The Staff Discussion Note of the IMF "Inequality and Labour Market Institutions" indicates that the rise of inequality in the advanced economies included in this study has been driven by the upper part of the income distribution, owing largely to the increase in income shares of top 10 percent earners.

The autors find evidence that the decline in union density—the fraction of union members in the workforce—is strongly associated with the rise of top income  shares.

They discuss various channels through which lower union density could have contributed to the rise of income shares of top earners. In addition, they conduct a variety of robustness checks to ensure that the result is not driven by omitted variables, endogeneity problems, or the estimation method.

The empirical results also indicate that unions can affect income redistribution through their influence on public policy. The reductions in the minimum wage relative to the median wage are related to significant increases in inequality.

These findings, however, should not be seen as a blanket recommendation for strengthening these labor market institutions. In some countries (for example, in some southern European countries), strong unions and high minimum wages have led  to high structural unemployment (especially for youth) and losses of competitiveness.

Finally, while there is some evidence that collective agreements coverage in excess of union density is associated with higher inequality, likely due to higher unemployment, the empirical evidence concerning the effects of other labor market institutions (for example, unemployment benefits, employment protection) on inequality and redistribution is not robust.  

(See also:

In It Together: Why Less Inequality Benefits All.)

IMF Survey Magazine.