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The impact of unions on the economic performance of firms

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Author Info
A. Cassoni
G. Fachola
G. Labadie

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Abstract

This study examines the impact of unionization at the industry level and of the degree of centralization in bargaining – 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 1988-1995. The model, estimated using the Generalized Method of Moments, used controls for the degree of exposure to international and regional competition, and a set of industry and firm characteristics. The main findings point at unionization increasing wages and employment; promoting investment due to the firms substituting labor by capital; being organized in those plants with higher rate of profits, but promoting increases in productivity and preventing profitability increases. 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 points at firm-level negotiations taking into account the interests of both parties – workers and managers - so that enhanced productivity and probably survival were achieved together with lower rates of wage inflation; substitution of labor by capital and lower profits.

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Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 1501.

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Length: 36 pages
Date of creation: Dec 2001
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Handle: RePEc:ude:wpaper:1501

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References listed on IDEAS
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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Richard B. Freeman & James L. Medoff, 1980. "The Two Faces of Unionism," NBER Working Papers 0364, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Rama, Martin, 1994. "Bargaining structure and economic performance in the open economy," European Economic Review, Elsevier, vol. 38(2), pages 403-415, February. [Downloadable!] (restricted)
  4. John M. Abowd & Laurence Allain, 1996. "Compensation Structure and Product Market Competition," Annales d'Economie et de Statistique, ADRES, issue 41-42, pages 10, Janvier-J. [Downloadable!]
  5. Steven G Allen & Adriana Cassoni & Gastón J Labadie, 1996. "Wages and Employment After Reunionization in Uruguay," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 277-294. [Downloadable!]
  6. 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. [Downloadable!] (restricted)
  7. 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.
  8. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-national Evidence," Electronic Working Papers 99-003, University of Maryland, Department of Economics. [Downloadable!]
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  9. 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. [Downloadable!]
  10. 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. [Downloadable!] (restricted)
  11. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. Oswald, Andrew J., 1993. "Efficient contracts are on the labour demand curve : Theory and facts," Labour Economics, Elsevier, vol. 1(1), pages 85-113, June. [Downloadable!] (restricted)
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  14. Adriana Cassoni & Steven G. Allen & Gaston J. Labadie, 2000. "The Effect of Unions on Employment: Evidence from an Unnatural Experiment in Uruguay," NBER Working Papers 7501, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
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  17. Sandra E. Black & Lisa M. Lynch, 1997. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," NBER Working Papers 6120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. 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. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
  20. John M. Abowd & Laurence Allain, 1996. "Compensation Structure and Product Market Competition," NBER Working Papers 5493, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Dow, Gregory K, 1993. "Why Capital Hires Labor: A Bargaining Perspective," American Economic Review, American Economic Association, vol. 83(1), pages 118-34, March. [Downloadable!] (restricted)
  22. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. [Downloadable!] (restricted)
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