Instruments and measurement error in the estimation of union wage effect for covered members and non- members in Great Britain

Abstract

This paper presents the first longitudinal estimates for covered union member and covered non-member wage effects in Great Britain. Cross-sectional estimates showed covered union members received a premium of about 10 percent over other workers. These estimates were considered to be inconsistent. Longitudinal estimates, that accounted for fixed effects, endogeneity, and measurement error indicated that OLS estimates are downward biased. The 'true' union wage differential probably lies in the region around 30-35 percent. There is a large negative selection effect to union membership. No robust estimate could be found for covered non-members.