I document the dramatic divergence between the fortunes of unions in the
public and private sectors in the United States since the 1970s. While the union
membership rate in the private sector fell from 25 percent in 1975 to 8.2 percent
in 2004, the rate in the public sector increased from the same level in 1975 to over
35 percent in 2004. I propose reasons for this divergence, focusing on di erences
in four factors: 1) employment dynamics, 2) the nature of products produced, 3)
the role that unions can play, and 4) incentives faced by employers.
I examine the e ect of legislation governing collective bargaining in the state
and local government sectors on union density and wages of union and nonunion
workers. Exploiting within-state variation in laws by type of worker, I nd that
union density is signi cantly higher where unions are allowed to negotiate union
security provisions (e.g., agency shop) and where employers have a legal duty
to bargain with labor unions. I nd there is a small positive e ect on earnings
of legislation allowing union security union security provisions and a surprising
negative e ect on earnings of a legal duty to bargain.
On balance, unions in the public sector have grown relative to unions in the
private sector for important structural reasons. Lack of market competition for
the products of the public sector and lack of scal discipline through the political
process makes the value of unions to public sector workers relatively high. Public
policy governing labor relations in the public sector, working in conjunction with
these structural factors, has provided an environment in which unions can thrive.