Unions and Innovation: A Survey of the Theory and Empirical Evidence

Abstract

Unions and Innovation: A Survey of the Theory and Empirical Evidence* This Paper surveys the economic literature on the impact of trade unions on innovation. There are many theoretical routes through which unions may have an effect on innovation, for example through their effects on relative factor prices, profitability and their attitudes towards the introduction of new technology. Recent theoretical work has focused on the possibility that trade unions will 'hold up' firms by expropriating sunk R&D (research and development) investments through demanding higher rewards. The hold up problem may be mitigated (or exacerbated) by strategic incentives to compete in R&D races. In an attempt to resolve the theoretical ambiguity we focus on surveying recent micro-econometric results in the areas of R&D, innovation, technological diffusion and productivity growth. North American results find consistently strong and negative impacts of unions on R&D. By contrast, European studies (mainly in the UK) generally do not uncover negative effects of unions on R&D. There is no consensus of the effects of unions on our other main measures: technological diffusion, innovation or productivity growth even in the North American studies. These cross-country differences in the R&D impact of unions could represent either unsolved econometric problems or genuine institutional differences between nations in union attitudes and ability to bargain. We suspect the latter is the main reason.JEL Classification: J51, O31 and O32

What Do Unions Do for Economic Performance?

“…Whereas the union 30 tax model applies well to the U.S., the authors speculate that British unions have fewer deleterious effects on R&D than do American unions owing to more explicit bargaining over employment levels and a preference for longer contracts. A recent survey by Menezes-Filho and Van Reenen (2003) reaffirms this conclusionin the U.S. labor unions appear to substantially decrease R&D investment, but this same effect is not evident in Britain. The R&D evidence is consistent with labor market evidence finding far smaller union wage effects in Britain than in the U.S. (Blanchflower and Bryson, 2003).…”

Union effects on performance and employment relations: Evidence from China

“…Subsequent studies report mixed findings about union effect on productivity. For good surveys, see Becker and Olson (1987), Addison and Hirsch (1989), Belman (1992), Freeman (1992), Booth (1995), Kuhn (1998), Hirsch (1997), Aidt and Tzannatos (2002), Doucouliagos and Laroche (2003), Metcalf (2003), Menezes-Filho and Van Reenen (2003) and Bennett and Kaufman (2007), among others. 5 In general, when productivity improves, profitability may increase with it, remain unchanged or even go down.…”

Unions and investment in intangible capital

“…For the US, the first generation of studies finds significant negative effects of unions on R&D intensity, whether at the firm or the industry level [8]. One important result is that unions reduce R&D directly by reducing firm profitability and indirectly by inhibiting investment.…”

“…For example, labor contracts are longer in Japan than they are in Anglo-Saxon countries. However, commitments are difficult to maintain in an environment with considerable uncertainty and information asymmetries between unions and firms [8].…”

“…The negative effect of unions in this case is usually interpreted in terms of the hold-up problem, such that firms do not invest before wage negotiations take place. In the US studies, the size of the negative effect of unions on R&D is often very large [8].…”