Unions, growth, and inequality in a Schumpeterian economy

Di Wang and Xilin Wang

Macroeconomic Dynamics, 2026, vol. 30, e52

Abstract: This paper explores the dynamic effects of labor unions on economic growth and income inequality in a Schumpeterian growth model with heterogeneous households and endogenous market structure. Income inequality arises from an unequal distribution of wealth and heterogeneous labor productivity. In the short run, increasing union bargaining power reduces both growth and inequality when the union is wage-oriented. In the long run, stronger unions continue to lower inequality without affecting the steady-state growth rate. The model identifies the channels through which unions shape inequality: an income-share shift from asset income to labor income, wage compression, and changes in the wealth-wage correlation. Calibrating the model to U.S. data, we find that increasing union bargaining power significantly reduces long-run income inequality.

Date: 2026
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Related works:
Working Paper: Unions, Growth and Inequality in a Schumpeterian Economy (2025)
Working Paper: Unions, Growth and Inequality in a Schumpeterian Economy (2025)
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