Unions, Firm Size and Wages

It is well established in the literature that Australian unions raise their members' wages relative to those of otherwise comparable non-members by some amount in the range 7-15 per cent. However, it is also known that firm size is positively associated with union density and that firm size is positively associated with relative wages independent of unionism. Using a new, large and rich set of data from the Training and Education Survey 1993 we show that the estimated union relative wage effect is largely comprised of bias due to the omission of firm size as a variable in the wage equations usually estimated.