The evolution of the wage gap

In the United States, the unionization rate for male workers in the private sector dropped from 32% to 9% in  thirty years. The ratio between the highest and lowest salaries steadily increased during this period, so that the bestpaid employees now earn more than five times as much as those on the lower end of the wage scale.

Baris Kaymak, a researcher in the Department of Economics at Université de Montréal, sought to explain the rise in wage inequality and decide between two competing theories. According to the first, changes in production technologies caused the wages of more skilled workers to increase while lowering those of less skilled workers.

This dynamic could explain about 40% of the decline in unionization rates.

The second theory claims that declining unionization rates are the cause of the rise in wage inequality. The outcome of the researcher's work favours the first theory. According to him, the wages of skilled workers increased steadily in the 1950s in the non-unionized private sector, while those of their less-skilled counterparts decreased. However, this trend was not followed in the union sector, causing skilled workers to leave the union for higher wages elsewhere. For their part, unionized companies reduced their employment of less skilled workers because of their high salaries. This dynamic could explain about 40% of the decline in unionization rates, while another 20% is attributable to the increase in the number of employees in the service industry, where unions are harder to organize.

Baris Kaymak's work was published in an article in the Journal of Monetary Economics and has been presented at conferences in Belgium, Canada and the USA.