Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany

Collective bargaining in Germany takes place at either industry or firm level. As in the majority of OECD countries, collective bargaining coverage is much higher than union density. Not all employees in a covered firm are necessarily covered. This institutional setup suggests to explicitly distinguish union density in a labor market segment, coverage at the firm level, and coverage at the individual level. Using linked employeremployee data and estimating OLS and quantile regressions, this is the first paper which simultaneously analyzes these three dimensions of union influence on the structure of wages. Ceteris paribus, a higher share of employees in a firm covered by industry-wide or firm-level contracts is associated with higher wages. Yet individual bargaining coverage in a covered firm shows a negative impact both on the wage level and on wage dispersion. A higher union density reinforces the effects of coverage, but the effect of union density is negative at all points in the wage distribution for uncovered employees. So higher union density compresses the wage structure while moving the distribution for uncovered employees uniformly leftwards.