The impact of unions on the economic performance of firms
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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