The Union Effect on Wages: A Two Stage Approach using Chilean Panel Data

Oscar Landerretche
Esteban Puentes
Nicolás Lillo
Documentos de Trabajo del Departamento de Economía de la Universidad de Chile


We estimate the wage premium in Chile for the period 2004-2009 follow- ing a two-stage procedure that corrects the endogeneity of the union decision process. We find that there is true state dependence in the union decision. The wage premium after controlling for endogeneity is close to 20%. At the same time we find evidence that unions tend to increase more the wages of the low end of the wage distribution. Economic sectors are important in the wage equation but seem less relevant in explaining union membership.The most relevant factor that explain union membership is firm size.