Unionization and Profitability: Evidence from the Capital Market

Ruback, Richard S.; Zimmerman, Martin B.

doi:10.1086/261278

Cited by 191 publications

(136 citation statements)

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“…7 Again, the difficulty in interpretation arises from the substantial negative abnormal returns that emerge well before the unionization event; specifically, a decline in market value of about 7 percent between the 12th and 7th months preceding unionization. While Ruback and Zimmerman (1984) have no explanation for this significant decline, they argue that it is unlikely to indicate anticipation of the outcome of the election due to its timing. 8 This pattern raises the question of whether the post-election decline in the stock market valuation reflects unionization or the factors which led to the pre-election trend in the first place.…”

Section: Existing Literature and Backgroundmentioning

confidence: 93%

“…Essentially, the main problem is that the data they examine are not rich enough to rigorously test their "difference-in-difference" specification with the pre-event data, and as a result more caution is required in interpreting the post-event patterns. 5 5 Another study in the spirit of a "before-after" design is that of Freeman and Kleiner (1990), in which 203 establishments 5 A similar issue arises in the well-known study of Ruback and Zimmerman (1984), which, like our analysis, examines the stock market reaction to NLRB union certification events. 6 There, the main estimates of a 3.8 percent drop in stock market valuation is computed within a few months surrounding the unionization event.…”

Section: Existing Literature and Backgroundmentioning

confidence: 98%

“…Finally, there are three particular studies that we consider to be most closely related to our analysis: Lalonde et al (1996), Ruback and Zimmerman (1984), and DiNardo and Lee (2004). We believe our analysis addresses some of the most important limitations of each of these studies.…”

Section: Existing Literature and Backgroundmentioning

confidence: 99%

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Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961–1999 *

Lee

Mas

2012

The Quarterly Journal of Economics

264

206

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We estimate the effect of new unionization on firms' equity value over the 1961-1999 period using a newly assembled sample of National Labor Relations Board (NLRB) representation elections matched to stock market data. Event-study estimates show an average union effect on the equity value of the firm equivalent to a cost of at least $40,500 per unionized worker. At the same time, point estimates from a regression-discontinuity design -comparing the stock market impact of close union election wins to close losses -are considerably smaller and close to zero. We find a negative relationship between the cumulative abnormal returns and the vote share in support of the union, allowing us to reconcile these seemingly contradictory findings. Using the magnitudes from the analysis, we calibrate a structural "median voter" model of endogenous union determination in order to conduct counterfactual policy simulations of policies that would marginally increase the ease of unionization. 1 We thank Jonathan Berk, David Card, John DiNardo, Lawrence Katz, Morris Kleiner, Robert Moffitt, Jesse Rothstein, Eric Verhoogen, Hans-Joachim Voth, and numerous seminar participants for helpful suggestions. Emily Buchsbaum, Mariana Carrera, Elizabeth Debraggio, Briallen Hopper, Sanny Liao, Xiaotong Niu, Zhuan Pei, Andrew Shelton, and Fanyin Zheng provided outstanding research assistance. We gratefully acknowlege research support from the Center for Economic Policy Studies at Princeton University.

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Section: Existing Literature and Backgroundmentioning

confidence: 93%

Section: Existing Literature and Backgroundmentioning

confidence: 98%

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Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961–1999 *

Lee

Mas

2012

The Quarterly Journal of Economics

264

206

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“…The aggregate data likewise indicated substantially lower profits 6 associated with unionism, but with a wider range of estimates. The authors also cite Ruback and Zimmerman's (1984) subsequently published study showing that stock values fall as a result of successful union organizing drives. Despite the paucity of data on profitability, they conclude that unions lower profits.…”

mentioning

confidence: 98%

“…Firm-level analyses of publicly traded firms (Salinger, 1984;Hirsch, 1991aHirsch, , 1991b) use market-value measures of profitability, a common measure being Tobin's q, defined as a firm's market value divided by the replacement cost of assets. Finally, "events" studies in which changes in market value attributable to votes for union representation or to unanticipated changes in collective bargaining agreements have been examined (Ruback and Zimmerman, 1984;Bronars and Deere, 1990;Abowd, 1989;Olson and Becker, 1990;Becker and Olson, 1992).…”

mentioning

confidence: 99%

What Do Unions Do for Economic Performance?

Hirsch

2017

What Do Unions Do?

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics. Terms of use: Documents inIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. This essay assesses their analysis of how unions in the U.S. private sector affect economic performance -productivity, profitability, investment, and growth. Freeman and Medoff are clearly correct that union productivity effects vary substantially across workplaces. Their conclusion that union effects are on average positive and substantial cannot be sustained, subsequent evidence suggesting an average union productivity effect near zero. Their speculation that productivity effects are larger in more competitive environments appears to hold up, although more evidence is needed. Subsequent literature continues to find unions associated with lower profitability, as noted by Freeman and Medoff. Unions are found to tax returns stemming from market power, but industry concentration is not the source of such returns. Rather, unions capture firm quasi-rents arising from long-lived tangible and intangible capital and from firm-specific advantages. Lower profits and the union tax on asset returns leads to reduced investment and, subsequently, lower employment and productivity growth. There is little evidence that unionization leads to higher rates of business failure...

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Right‐to‐Work Laws: New Evidence from the Stock Market

Abraham

Voos

2000

Southern Economic Journal

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This article is an empirical examination of whether or not stockholder wealth rises in response to passage of a right‐to‐work law—a state law banning union security clauses from collective bargaining agreements. Stockholder wealth rose when Louisiana passed such a law in 1976 and when Idaho did so in 1985‐1986. Presumably this occurred because investors anticipated higher future profits with weaker labor unions or a lower probability of future organization. This is new evidence that such laws are more than symbolic: They hamper labor unions.

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Unionization and Profitability: Evidence from the Capital Market

Cited by 191 publications

References 9 publications

Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961–1999 *

Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961–1999 *

What Do Unions Do for Economic Performance?

Right‐to‐Work Laws: New Evidence from the Stock Market

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