1 Models of Unionism, Unemployment and the Wage Bargaining Process†

We investigate the problem of simultaneous determination of labour market institutions and outcomes in single equation multi-country estimations by presenting an empirical analysis of unemployment, union density and wages in 20 OECD countries. When explicitly modelling endogeneity, our results suggest that unions play a more relevant role in explaining unemployment than what previously thought. In addition, the impact of wages and unemployment in explaining union density is larger than what predicted by single equation estimates, and wages are shown to react more to changes in unemployment. Our analysis shows that country heterogeneity is relevant in such estimations. We partition OECD economies into three groups according to the feedbacks between unemployment and union density