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There is a large empirical literature estimating the effects of labor unions on wages in developed countries. Two clear-cut results emerging from this literature are that (1) unions increase wages for their members relative to similar nonunion workers and (2) wage dispersion is reduced in union workplaces.
Most of this literature has focused on the U.S. or other developed countries possessing stable institutions,
similar production technologies, and roughly similar levels of physical and human capital. Less clear in the literature is how unions affect wages outside the western world and in less developed economies.
Results seen for the U.S. need not apply to countries with different economic and institutional attributes, in particular, the political and legal framework in which unions operate and the level of economic development. This paper provides new evidence on the impact of unions on wage gaps and inequality for Bolivia and Chile, two neighboring countries in Latin America at different stages of economic
development and which have received little prior attention from economists. Both countries have had historically strong union organizations deeply involved in the political development of their countries (Alexander and Parker 2005; Ulloa 2003) and have similar union density (between 13-14%) in their formal labor markets. At the same time, these countries have clear-cut differences in their legal
frameworks, the size of the informal sector, and the overall level of development and inequality
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