Unions, Norms and the Rise in American Earnings Inequality

a grant from the Russell Sage Foundation. We gratefully acknowledge Jim Alt and seminar participants at Princeton University who commented on an earlier version of this paper. From 1972 to 2006, union membership among U.S. men working full-time in private-sector jobs declined from 33 to less than 10 percent. Inequal-ity in men’s hourly wages earnings increased by 40 percent in this same period. We study the effect deunionization on rising inequality, with a variance decomposition that accounts for how unions raise average earn-ings and also reduce inequality in earnings among union workers. Going beyond earlier research, we also argue, that unions reduce inequality by establishing norms for fair wages, reducing the dispersion of wages in the nonunion sector. Accounting for the effect of unions on the wages of union members and the effect of unions on nonunion wage norms suggests that union decline explains one third of the growth in inequality—an effec