Trade unions and income inequality : evidence from a panel of European countries

Abstract

The role of trade unions in explaining rising income inequality observed in advanced economies over the last decades (OECD 2015) has been somewhat overlooked in empirical studies, despite its theoretical ambiguity. In this article, we examine the relationship between trade unions and income inequality in developed countries. The baseline empirical model, estimated for a panel of 26 European countries over the period 2005 to 2018, specifies income inequality as a function of the trade union density rate, its squared value, and a set of control variables. Subsequently, labour market institutions, other than unions, are incorporated within the model to assess the distributional effects of union density within the entire institutional framework. We find that union density has a statistically-significant and persistent inverted U-shaped relationship with income inequality, shedding light on the conflicting results reported in previous studies. This highlights the potential role of trade unions in combatting deepening socio-economic divides.