Unions and income distribution : a study of the chilean case

Abstract

This paper attempts to measure the e ect of trade unions on wage inequality in Chile using panel data. Income distribution analysis is performed through a variance decomposition approach, while income equations are estimated via instrumental variables. Union history of the individual is used as an instrument. We nd that the union premium is 21%, but it is due to non-observable individual characteristics rather than union structure. Once we control for these characteristics, the union premium loses signi cance. Therefore, the e ect on income distribution is null. Comparative evidence shows that Chile lags behind OECD countries in terms of labour legislation, even if the labour reform in process is implemented.