Do Unions Increase Labor’s Shares? Evidence from US Industry-Level Data

We explore the relationship between union density and labor’s shares using panel data on 35 industries, spanning the entire US economy, for the years 1983 through 2005. For the full sample, a standard deviation increase in union density (membership or coverage rates) is associated with an increase in an industry’s labor’s share of about one and a half standard deviations. However, for manufacturing industries the effect is much smaller: a standard deviation increase in density is associated with only a one half standard deviation higher labor’s share. We control for capital-to-output ratios in our analysis; doing so implies the sign and magnitude of the elasticity of substitution between labor and capital. We find that this elasticity is less than unity in our sample but relatively high in manufacturing industries. Since the effect of unions on labor’s share appears to be increasing in the elasticity of substitution, our study provides support in favor of the right-to-manage model of union bargaining over the efficiency bargaining model.