U.S. income inequality has varied inversely with union density over the past hundred years. But moving beyond this aggregate relationship has proven difficult, in part because of limited microdata on union membership prior to 1973.

We develop a new source of microdata on union membership dating back to 1936, survey data primarily from Gallup (N ≈ 980,000), to examine the long-run relationship between unions and inequality.

We document dramatic changes in the demographics of union members: when density was at its mid-century peak, union households were much less educated and more nonwhite than other households, whereas pre-World-War-II and today they are more similar to nonunion households on these dimensions.

However, despite large changes in composition and density since 1936, the household union premium holds relatively steady between ten and twenty log points. We then use our data to examine the effect of unions on income inequality.

Using distributional decompositions, time series regressions, state-year regressions, as well as a new instrumental-variable strategy based on the 1935 legalization of unions and the World-War-II era War Labor Board,

we find consistent evidence that unions reduce inequality, explaining a significant share of the dramatic fall in inequality between the mid-1930s and late 1940s.

Article Source: academic.oup