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Over the past 40 years, the U.S. and several European labor markets have undergone two important developments: job market polarization and deunionization. In this paper, we argue that routine-biased technical change not only drives polarization, as is commonly assumed, but that it is also the driving force behind deunionization. We show that the shifting demand structure in favor of low- and high-skill occupations worsens the bargaining position of unions in a search and matching framework with an occupational choice and endogenous union formation, and therefore makes collective bargaining coverage less attractive for workers. The ensuing deunionization provides further incentives for middle-wage workers to switch occupations and thus amplifies job market polarization.
