Labour, Globalization and Inequality: Are Trade Unions Still Redistributive?

Based on a newly-developed data set combining information on industrial relations and labour law, various dimensions of globalization, and controls for demand and supply of skilled labour, this paper engages in an econometric analysis of 51 Advanced, Central and Eastern European, Latin American and Asian countries between the late 1980s and the early 2000s, followed by an analysis of 16 Advanced countries over a longer time frame (from the late 1970s to the early 2000s). The purpose of the analysis is to ascertain the extent to which the generalized decline in union density, as well as the erosion in centralized bargaining structures and developments in other labour institutions, has contributed to rising within-country inequality in the current globalization era. In contrast with previous research, which finds labour institutions to be important determinants of more egalitarian wage or income distributions, the paper finds that trade unionism and collective bargaining are no longer significantly associated with within-country inequality, except in the Central and Eastern European countries where the collapse of unions after the fall of the Berlin Wall seems to have contributed to greater inequality. Trade unionism currently operates under more stringent structural constraints than in the past (partly as a result of globalization trends), which reduce the space for earnings compression: it faces more elastic labour demand curves, particularly for the low skilled, and greater wage premia demanded by the high-skilled as a result of skill-biased technical change. The paper also finds that despite much talk about welfare state crisis, large welfare states (historically the result of labour’s power and mobilization capacity) still play an important redistributive role, at least in advanced countries.