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The Economic Effects of Unions in Latin America: Their Impact on Wages and the Economic Performance of Firms in Uruguay

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  • Adriana Cassoni
  • Gaston J. Labadie
  • Gabriela Fachola

Abstract

This study examines the impact of unionization and the level of centralization in bargaining, at the level of 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 to 1995. In doing so, we control for the degree of exposure to international and regional competition as well as for industry and firm characteristics. The main findings suggest that unionization increases wages and employment and promotes investment due to firms substituting labor by capital. Unions tend to organize in those plants with highest rates of profits, but promote increases in productivity and prevent profitability increases. The mechanism at work seems to be that firms moved to more capital-intensive technologies, hence increasing the rate of growth of labor productivity and reducing that of profitability. 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 suggests that firm-level negotiations take into account the interests of both parties, so that enhanced productivity and probably survival were achieved together with lower rates of substitution between labor and capital and/or lower profits.

Suggested Citation

  • Adriana Cassoni & Gaston J. Labadie & Gabriela Fachola, 2002. "The Economic Effects of Unions in Latin America: Their Impact on Wages and the Economic Performance of Firms in Uruguay," Research Department Publications 3159, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:3159
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    Cited by:

    1. Carlos Lamarche, 2015. "Collective bargaining in developing countries," IZA World of Labor, Institute for the Study of Labor (IZA), pages 183-183, September.
    2. Carlos Casacuberta & Gabriela Fachola & Nestor Gandelman, 2004. "The impact of trade liberalization on employment, capital, and productivity dynamics: evidence from the uruguayan manufacturing sector," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 7(4), pages 225-248.
    3. Juli?n Messina & Anna Sanz-de-Galdeano, 2014. "Wage Rigidity and Disinflation in Emerging Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(1), pages 102-133, January.
    4. Arias, Omar & Blom, Andreas & Bosch, Mariano & Cunningham, Wendy & Fiszbein, Ariel & Lopez Acevedo, Gladys & Maloney, William & Saavedra, Jaime & Sanchez-Paramo, Carolina & Santamaria, Mauricio & Siga, 2005. "Pending issues in protection, productivity growth, and poverty reduction," Policy Research Working Paper Series 3799, The World Bank.
    5. repec:ilo:ilowps:433276 is not listed on IDEAS
    6. Carlos Casacuberta & Dayna Zaclicever, 2015. "The Effect of Trade Protection on Productivity in Uruguay," Documentos de Trabajo (working papers) 0215, Department of Economics - dECON.
    7. Cuesta Laura, 2005. "Impacto de los sindicatos en Colombia: ¿mayores salarios y más desigualdad?," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
    8. Carlos Casacuberta & Néstor Gandelman, 2012. "Protection, Openness, and Factor Adjustment: Evidence from the Manufacturing Sector in Uruguay," Economic Development and Cultural Change, University of Chicago Press, vol. 60(3), pages 597-629.
    9. Freeman, Richard B., 2010. "Labor Regulations, Unions, and Social Protection in Developing Countries," Handbook of Development Economics, Elsevier.
    10. Chacaltana, Juan., 2009. "Economic implications of labour and labour-related laws on MSEs : a quick review of the Latin American experience," ILO Working Papers 994332763402676, International Labour Organization.

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