DO UNIONIZED FIRMS HIRE BETTER WORKERS?

It is a strong prior among many economists that unionized firms hire better-quality workers to offset higher union wages. In fact, standard economic theory does not support this prior. The key insights introduced by this paper are that, first, unions will likely raise future wages to reflect improvements in worker quality and, second, that unionized firms, anticipating this, often do better by hiring lower-quality workers. This surprising result has empirical support.