Monday, May 13, 2013

13/5/2013: Unionisation and Innovation: Firm-level Data

A very interesting paper on the effects of unionisation of the workforce on firm-level innovation (italics are mine).

The authors find that "patent counts and citations, proxies for firms’ innovativeness, decline significantly after firms elect to unionize and increase significantly for firms that vote to deunionize. To establish causality, we use a regression discontinuity design relying on “locally” exogenous variation in unionization generated by union elections that pass or fail by a small margin of votes. The market reaction to firms that elect to unionize is negatively related to firms’ past innovation output [So if a firm had above average innovation output before the unionization, market reacts to bid down the firm value post-unionization in anticipation of the adverse impact]. Our evidence suggests unionization stifles innovation."

Slightly more specifically: "For instance, innovation quantity (quality) of firms that pass union elections within a margin of 2 percentage points is 42.8% (40.4%) lower than that of firms that do not pass union elections within a margin of 2 percentage points three years subsequent to union elections. We also estimate RDD on a sample of private firms over the same period. Consistent with our results for public
firms, we find that private firms’ innovativeness is negatively related to unionization."

Interestingly: "we attempt to identify possible underlying economic channels through which unionization impedes firm innovation. Inconsistent with the conventional view, we find little evidence that investment in R&D changes as a result of unionization. Our results suggest that the channel through which unionization impedes innovation is not an underinvestment in innovation input (i.e., R&D), but rather a decline in innovation productivity."

The whole paper is available here: Bradley, Daniel J., Kim, Incheol and Tian, Xuan, Providing Protection or Encouraging Holdup? The Effects of Labor Unions on Innovation (May 10, 2013).

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