On the Estimation of Union Threat Effects

Some researchers view unions primarily as functioning to increase earnings inequality among the working class while others see them as threatening employers so that they raise wages for unorganized workers and minimize working-class inequality. Threat effects are defined as the tendency for nonunionized employers to respond to the threat of unionization by increasing the earnings and benefits of their workers. This paper probes a contextual method for estimating the effects of unionization on the earnings of unorganized workers. This method controls for structural characteristics that affect workers' earnings and incorporates information about the organizational strength and vitality of specific unions. Using data from seven manufacturing industries in Indianapolis, the results suggest that (1) unionized workers' earnings positively affect the earnings of unorganized workers in unionized plants, (2) unionized workers' earnings negatively affect nonunionized workers' earnings in nonunionized plants, and (3) when plant size is controlled, unionized workers' earnings have no significant effect on the earnings of nonunionized workers in nonunionized plants. These results highlight the complexity and difficulty of estimating the effects of union threat and their importance for understanding earnings inequality in the workplace.