Should Workers of the World Unite? Native-Migrant Wage Gap and Labor Unions
How does collective bargaining impact the wage gap between natives and immigrants? While unions typically compress wage distributions, their effect on the native-immigrant wage gap is theoretically ambiguous. Using Current Population Survey data aggregated at the state-industry-year level for the United States over the period 1994-2021, I examine how variation in union density affects residual wages and the wage gap between natives and immigrants. The analysis is guided by a theoretical framework of insider-outsider bargaining, in which native workers act as labor market insiders and immigrants as outsiders. To estimate the causal effect of unionization, I employ an instrumental variable strategy that leverages the differential impact of Right-to-Work laws across industries. The results show that a 1 percentage point increase in union share raises native residual wages by 0.28% but has no significant effect on immigrant wages, thereby widening the wage gap by approximately 0.25%. These findings suggest that collective bargaining institutions transmit wage-setting power unequally across worker groups, with unions favoring labor market insiders and potentially reinforcing wage disparities between natives and immigrants.