Providing Protection or Misaligning Incentives? The Effects of Labor Unions on Innovation
Daniel J. Bradley
University of South Florida
University of New Orleans
Indiana University - Kelley School of Business
October 28, 2013
We examine the causal effect of unionization on firm innovation. To establish causality, we use a regression discontinuity design relying on “locally” exogenous variation generated by elections that pass or fail by a small margin of votes. Passing a union election leads to an 8.7% (12.5%) decline in patent quantity (quality) three years after the election. The negative effects of unionization on innovation are more pronounced in states without right-to-work legislation and in financially unconstrained industries where unions have more ability to expropriate rents. A reduction in R&D expenditures, reduced productivity of current and newly hired inventors, and departures of innovative inventors appear plausible mechanisms through which unionization impedes firm innovation.
Number of Pages in PDF File: 45
Keywords: Innovation; labor unions; hold-up; shirking; inventor departures
JEL Classification: G31, O31, O32, J51working papers series
Date posted: March 13, 2013 ; Last revised: October 30, 2013
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