible without representative employer groups A key difference between countries with low and high rates of representation is the degree to which worker representative bodies are involved in the provision of other services (pensions/social security)

Conference on Irish Economic Policy