Unions, Growth and Inequality in a Schumpeterian Economy

Di Wang and Xilin Wang

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Labor unions; Economic growth; Income inequality; Endogenous market structure (search for similar items in EconPapers)
JEL-codes: D30 J50 O30 O40 (search for similar items in EconPapers)
Date: 2025-08
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