Union effect on labor's share of income

Abstract

The purpose of this dissertation is to determine the effect, if any, of unionization on labor's share of income. The goal of this research is to theorize the conditions, both short and long run, where an increase in labor prices can increase labor's share. Empirical analyses of manufacturing data is performed to determine the validity of the theoretical propositions. This dissertation proposes that an increase in labor prices can increase labor's share under certain short run market conditions. However, the mobility of capital, the greater ease of factor substitution, and man's ingenuity are long run aspects that will yield labor's share unaffected by labor prices. The empirical model developed in this research incorporates the long run aspects discussed above. Results of the empirical examination reveal that labor's share is left relatively unchanged in spite of higher labor prices.