Nonunion Firms Research Articles

Shadow union in local labor markets and corporate financing policies

This paper identifies an externality of a firm’s unionization that affects the financing decisions of non-unionized firms within a local labor market. We find that non-unionized firms increase their leverage ratios and hold less cash reserves following a union victory at other firms. This “shadow union” effect manifests through the heightened threat of unionization following shadow union organizing. Specifically, the effect is more pronounced when the probability of unionization rises by a larger margin and non-union firms face higher union rents conditional on being unionized. The threat appears credible enough to shape corporate financing decisions: shadow unions raise employees’ wages and the likelihood of subsequent union victories in the local labor market. Additional results indicate that the shadow union effect is distinct from leverage-mimicking behavior. Overall, our findings suggest that shadow labor market institutions create a strategic incentive for non-unionized firms to adopt less conservative financial policies to combat the union threat.

Personal bankruptcy costs, union bargaining power, and capital structure

We document that employee bankruptcy costs affect corporate capital structure decisions via their impact on the bargaining power of labor unions. We employ difference-in-differences and triple-difference research designs surrounding a major bankruptcy reform that increased personal bankruptcy costs. Our results suggest that, on average, this reform reduced unions’ bargaining power, resulting in a decrease in the financial leverage of unionized firms relative to nonunionized firms. Our results provide new evidence for a relatively unexplored determinant of capital structure—personal bankruptcy costs.

Collective Bargaining and Strategic Disclosure in Earnings Conference Calls

Prior studies provide evidence that unionized firms tend to have more negative disclosure than non-unionized firms. These studies interpret this behavior as managers of unionized firms manipulating disclosure to gain an advantage in collective bargaining but do not directly test this assumption. An alternative explanation is that unionized firm managers disclose their union-deflated prospects. Using measures designed to represent disclosure manipulation, we find that (a) managers of unionized firms tend to script their answers in conference calls to a greater extent when union-related proprietary costs are higher, (b) unionized firm managers actively cast earnings calls with unfavorable analysts before labor negotiations, and (c) when union-related proprietary costs are higher, a larger share of managers’ negative language occurs in sentences with linguistic cues of deception. Our findings suggest that managers of unionized firms manipulate disclosure to mitigate union-related proprietary costs.

More Reward Than Punishment: Labor Resilience at Midcentury

More Reward Than Punishment: Labor Resilience at Midcentury

Collective Bargaining and Strategic Disclosure in Earnings Conference Calls

Prior studies provide extensive evidence that unionized firms tend to have more negative disclosure than non-unionized firms do. These studies interpret this behavior as managers of unionized firms manipulating disclosure to gain an advantage in collective bargaining but do not directly test this assumption. An alternative explanation is that unionized firms disclose truthfully on their union-deflated prospects. Using measures that are specifically designed to capture deceptive behaviors, we find that (1) managers of unionized firms tend to script their answers in conference calls to a greater extent when union-related proprietary costs are higher, (2) unionized firm managers actively cast earnings calls with unfavorable analysts before labor negotiations, (3) when union-related proprietary costs are higher, a larger share of managers’ negative language occurs in sentences with linguistic cues of deception, (4) when the firms have weak unions and operate in states with Right-to-Work laws, managers tend to be “truth-tellers,” and (5) managers of unionized firms use scripting and deceptively negative language, but not casting, more often than managers of non-unionized firms. Our findings provide confirmatory evidence that unionized firms manipulate disclosure to mitigate union-related proprietary costs. However, we also find that there are subsets of unionized firms that disclose truthfully.

Relational Exchange in Non-union Firms: A Configurational Framework for Workplace Dispute Resolution and Voice

For much of the 20th century, a sizeable proportion of the workforce in the United States had access to a combination of dispute resolution and voice options through the union grievance process. The vast majority of today’s workforce, however, no longer does. The focus of this article is the proliferation of alternative relational exchange models developed in non-union firms. The author develops a theoretical framework proposing variation in the overarching non-union models employed by firms as a function of distinct organizational features and strategies. These models are the product of distinct configurations of voice and dispute-resolution strategies. The author proposes five alternative non-union models, discusses the internal and external characteristics associated with them, and evaluates distinct employer and worker outcomes.

The Union Threat

AbstractThis article develops a search theory of labour unions in which the possibility of unionization distorts the behaviour of non-union firms. In the model, unions arise endogenously through a majority election within firms. As union wages are set through a collective bargaining process, unionization compresses wages and lowers profits. To prevent unionization, non-union firms over-hire high-skill workers— who vote against the union— and under-hire low-skill workers— who vote in its favour. As a consequence of this distortion in hiring, firms that are threatened by unionization hire fewer workers, produce less and pay a more concentrated distribution of wages. In the calibrated economy, the threat of unionization has a significant negative impact on aggregate output, but it also reduces wage inequality.

Shadow Union in Local Labor Markets and Capital Structure

This paper identifies an externality of a firm's unionization that affects the capital structure decisions of other, non-unionized firms within a local labor market. We find that victory in a firm leads non-unionized firms to increase their market leverage ratio by 0.9 to 1.3 percentage points. This union effect is more pronounced when the probability of unionization rises in a larger margin and firms face higher rents conditional on being unionized. This is consistent with a heightened threat of unionization in the local labor market following shadow organizing. We confirm that this threat is credible enough to shape corporate financing decisions because unionization leads to an increase in wages in the local labor market. The findings suggest that a shadow labor market institution creates a strategic incentive for non-unionized firms to use less conservative financial policies to combat the threat.

Trade Unions and the Minimum Wage

Why do labor unions and left/labor parties support the statutory minimum wage in some countries, such as the United States, but oppose it in others, such as Denmark or Sweden? This paper presents a formal model of trade union preferences for the statutory minimum wage. On the one hand, the minimum wage can raise above-minimum negotiated wages by increasing the union’s fallback position and increasing the labor costs of nonunion competitor firms. On the other hand, the minimum wage presents certain dangers: it may (1) set wages higher or lower than unions prefer, (2) reduce the incentives of workers to join unions in the short term, and (3) undermine the social custom that sustains union membership in the long term. For these reasons, we predict that unions and left/labor parties will support a statutory minimum wage only when unions are too weak — when unions bargain with a smaller share of firms, when they are legally restricted from engaging in certain strike actions, and wage bargaining is less coordinated — to sustain high wages on their own. Empirically, we document a robust, cross-national correlation between several of the key variables in our model and the type of minimum wage setting institution and illustrate the model’s mechanisms using case studies of union preferences in the US, UK, Germany, and Sweden and party preferences in the UK and Germany.

Labor Laws and Firm Performance

U.S. labor laws impose higher costs on unionized firms in states without right-to-work (RTW) laws. I find that these firms experience poor stock performance. The difference-in-differences analysis comparing the effect of RTW laws on unionized and nonunionized firms shows that unionized firms in states without RTW laws underperform by about seven percentage points per year. I find further evidence of underperformance using alternative methodologies to estimate abnormal stock performance, examining a natural experiment, showing expected cross-sectional patterns, as well as examining profitability and the market reaction to earnings announcements.

LABOR LAWS AND FIRM PERFORMANCE

AbstractU.S. labor laws impose higher costs on unionized firms in states without right‐to‐work (RTW) laws. I find that these firms experience poor stock performance. The difference‐in‐differences analysis comparing the effect of RTW laws on unionized and nonunionized firms shows that unionized firms in states without RTW laws underperform by about 7 percentage points per year. I find further evidence of underperformance using alternative methods to estimate abnormal stock performance, examining a natural experiment, showing expected cross‐sectional patterns, and assessing profitability and the market reaction to earnings announcements.

Union membership, union coverage and wage dispersion of rural migrants: Evidence from Suzhou industrial sector

Using the data from an original survey on rural migrant workers from Suzhou industrial sector in 2013, we estimate the wage effect of both union membership and union coverage across the wage distributions using decomposition approach based on unconditional quantile regression. The results show that union membership has a significant effect on the wage level of rural migrant workers across the wage distribution. The effect of coefficient differences which results from the different rewarding systems explains the majority wage differentials between union members and non-members in non-unionized firms. There is also significant union coverage effect at the lower part of the distribution when comparing the union-covered non-member to the nonunion-covered non-member, which is also mainly caused by the coefficient effect. By contrast, wage differentials between union members and non-members in unionized firms are attributed to significant composition effect, which reveals that union members are positively selected within unionized firms. As a result, the positive wage effect of union is limited to the more advantaged group among migrant workers.

Unionization, product market competition, and strategic disclosure

We examine the disclosure policies of non-unionized firms operating in unionized industries. We test the hypothesis that non-unionized firms have an incentive to disclose more information when their unionized rivals are engaged in labor renegotiations; that is, to weaken them. We find that non-unionized firms disclose more information and more good news when renegotiations are ongoing. This behavior is stronger for larger firms, firms with fewer peers in the industry, and firms more similar to their renegotiating rivals. We also find some evidence that unionized firms are harmed by this behavior and that non-unionized firms benefit from their increased disclosures.

Two benefits firms derive from unionized workforces

PurposeThe purposes of this paper are to discuss why firms are resistant to unionization of their employees and to discuss the potential benefits firms derive if their employees are unionized. There are benefits to firms if their employees are unionized, however, and firms whose workforces are unionized should take advantage of these benefits.Design/methodology/approachAnalysis and discussion of the drawbacks and benefits of unionization to firms.FindingsFirms benefit in two ways if their workforces are unionized. First, unionization reduces employee turnover. Second, employee involvement programs are generally more effective in unionized firms, while they are often held to be illegal in nonunion firms. Therefore, managers in unionized firms should work with the unions representing their employees to further reduce turnover and make Employee Involvement programs even more effective.Originality/valueAs employees sometimes opt to unionize despite firms’ wishes to the contrary, this paper discusses the benefits of unionized workforces and advocates that management in unionized firms develop positive relations with unions to derive these benefits.

Allocation of Cash Flows in Unionized Firms

ABSTRACTHow do unionized firms use cash inflows? To answer this hitherto unexplored question, we adopt the system of equations developed by Dasgupta, Noe, and Wang (2011) to explicitly address possible interdependence of cash allocation decisions in unionized firms. Based on comprehensive firm-level unionization data for Korean companies from 1998 to 2008, we document that unionized firms allocate less cash to cash reserves and retirement of external financing than nonunionized firms do. More interestingly, inconsistent with previous findings, we also find that unionized firms utilize a greater portion of cash inflows to investment. This unexpected result of greater investment in unionized firms is in fact consistent with the view that employees are an important nonfinancial stakeholder who naturally cares about the long-term survival of the company; thus, they do not necessarily suppress value-increasing investments. Overall, our findings suggest that researchers need to consider cash flow sensitivities when examining interrelated cash allocation decisions.

Did partnership in Ireland deliver for all workers? Unions and earnings

PurposeAfter 20 years of social partnership in Ireland the purpose of this paper is to use a national survey of firms and employees to examine the extent of the wage gap between union and non-union workers in the private sector and compare the degree of wage inequality in union and non-union firms and among union and non-union employees.Design/methodology/approachThe analysis in the paper is based on the National Employment Survey carried out by the Central Statistics Office in October 2008. Approximately 9,000 enterprises were sampled and almost 5,000 enterprises responded – a response rate of over 50 per cent while almost 100,000 employees were sampled and 65,535 completed the questionnaire – a response rate of over 60 per cent. In total 22 per cent (14,619) of respondents worked in the public sector and 78 per cent (50,916) in the private sector.FindingsIt appears that over time the earnings premium enjoyed by unionised workers has declined. This may reflect a long term decline in union bargaining power in the private sector as union density levels have declined. Even so unionised employees enjoy a wage premium over non-union employees and collective coverage appears to reduce levels of income inequality. However, the overall union wage gap is relatively modest – being generally below 10 per cent possibly due to the harmonising effects associated with the period of social partnership supported by government trade unions and employers.Research limitations/implicationsThe cross-sectional nature of the data means that the factors associated with variations in employee earnings over time cannot be identified.Practical implicationsThere is substantial evidence of a considerable spill-over effect as nationally agreed rates of pay percolated from the union to the non-union sector. It may also be the case that social partnership has acted to reduce wage inequality in non-union as well as union establishments. It appears that partnership type arrangements have the capacity to deliver for all workers in the private sector.Originality/valueA unique aspect of the national survey data used here is the availability of employer/employee matched data from a robust national level survey with measures of union membership, earnings, individual and employment characteristics.

The CEO-To-Employee Pay Gap: Evidence from UK Firms

This paper investigates the CEO-to-employee pay gap. Empirical evidence is provided for a sample of about 900 publicly traded UK firms from 1984 to 1998. CEOs were paid about thirteen times the typical employee pay during the sample period. The CEO-to-employee pay ratio sharply increased from about 7 at the start of the period to about 19 at the end of the period. The CEO-to-employee pay gap is larger in union firms but this fact is accounted for by differences in enterprise scale. The CEO-employee pay gap is bigger in large firms. Conditional on firm size, the predicted CEO-to-employee pay gap is, in fact, smaller in union firms compared to non-union firms. Finally, the distribution of the CEO-to-employee pay gap is different for union and non-union firms. Specifically, the predicted size-adjusted gap is generally smaller in union firm contexts.

Exports versus export-platform FDI with endogenous wage determination

In this paper, we explain why unionized MNFs in the same industry choose different entry modes between export and export-platform FDI when serving the same market. The platform-type FDI becomes more likely, ceteris paribus, with higher wage-oriented behavior by the unions, deeper trade liberalization in the host country, and lower fixed costs incurred in the FDI. Some of our results are counter-intuitive. It is particularly shown that a non-unionized MNF undertakes FDI whereas a unionized MNF remains in the domestic country even in the absence of productivity differences between the firms. Under certain conditions, trade liberalization in the host country might cause a complete reversal in the location pattern between unionized and non-unionized firms. Moreover, FDI induced by trade liberalization might hurt the domestic economy as a whole due to the loss of union rents and rival firms' profits, which provides a rationale for the use of lump-sum production subsidies as a government policy.

Protecting Construction Worker Health and Safety in Ontario, Canada: Identifying a Union Safety Effect.

Do Ontario unionized construction firms have lower workers' compensation claims rates compared with nonunion firms? Building trade and construction trade association lists of union contractors were linked to Workplace Safety and Insurance Board claims data for 2006 to 2012. Data were pooled for 2006 to 2012, and negative binomial regressions conducted with adjustment to estimate a union safety effect. The sample included 5797 unionized and 38,626 nonunion construction firms. Total claims rates were 13% higher (1.13, 1.09 to 1.18) in unionized firms because of higher allowed no-lost-time claim rates (1.28, 1.23 to 1.34), whereas the lost-time claims rate was 14% lower (0.86, 0.82 to 0.91). Unionized construction firms compared with nonunion firms have higher no-lost-time and lower lost-time claims rates. Unionized firms may encourage occupational injury reporting and reduce risks through training and hazard identification and control strategies.

Formal, Justice-Oriented Voice in the Nonunion Firm: Who Speaks Up and When?

Employee willingness to exercise workplace voice has been the subject of much recent research. However, very different types of voice are observed within the workplace, with some forms of voice receiving limited scholarly attention. In particular, limited attention has been given to the determinants of formal, justice-oriented voice within a nonunion context. Using a policy-capturing design, we examine factors that affect decisions to use formal, justice-oriented voice among 498 nonunion employees who had access to the same appeal procedure. The results suggest that this type of voice is affected by perceptions regarding immunity from negative managerial reactions to voice and also by factors associated with the utility of voice (e.g., the social power of those involved in the appeal and the evidence available to support the appeal). The results further suggest that perceived immunity moderates the impact of the social power of those involved in the appeal and the evidence available.