We estimate the impact of union density on wages using Portuguese matched employer-employee-contract data, extending Gelbach’s (2016) omitted variable bias decomposition procedure to obtain the contribution of worker, firm, and job-title heterogeneity to the union wage premium. The principal result is the dominance of the firm fixed effect: the allocation of workers among firms with different wage policies. For their part, the unobserved skills of union workers have only a modest impact on wages. In turn, job titles reflect the average contract in the collective agreement, while the wage cushion offers firms a margin of flexibility, partially undoing increases in the bargained wage. Finally, there is little to suggest that the union wage gap is influenced by improved match quality.
union density union wage gap total compensation bargained wages wage cushion wage supplements worker/firm/job-title fixed effects Gelbach decomposition