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Sunk Capital, Unions and the Hold-Up Problem: Theory and Evidence from Sectoral Data


  • G. Cardullo
  • M. Conti
  • G. Sulis



In this paper we test for the hold-up problem by considering the effect of unions' bargaining power on the rate of growth of investment per worker and labour productivity across sectors characterised by different levels of sunk capital investments. We develop a search and matching model with hetereogeneous 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 1980-2005. We do find that union power slows down investment and labour productivity particularly in high sunk capital 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 concentration of unions and the presence of social pacts sustain cooperative equilibria and alleviate such a problem. Our results are robust to a series of controls and possible endogeneity of union power.

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  • G. Cardullo & M. Conti & G. Sulis, 2012. "Sunk Capital, Unions and the Hold-Up Problem: Theory and Evidence from Sectoral Data," Working Paper CRENoS 201226, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  • Handle: RePEc:cns:cnscwp:201226

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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. 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.
    4. Giovanni Sulis, 2015. "Unions and investment in intangible capital," IZA World of Labor, Institute for the Study of Labor (IZA), pages 201-201, October.
    5. 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.

    More about this item


    hold-up; unions; sunk investments; search and matching; difference- in- difference; sectors;

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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