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The impact of unions on nonunion wage setting: threats and bargaining

In this paper we provide new estimates of the impact of unions on nonunion wage setting. We allow the presence of unions to aﬀect nonunion wages both through the typically discussed channel of nonunion ﬁrms emulating union wages in order to fend oﬀ the threat of unionisation and through a bargaining channel in which nonunion workers use the presence of union jobs as part of their outside option. We specify these channels in a search and bargaining model that includes union formation and, in our most complete model, the possibility of nonunion ﬁrm responses to the threat of unionisation. Our results indicate an important role played by union wage spillovers in lowering wages over the 1980-2010 period. We ﬁnd de-unionisation can account for 38% of the decline in the mean hourly wage between 1980 and 2010, with two-thirds of that eﬀect being due to spillovers. Both the traditional threat and bargaining channels are operational, with the bargaining channel being more important.