The Wage Impact of Trade Unions in the UK strongPublicstrong and Private.pdfVIP

The Wage Impact of Trade Unions in the UK Public and Private Sectors David G. Blanchflower Bruce V. Rauner 78 Professor of Economics Dartmouth College, University of Stirling, IZA, CESifo, NBER and Member, Monetary Policy Committee Bank of England Email: blanchflower@ Website: /~blnchflr and Alex Bryson Policy Studies Institute and Centre for Economic Performance email: a.bryson@.uk Website: .uk/people/person.asp?person_id=14 14th September 2007 We thank Richard Freeman, Steve Machin, David Metcalf, John Pencavel and Andrew Oswald and the editor Alan Manning and two referees. Alex Bryson thanks the ESRC for financial support (grant number RES-000-23-1603) This paper draws attention to a trend hitherto unnoticed, namely an increase in the size of the union membership wage premium in the UK public sector relative to the private sector. This finding is surprising because it implies that union bargaining power has held up reasonably well in the public sector, despite the fact that union density has declined at a similar rate to the decline in the private sector. It is also surprising because it seems implausible that there should be a substantial union wage premium in the public sector. Unlike in the private sector, the majority of public sector workers have pay set directly through collective bargaining or through Pay Review Bodies, whether or not they are union members. In seeking to account for these findings we explore a number of possible explanations.