ESTIMATING THE EFFECTS OF UNIONS ON WAGE INEQUALITY IN A PANEL-DATA MODEL WITH COMPARATIVE ADVANTAGE AND NONRANDOM SELECTION

This article considers the estimation of the structure of wages in uni on and nonunion sectors. It proposes an estimator that extends standar d panel data techniques to the case in which the return to the permane nt component of the error term is differently rewarded in the two sect ors. The econometric model is used to estimate the effect of unions on both the level and the variance of wages in Canada. The findings indi cate that unions increase the average wage of workers and compress the returns to observable measures of skill and to a time-invariant unobs ervable measure of skill.