The Power of the People: Labor Unions and Corporate Social Responsibility

Abstract

Recent legislation stipulates that corporations may become more stakeholder-focused if employees are given more power. We examine the impact of employee labor unions on external stakeholders by examining unionization’s effect on environmental and social (E&S) scores. We find that unionization is associated with a decrease in E&S scores, and these reductions are driven by categories that primarily benefit non-union member stakeholders. However, unionization leads to an increase in categories which directly benefit their members, such as better working conditions. Our results are magnified when labor unions have more bargaining power and firms have greater levels of financial constraints. Within a close union election setting, we find that unionization leads to decreases in environmental scores by 19.8% and social scores by 21.3%. We highlight stakeholders’ heterogeneity and value-maximizing nature and suggest that policymakers consider implications for all stakeholders before implementing policies that prioritize the corporate influence of one stakeholder group.

Keywords: labor union, elections, corporate social responsibility

JEL Classification: J51, D73, M14