How Do Firms Respond to Unions?
Paper Session
Sunday, Jan. 7, 2024 1:00 PM - 3:00 PM (CST)
- Chair: Anna Stansbury, Massachusetts Institute of Technology
What Do Unions Do? Incentives, Wages, and Investments
Abstract
The current study of unions in finance has primarily focused on their influence on the distribution of cash flows. Using plant-level data from the Census Bureau, we show that unionized plants have weaker worker incentives in addition to paying higher wages and benefits. As a result, union plants are 22% more likely to exit, have almost 40% lower sales growth rates than non-unionized plants, and invest less, all else equal. These effects are less pronounced in labor markets with a high concentration, where unions counter monopsonistic employers in terms of wage and employment. We also find significant spillover effects: partially unionized firms also pay higher wages and have less effective incentives in their non-unionized plants than their peers. This pattern is consistent, by revealed preference, with the hypothesis that the median worker has disutility from incentives. These spillover effects can reduce employment and efficiency, and make firms less attractive as potential targets, thus reducing the market’s effectiveness in allocating corporate assets. By leveraging recent changes in state-level right-to-work laws, we provide causal evidence that states that adopt such laws experience a boost in employment and investment.Do Unions Have Egalitarian Wage Policies for Their Own Employees? Evidence from the U.S. 1959-2016
Abstract
While it is known that labor unions bargain for more equality among their members and in the general society, little is known about their own compensation practices. Using newly assembled administrative data covering union NHQs for the period 1959-2016 and almost all U.S. labor unions workers over the period 2000-2016, we show that unions do “as they preach”. They pay wages that are on average almost 20% higher than in comparable U.S. private firms, but much more equally distributed: Gini coefficients are 20% smaller among unions and the share of total earnings accruing to the top 1% of wage earners is twice smaller. We argue that such a low level of inequality, especially at the top, is puzzling because union leaders do have substantial margins to set their own pay. We show that the low level of inequality observed among union employees cannot be accounted for by market-type explanations, such as a low dispersion of skills among them, a lower average size in union than non-union firms, or fewer hierarchical levels in these firms. Rather, we provide evidence of the existence of a social norm against high pay in the union sector, which results in low inequality. Our results shed new light on how pay norms and institutions can affect real pay, even in a declining sector where firms have strong incentives to perform well to survive.Monopsony, Wage Floors and Structural Transformation
Abstract
Under a standard setup of monopsonistic competition, we show that firms with mid-range productivity and binding wage floors will absorb productivity increases as excess profits. This contrasts with the usual view that productivity increases lead to higher employment and wages. Our prediction follows from a simple but novel theoretical insight, and serves as a potential explanation for “jobless growth” or stalled structural transformation. It may be particularly relevant to middle income countries seeking to develop through increasing firm productivity while protecting workers with high minimum wages, as well as low income countries with relatively high wage floors associated with subsistence or efficiency wages. We empirically test this theory in South Africa where union bargaining councils set minimum wage floors for nearly half of the formal sector. Using firm-level administrative data with plausibly exogenous variation from shift-share exchange rate shocks, we find significant pass-through to sales. In turn, as predicted, firm employment, wages and importantly profits are differentially affected depending on the prior level of productivity. This is suggestive evidence of how firms with labor market power may reduce the labor share as they grow, counter to inclusive growth.Discussant(s)
Krista Ruffini
,
Georgetown University
Matthew Johnson
,
Duke University
Zachary Schaller
,
Colorado State University
Peter Norlander
,
Loyola University-Chicago
Sean Wang
,
U.S. Census Bureau
JEL Classifications
- J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining
- J3 - Wages, Compensation, and Labor Costs