International trade and unionization: Evidence from India

We exploit exogenous variation in tariffs to examine the impact of import competition on unionization and union wages in a developing country. Using a combination of nationally representative household data (National Sample Survey Organization) and nationally representative industry‐level data (Annual Survey of Industries) from India, we find that net‐import industries that experienced larger cuts in tariffs also experienced larger declines in unionization. In addition, we find that these industries also experienced larger increases in union wages. These results are consistent with the predictions of an efficient bargaining framework that we extend to endogenize the union formation decision by allowing for a fixed cost of union formation. We also conduct a back‐of‐the‐envelope calculation to show that the total wage gains to unionized workers marginally exceed the total wage losses to deunionized workers.