Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany

Collective bargaining in Germany takes place at either industry or firm level. Collective bargaining coverage is much higher than union density. The share of employees covered by collective bargaining in a single firm can vary between 0% and 100%. This institutional setup suggests that researchers should explicitly distinguish union density, coverage rate at the firm level, and coverage at the individual level. Using linked employer-employee data, we estimate OLS and quantile regressions of wages on these dimensions of union influence. A higher share of employees in a firm covered by industry-wide or firm-specific contracts is associated with higher wages, but there is no clear-cut effect on wage dispersion. Yet, holding coverage at the firm level constant, individual bargaining coverage is associated with a lower wage level and less wage dispersion. A higher union density reinforces the effects of coverage, but the effect of union density is negative at all points of the wage distribution for employees who work in firms without coverage by collective bargaining. Higher union density thus compresses the wage distribution while moving the distribution in firms without coverage uniformly leftwards.