Advanced Search
MyIDEAS: Login

Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961-1999

Contents:

Author Info

  • David Lee
  • Alexandre Mas
Registered author(s):

    Abstract

    We estimate the effect of new unionization on firms' equity value over the 1961-1999 period using a newly assembled sample of National Labor Relations Board (NLRB) representation elections matched to stock market data. Event-study estimates show an average union effect on the equity value of the firm equivalent to a cost of at least $40,500 per unionized worker. At the same time, point estimates from a regression-discontinuity design -- comparing the stock market impact of close union election wins to close losses -- are considerably smaller and close to zero. We find a negative relationship between the cumulative abnormal returns and the vote share in support of the union, allowing us to reconcile these seemingly contradictory findings. Using the magnitudes from the analysis, we calibrate a structural "median voter" model of endogenous union determination in order to conduct counterfactual policy simulations of policies that would marginally increase the ease of unionization.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.nber.org/papers/w14709.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14709.

    as in new window
    Length:
    Date of creation: Feb 2009
    Date of revision:
    Publication status: published as The Quarterly Journal of Economics (2012) 127 (1): 333-378. doi: 10.1093/qje/qjr058 First published online: January 16, 2012
    Handle: RePEc:nbr:nberwo:14709

    Note: LS
    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Freeman, Richard B & Kleiner, Morris M, 1990. "The Impact of New Unionization on Wages and Working Conditions," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S8-25, January.
    2. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
    3. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 98, University of California, Davis, Department of Economics.
    4. Thomas J. Holmes, 2006. "Geographic spillover of unionism," Staff Report 368, Federal Reserve Bank of Minneapolis.
    5. Steven G. Allen, 1985. "The Effect of Unionism on Productivity in Privately and Publicly Owned Hospitals and Nursing Homes," NBER Working Papers 1649, National Bureau of Economic Research, Inc.
    6. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    7. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    8. Steven G. Allen, 1983. "Unionization and Productivity in Office Building and School Construction," NBER Working Papers 1139, National Bureau of Economic Research, Inc.
    9. Stefano DellaVigna & Joshua M. Pollet, 2007. "Demographics and Industry Returns," American Economic Review, American Economic Association, vol. 97(5), pages 1667-1702, December.
    10. Greenstone, Michael & Oyer, Paul & Vissing-Jorgensen, Annette, 2005. "Mandated Disclosure, Stock Returns, and the 1964 Securities Acts Amendments," Research Papers 1869r, Stanford University, Graduate School of Business.
    11. Emek Basker, 2007. "The Causes and Consequences of Wal-Mart's Growth," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 177-198, Summer.
    12. Barry T. Hirsch, 1991. "Labor Unions and the Economic Performance of Unions," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number luepf.
    13. Asquith, Paul, 1983. "Merger bids, uncertainty, and stockholder returns," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 51-83, April.
    14. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 923-42, October.
    15. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    16. John DiNardo & Kevin F. Hallock, 2002. "When unions "mattered": The impact of strikes on financial markets, 1925-1937," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(2), pages 219-233, January.
    17. Harvey, Campbell R., 1989. "Time-varying conditional covariances in tests of asset pricing models," Journal of Financial Economics, Elsevier, vol. 24(2), pages 289-317.
    18. Bronars, Stephen G & Deere, Donald R, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 231-54, February.
    19. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    20. Mandelker, Gershon, 1974. "Risk and return: The case of merging firms," Journal of Financial Economics, Elsevier, vol. 1(4), pages 303-335, December.
    21. Booth,Alison L., 1994. "The Economics of the Trade Union," Cambridge Books, Cambridge University Press, number 9780521468398, October.
    22. Roni Michaely & Richard H. Thaler & Kent Womack, 1994. "Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?," NBER Working Papers 4778, National Bureau of Economic Research, Inc.
    23. Brian E. Becker, 1987. "Concession bargaining: The impact on shareholders' equity," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 40(2), pages 268-279, January.
    24. Abowd, John M, 1989. "The Effect of Wage Bargains on the Stock Market Value of the Firm," American Economic Review, American Economic Association, vol. 79(4), pages 774-800, September.
    25. Brian E. Becker & Craig A. Olson, 1986. "The impact of strikes on shareholder equity," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(3), pages 425-438, April.
    26. David G. Blanchflower & Alex Bryson, 2004. "What Effect Do Unions Have on Wages Now and Would Freeman and Medoff Be Surprised?," Journal of Labor Research, Transaction Publishers, vol. 25(3), pages 383-414, July.
    27. John DiNardo & David S. Lee, 2002. "The Impact of Unionization on Establishment Closure: A Regression Discontinuity Analysis of Representation Elections," NBER Working Papers 8993, National Bureau of Economic Research, Inc.
    28. Clark, Kim B, 1980. "Unionization and Productivity: Micro-Econometric Evidence," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 613-39, December.
    29. Jaffe, Jeffrey F, 1974. "Special Information and Insider Trading," The Journal of Business, University of Chicago Press, vol. 47(3), pages 410-28, July.
    30. John DiNardo & David S. Lee, 2004. "Economic Impacts of Unionization on Private Sector Employers: 1984-2001," NBER Working Papers 10598, National Bureau of Economic Research, Inc.
    31. Ikenberry, David L. & Rankine, Graeme & Stice, Earl K., 1996. "What Do Stock Splits Really Signal?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 357-375, September.
    32. Kim B. Clark, 1980. "The impact of unionization on productivity: A case study," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(4), pages 451-469, July.
    33. William J. Moore & Robert J. Newman, 1985. "The effects of right-to-work laws: A review of the literature," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 38(4), pages 571-585, July.
    34. Merwin W. Mitchell & Joe A. Stone, 1992. "Union effects on productivity: Evidence from western U.S. sawmills," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 135-145, October.
    35. Clark, Kim B, 1984. "Unionization and Firm Performance: The Impact on Profits, Growth, and Productivity," American Economic Review, American Economic Association, vol. 74(5), pages 893-919, December.
    36. Steven G. Allen, 1986. "Unionization and productivity in office building and school construction," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(2), pages 187-201, January.
    37. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    38. Diego R.PALENZUELA & Juan F.JIMENO, 1996. "Wage Drift in Collective Bargaining at the Firm Level: Evidence from Spain," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 187-206.
    39. William N. Cooke, 1985. "The failure to negotiate first contracts: Determinants and policy implications," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 38(2), pages 163-178, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Christian Nsiah & Chen Wu & Walter Mayer, 2012. "An analysis of US State’s export performance in the Asian Market," The Annals of Regional Science, Springer, vol. 49(2), pages 533-550, October.
    2. Stennek, Johan, 2012. "Why Unions Reduce Wage Inequality: A model of union formation and goal setting," Working Papers in Economics 539, University of Gothenburg, Department of Economics, revised 21 Feb 2013.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14709. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.