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The effect of unions on investment and innovation decisions theory and empirical evidence

By Flavio Rovida

Abstract

The aim of this thesis is to analyse the effect of unions on investment and\ud innovation decisions, both at the theoretical and the empirical level.\ud The theoretical analysis deals with the choice of adoption of a new technology\ud in the presence of an oligopolistic product market. A duopoly is considered for the ease\ud of exposition. Unions are assumed to affect innovation decisions only via wage\ud bargaining. The results show that environments where unions have a relatively strong\ud (and not very spread) bargaining power tend to harm, ceteris paribus, innovation. If,\ud instead, there is enough spread between unions in terms of their bargaining power, so\ud that only one firm innovates, this firm is, ceteris paribus, the one facing the less\ud powerful union. A firm may be the only one to innovate when facing the more\ud powerful union, if this union is relatively more concerned with employment than the\ud "rival". In general, environments where unions prize the defense of employment above\ud pay rises tend to be more conducive to innovation. These results show the effectiveness\ud of the "rent-seeking" mechanism outlined by Grout. Finally, there are cases where no\ud firm would innovate should the labour market be competitive (non-unionised), while\ud one firm would adopt the new technology, ceteris paribus, when firms face unions.\ud The main results of the analysis are robust to the consideration of collusion in\ud the product market. The generalisation to a model in which firms choose the quantity\ud of capital also confirms the main results.\ud The empirical analysis is based on data from a sample of British nonagricultural\ud quoted companies over the period 1982-89. Data on investment have been\ud constructed from the budget data and matched with information on unionisation and\ud indutrial relations at the company level. Panel data estimation techniques (mostly\ud Random Effects) have been employed. The results show that union recognition has,\ud ceteris paribus, a significantly negative effect on the companies' propensity to invest.\ud This negative impact is robust to the consideration of product market conditions, but\ud seems to be concentrated in the first part of the period under study (1982-85). No\ud separate effect on investment is detected for the presence of closed shop arrangements.\ud There is evidence that the higher the union density at the company level, the lower the\ud investment performance, but the results show also some evidence of non-linear effects.\ud Finally, there is some evidence that companies that have partially derecognised during\ud the eighties have benefited in terms of investment over the short-run

Topics: HC, HD
OAI identifier: oai:wrap.warwick.ac.uk:3667

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