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The Economic Effects of Unions in Latin America: Their Impact on Wages and the Economic Performance of Firms in Uruguay

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  • Adriana Cassoni
  • Gaston J. Labadie
  • Gabriela Fachola

Abstract

This study examines the impact of unionization and the level of centralization in bargaining, at the level of the industry or the firm, on wages and on the economic performance of firms within the manufacturing sector in Uruguay, using a panel of establishments for the period 1988 to 1995. In doing so, we control for the degree of exposure to international and regional competition as well as for industry and firm characteristics. The main findings suggest that unionization increases wages and employment and promotes investment due to firms substituting labor by capital. Unions tend to organize in those plants with highest rates of profits, but promote increases in productivity and prevent profitability increases. The mechanism at work seems to be that firms moved to more capital-intensive technologies, hence increasing the rate of growth of labor productivity and reducing that of profitability. Given the negative effect of unionization at the industry level on the rate of growth of profitability of firms, results also suggest that unions tended to organize and to be stronger in those sectors in which extra rents were higher due to monopoly power. The evidence also suggests that firm-level negotiations take into account the interests of both parties, so that enhanced productivity and probably survival were achieved together with lower rates of substitution between labor and capital and/or lower profits.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3159.

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Date of creation: Sep 2002
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Handle: RePEc:idb:wpaper:3159

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  1. S. Black & L. Lynch, 1997. "How to compete: the impact of workplace practices and information technology on productivity," LSE Research Online Documents on Economics 20298, London School of Economics and Political Science, LSE Library.
  2. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  3. Carruth, Alan A & Oswald, Andrew J, 1987. "On Union Preferences and Labour Market Models: Insiders and Outsi ders," Economic Journal, Royal Economic Society, vol. 97(386), pages 431-45, June.
  4. Andrew Oswald, 1984. "Efficient Contracts are on the Labour Demand Curve: Theory and Facts," Working Papers 555, Princeton University, Department of Economics, Industrial Relations Section..
  5. A. Cassoni & G. Labadie, 2001. "The outcome of different bargaining models: the effects on wages, employment and the employment mix," Documentos de Trabajo (working papers) 1401, Department of Economics - dECON.
  6. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-39, March.
  7. Van Reenen, John, 1996. "The Creation and Capture of Rents: Wages and Innovation in a Panel of U.K. Companies," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 195-226, February.
  8. Machin, Stephen J & Wadhwani, Sushil, 1991. "The Effects of Unions on Organisational Change and Employment," Economic Journal, Royal Economic Society, vol. 101(407), pages 835-54, July.
  9. Adriana Cassoni & Steven G. Allen & Gaston J. Labadie, 2004. "Unions and Employment in Uruguay," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 435-496 National Bureau of Economic Research, Inc.
  10. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
  11. Dow, Gregory K, 1993. "Why Capital Hires Labor: A Bargaining Perspective," American Economic Review, American Economic Association, vol. 83(1), pages 118-34, March.
  12. John M. ABOWD & Laurence ALLAIN, 1996. "Compensation Structure and Product Market Competition," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 207-217.
  13. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
  14. Hirsch, Barry T. & Prasad, Kislaya, 1995. "Wage-employment determination and a union tax on capital: Can theory and evidence be reconciled?," Economics Letters, Elsevier, vol. 48(1), pages 61-71, April.
  15. Boal, William M & Pencavel, John, 1994. "The Effects of Labor Unions on Employment, Wages, and Days of Operation: Coal Mining in West Virginia," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 267-98, February.
  16. Rama, Martin, 1994. "Bargaining structure and economic performance in the open economy," European Economic Review, Elsevier, vol. 38(2), pages 403-415, February.
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Citations

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Cited by:
  1. Messina, Julian & Sanz-de-Galdeano, Anna, 2011. "Wage rigidity and disinflation in emerging countries," Policy Research Working Paper Series 5863, The World Bank.
  2. Carlos Casacuberta & Gabriela Fachola & Nestor Gandelman, 2004. "The impact of trade liberalization on employment, capital, and productivity dynamics: evidence from the uruguayan manufacturing sector," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 7(4), pages 225-248.
  3. Arias, Omar & Blom, Andreas & Bosch, Mariano & Cunningham, Wendy & Fiszbein, Ariel & Lopez Acevedo, Gladys & Maloney, William & Saavedra, Jaime & Sanchez-Paramo, Carolina & Santamaria, Mauricio & Siga, 2005. "Pending issues in protection, productivity growth, and poverty reduction," Policy Research Working Paper Series 3799, The World Bank.
  4. Carlos Casacuberta & Néstor Gandelman, 2006. "Protection, Openness and Factor Adjustment: Evidence from the manufacturing sector in Uruguay," Documentos de Trabajo (working papers) 1806, Department of Economics - dECON.
  5. repec:idb:brikps:22058 is not listed on IDEAS
  6. Cuesta Laura, 2005. "Impacto de los sindicatos en Colombia: ¿mayores salarios y más desigualdad?," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  7. Chacaltana, Juan, 2009. "Economic implications of labour and labour-related laws on MSEs : a quick review of the Latin American experience," ILO Working Papers 433276, International Labour Organization.

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