Labour Market Segmentation and Union Wage Gaps

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There has been a great deal of research regard the effects of unions on union – non-union wage gap. Most of the studies regarding the impact of unions on wages have assumed that apart from the division between union and non-union workers, the labour market is relatively homogeneous. A number of economists, however, have argued that the labour market is segmented, implying that there are distinct labour markets and that some workers employment opportunities are concentrated in “bad jobs” while other workers employment opportunities are concentrated in “good jobs” which are rationed.

This paper will explore whether the relative wage differential between union and non-union workers differs between the independent primary, subordinate primary and secondary labour markets. Labour market segments are defined using “job zones”. “Job zones” are distinct groups defined by the level of specific vocational preparation necessary for a particular occupation, allowing for the comparison of skill levels and training for each occupation. The data on “job zones” comes from the Occupational Information Network database (O∗Net). We estimate separate equations for union and non-union workers in each segment using data from the Current Population Survey and calculate union non-union differentials for each labour market segment. The findings of this paper suggest that the greatest differentials are in secondary labour markets followed by differentials in the subordinate primary labour market and that the smallest wage differentials are in the independent primary labour market.



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