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Do Unions Make Enterprises Insolvent?

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  • Richard B. Freeman
  • Morris M. Kleiner

Abstract

This study investigates the impact of unionization and firm, business line, or establishment survival. A consistent empirical finding is that unions raise wages above those found in nonunion firms, and that in a competitive product market one would expect to find that unionized firms would go out of business more than nonunion firms. However, if unions engage in economic rent-sharing, then during periods of economic hardship unionized firms may be able to remain solvent by giving back some of these rents. In order to answer this question we analyze three data sets: a data set on the union status of solvent and insolvent enterprises and business lines from the Compustat files, a data set on the union status of workers who have lost their jobs due to permanent plant closures or business failures obtained by matching files from Current Population Survey, and a data set from the Federal Mediation and Conciliation Service on the outcomes of elections won by unions and on the outcomes of labor- management dispute cases. Overall, our results are consistent with the hypothesis that unions behave in an economically rational manner, pushing wages to the point where union firms may expand less rapidly than nonunion firms, but not to the point where the firm, plant, or business line closes down.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4797.

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Date of creation: Jul 1994
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Publication status: published as Industrial and Labor Relations Review, Vol.52, no.4 (July 1999): 510-527.
Handle: RePEc:nbr:nberwo:4797

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  1. John H. Pencavel, 1982. "The Trade-Off between Wages and Employment in Trade Union Objectives," NBER Working Papers 0870, National Bureau of Economic Research, Inc.
  2. Richard B. Freeman, 1983. "Unionism, Price-Cost Margins, and the Return to Capital," NBER Working Papers 1164, National Bureau of Economic Research, Inc.
  3. Kuhn, Peter, 1986. "Wages, Effort, and Incentive Compatibility in Life-Cycle Employment Contracts," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 28-49, January.
  4. Michael A. Salinger, 1984. "Tobin's q, Unionization, and the Concentration-Profits Relationship," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 159-170, Summer.
  5. Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
  6. Ruback, Richard S & Zimmerman, Martin B, 1984. "Unionization and Profitability: Evidence from the Capital Market," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1134-57, December.
  7. Peracchi, Franco & Welch, Finis, 1995. "How representative are matched cross-sections? Evidence from the Current Population Survey," Journal of Econometrics, Elsevier, vol. 68(1), pages 153-179, July.
  8. Connolly, Robert A & Hirsch, Barry T & Hirschey, Mark, 1986. "Union Rent Seeking, Intangible Capital, and Market Value of the Firm," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 567-77, November.
  9. Colin Lawrence & Robert Z. Lawrence, 1985. "Manufacturing Wage Dispersion: An End Game Interpretation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 47-116.
  10. Barry T. Hirsch & Robert A. Connolly, 1987. "Do unions capture monopoly profits?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 41(1), pages 118-136, October.
  11. Kleiner, Morris M., 1984. "Public policy implications of financial information requirements under the national labor relations act," Journal of Accounting and Public Policy, Elsevier, vol. 3(4), pages 253-257.
  12. Karier, Thomas M, 1985. "Unions and Monopoly Profits," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 34-42, February.
  13. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1986. "The Intertemporal Stability of the Concentration-Margins Relationship," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 13-34, September.
  14. Voos, Paula B & Mishel, Lawrence R, 1986. "The Union Impact on Profits: Evidence from Industry Price-Cost Margin Data," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 105-33, January.
  15. Richard B. Freeman & Edward P. Lazear, 1995. "An Economic Analysis of Works Councils," NBER Chapters, in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52 National Bureau of Economic Research, Inc.
  16. Macpherson, D.A. & Dunne, T., 1992. "Unionism and Gross Employment Flows," Working Papers 1992_10_5, Department of Economics, Florida State University.
  17. 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.
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Citations

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Cited by:
  1. Gabriel Burdin, 2012. "Does workers’ control affect firm survival? Evidence from Uruguay," Department of Economics University of Siena 641, Department of Economics, University of Siena.
  2. Steinbacher, Matej & Steinbacher, Matjaz & Steinbacher, Mitja, 2009. "To Work or Not? Simulating Inspection Game with Labor Unions," MPRA Paper 13565, University Library of Munich, Germany.
  3. Alex Bryson & Michael White, 2006. "Unions, Within-Workplace Job Cuts and Job Security Guarantees," CEP Discussion Papers dp0733, Centre for Economic Performance, LSE.
  4. David Metcalf, 2002. "Unions and productivity, financial performance and investment: international evidence," LSE Research Online Documents on Economics 20072, London School of Economics and Political Science, LSE Library.
  5. Aaron J. Sojourner & Robert J. Town & David C. Grabowski & Michelle M. Chen, 2012. "Impacts of Unionization on Employment, Product Quality and Productivity: Regression Discontinuity Evidence From Nursing Homes," NBER Working Papers 17733, National Bureau of Economic Research, Inc.
  6. Barry T. Hirsch & Edward J. Schumacher, 2000. "Private Sector Union Density and the Wage Premium: Past, Present, and Future," Working Papers 0015, East Carolina University, Department of Economics.
  7. Edgar Preugschat, 2009. "Unionization Patterns and Firm Reallocation," 2009 Meeting Papers 1114, Society for Economic Dynamics.
  8. Jack Kleinhenz & Russ Smith, 2011. "Regional Competitiveness: Labor-Management Relations, Workplace Practices, and Workforce Quality," Business Economics, Palgrave Macmillan, vol. 46(2), pages 111-124, April.
  9. Burdín, Gabriel, 2013. "Are Worker-Managed Firms Really More Likely to Fail?," IZA Discussion Papers 7412, Institute for the Study of Labor (IZA).
  10. Michael Kremer & Benjamin A. Olken, 2009. "A Biological Model of Unions," American Economic Journal: Applied Economics, American Economic Association, vol. 1(2), pages 150-75, April.
  11. 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.
  12. Gabriel Burdin, 2014. "Are Worker-Managed Firms More Likely to Fail than Conventional Enterprises? Evidence from Uruguay," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 67(1), pages 202-238, January.
  13. David G. Blanchflower & Alex Bryson, 2003. "What Effect do Unions Have on Wages Now and Would 'What Do Unions Do' Be Surprised?," NBER Working Papers 9973, National Bureau of Economic Research, Inc.
  14. Addison, John T. & Heywood, John S. & Wei, Xiangdong, 2001. "Unions and Plant Closings in Britain: New Evidence from the 1990/98 WERS," IZA Discussion Papers 352, Institute for the Study of Labor (IZA).

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