Firm Investment Behavior and Collective Bargaining Strategy

This paper utilizes survey data on labor union coverage at the firm level to examine union-nonunion differences in investment activity among 706 U.S. companies during the 1970s. Consistent with a model of union rent seeking, firm-level collective bargaining is associated with significantly lower physical capital and R&D investment, even following extensive control for firm and industry characteristics. Deleterious union effects on investment are sizable throughout the 1972-1980 period, but vary considerably across industries. In the absence of significant changes in collective bargaining power or strategies, diminished investment activity by unionized companies is likely to exacerbate the already considerable decline in U.S. union coverage. Prepared for “The Future Roles of Unions, Industry and Government in Industrial Relations,” Humphrey Institute of Public Affairs, University of Minnesota, April 27, 1990. Financial support from the W.E. Upjohn Institute for Employment Research is gratefully acknowledged. Elizabeth Gregory provided assistance with the union coverage survey. Helpful comments were received on an earlier version of the paper from seminar participants at Harvard University, the University of North Carolina, and the University of South Carolina.