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Sunk capital, unions and the hold-up problem: Theory and evidence from cross-country sectoral data

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  • Cardullo, Gabriele
  • Conti, Maurizio
  • Sulis, Giovanni

Abstract

In this paper we study the hold-up problem by considering the effect of union bargaining power on the level of investment per worker across sectors characterised by different levels of sunk capital investment. We develop a search and matching model with heterogeneous sectors and ex-post collective wage bargaining and test the predictions of the model using a difference-in-difference approach on manufacturing sector data in a set of OECD countries during the period 1980–2000. We find that union power reduces investment per worker particularly in sunk capital intensive industries. We refine our empirical analysis showing that the underlying hold-up problem is exacerbated when strikes are not regulated after a collective contract is signed and there is no arbitration, while the presence of social pacts may sustain cooperative equilibria that alleviate the hold-up problem. Our results are robust to a series of controls and possible endogeneity of union power.

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  • Cardullo, Gabriele & Conti, Maurizio & Sulis, Giovanni, 2015. "Sunk capital, unions and the hold-up problem: Theory and evidence from cross-country sectoral data," European Economic Review, Elsevier, vol. 76(C), pages 253-274.
  • Handle: RePEc:eee:eecrev:v:76:y:2015:i:c:p:253-274
    DOI: 10.1016/j.euroecorev.2015.03.005
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    Cited by:

    1. Filippo Belloc, 2015. "Employee Representation Legislations and Innovation," Department of Economics University of Siena 719, Department of Economics, University of Siena.
    2. Bottasso, Anna & Conti, Maurizio & Sulis, Giovanni, 2017. "Firm dynamics and employment protection: Evidence from sectoral data," Labour Economics, Elsevier, vol. 48(C), pages 35-53.
    3. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 84-111.
    4. Devicienti, Francesco & Manello, Alessandro & Vannoni, Davide, 2017. "Technical efficiency, unions and decentralized labor contracts," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1129-1141.
    5. Garnero, Andrea & Rycx, Francois & Terraz, Isabelle, 2018. "Productivity and Wage Effects of Firm-Level Collective Agreements: Evidence from Belgian Linked Panel Data," IZA Discussion Papers 11568, Institute for the Study of Labor (IZA).
    6. Giovanni Sulis, 2015. "Unions and investment in intangible capital," IZA World of Labor, Institute for the Study of Labor (IZA), pages 201-201, October.

    More about this item

    Keywords

    Hold-up; Unions; Sunk investments; Search and matching; Difference-in-difference;

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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