The Power of the People: Labor Unions and Corporate Social Responsibility

Abstract

A growing number of corporations and politicians have acknowledged the importance of corporate social responsibility (CSR). Recent legislation proposes that corporations may become more stakeholder-focused if employees are given more power. We examine the impact of employee labor unions on external stakeholders by examining unionization’s effect on CSR. Unionization is associated with a decrease in aggregate E&S scores, which is driven by reductions in categories that primarily benefit non-member stakeholders. However, unionization leads to an increase in categories representative of better working conditions, which directly benefit their members. Our results are magnified when labor unions have more bargaining power and are robust within a close election setting, allowing us to draw causal inference pertaining to the effects of unionization on non-shareholding stakeholders. We highlight stakeholders’ heterogeneity and value-maximizing nature and suggest that policymakers consider implications for all stakeholders before implementing policies that prioritize the corporate influence of one stakeholder group.