The Rise and Fall of Unions in the U.S.

Union membership displayed an inverted U-shaped pattern over the 20th century, while the distribution of income sketched a U. A model of unions is developed to analyze these phenomena. There is a distribution of firms in the economy. Firms hire capital, plus skilled and unskilled labor. Unionization is a costly process. A union decides how many firms to organize and its members’ wage rate. Simulation of the developed model establishes that skilled-biased technological change, which affects the productivity of skilled labor relative to unskilled labor, can potentially explain the above facts. Statistical analysis suggests that skill-biased technological change is an important factor in de-unionization.