The Joint Determination of Union Status and Union Wage Effects: Some Tests of Alternative Models

Abstract

The problems of estimation and interpretation of union wage differentials are examined. The properties of cross-section and longitudinal estimators are compared. Estimates are presented and those in the literature summarized. Conflicting results are obtained. Longitudinal estimators typically produce results smaller than those of OLS, while cross-section methods (instrumental variables or inverse Mills ratio) raise the estimate. The paper offers a reconciliation of these results. It supports a more optimistic conclusion than that reached in reviews by Freeman and Lewis, who argued that little has been learned from attempts to deal with the endogeneity issue. Comparisons between estimators are used to throw light on the process governing union status and to suggest interpretations of "union differentials" consistent with the current evidence.